Advance against fixed deposits
Nature of fixed deposits at the hands of banks
When banks mobilize fixed deposits from their customers, in effect, banks borrow money from them. The relationship between the bank and the depositor is, therefore, that of a debtor and a creditor. By accepting the deposit, the bank agrees to repay the loan due to the depositor on the due date i.e. on its maturity. It is very important to note that the legal relationship between the banker and the depositor is not that of a trustee and a beneficiary.
The Indian Trusts Act defines a ‘Trust’ as an obligation annexed to the ownership of the property, and arising out of a confidence reposed by the owner i.e. ‘author of the trust’ for the benefit of somebody called the ‘beneficiary’. If the legal position of the bank is that of a trustee (as an acceptor of the deposit), the very legal validity of the practice of providing credit against fixed deposit by banks may become doubtful. This is because, no trustee can use the trust property for his own benefit, and in case of an advance against fixed deposit, banks need to exercise the right of appropriating the proceeds of the fixed deposit, in case the loan remains unpaid. A bank plays the role of a trustee when it takes the responsibility of collecting the proceeds and remitting the same to the rightful beneficiary. The role of trustee does not come to play when the bank uses the money on maturity to the depositor.
Nature of fixed deposits at the hands of banks
When banks mobilize fixed deposits from their customers, in effect, banks borrow money from them. The relationship between the bank and the depositor is, therefore, that of a debtor and a creditor. By accepting the deposit, the bank agrees to repay the loan due to the depositor on the due date i.e. on its maturity. It is very important to note that the legal relationship between the banker and the depositor is not that of a trustee and a beneficiary.
The Indian Trusts Act defines a ‘Trust’ as an obligation annexed to the ownership of the property, and arising out of a confidence reposed by the owner i.e. ‘author of the trust’ for the benefit of somebody called the ‘beneficiary’. If the legal position of the bank is that of a trustee (as an acceptor of the deposit), the very legal validity of the practice of providing credit against fixed deposit by banks may become doubtful. This is because, no trustee can use the trust property for his own benefit, and in case of an advance against fixed deposit, banks need to exercise the right of appropriating the proceeds of the fixed deposit, in case the loan remains unpaid. A bank plays the role of a trustee when it takes the responsibility of collecting the proceeds and remitting the same to the rightful beneficiary. The role of trustee does not come to play when the bank uses the money on maturity to the depositor.
To APPLY FOR ADVANCE AGAINST FIXED DEPOSIT
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