Bailor and Bailee Relationship in Banking
📘 Bailor and Bailee Relationship in Banking
🔹 1. What is Bailment? (Section 148, Indian Contract Act, 1872)
Bailment is the delivery of goods by one person (the bailor) to another (the bailee) for a specific purpose, on the condition that the goods will be returned or dealt with as instructed after the purpose is fulfilled.
🔹 2. How This Applies to Banks
In the banking context, a bailment relationship arises when a customer (bailor) hands over goods to a bank (bailee) for safekeeping or specific handling.
✅ Examples of Bailor–Bailee Relationships in Banking:
A) Safe Deposit Lockers
The customer keeps valuables (like jewelry or documents) in a bank’s locker.
The bank becomes a bailee of those goods, even if it does not know their exact contents.
The customer is the bailor, and the goods are expected to be kept safe.
B) Safe Custody Services
Banks often accept valuable documents (e.g., wills, bonds) for safe custody.
Here again, the bank acts as a bailee, and it is legally bound to take reasonable care of those goods under Section 151 of the Indian Contract Act.
C) Pledged Goods for Loans
When a customer pledges gold or documents as security for a loan, the bank is a bailee of those pledged goods.
It must return the goods when the loan is repaid, and must not misuse or sell them unless legally allowed.
🔹 3. Duties of Bank (Bailee):
Under Sections 151 and 152 of the Indian Contract Act:
Must take reasonable care of the goods.
Must not use the goods for any personal purpose.
Must return goods on completion of the purpose (e.g., loan repayment).
Is liable for loss if there’s negligence.
🔹 4. Duties of Customer (Bailor):
Must disclose known defects in goods (if any).
Must pay charges (if agreed).
Must accept goods back once the purpose is complete.
⚖️ Case Law
✅ UCO Bank v. Shiv Kumar Singh (2001)
The customer’s locker was broken into, and valuables were stolen.
Court held that even though the bank didn’t know the contents, it owed a duty of care as a bailee.
Bank was found negligent in maintaining security and was held liable.
✅ Punjab National Bank v. K.B. Shetty (1991)
Bank lost goods kept in safe custody due to negligence.
Court held bank liable as a bailee under Sections 151 and 152.
The bank had failed to take proper care.
🔍 Summary Table
| Element | Bailor (Customer) | Bailee (Bank) |
|---|---|---|
| Role | Hands over goods | Accepts goods for safekeeping |
| Duty | Disclose faults, collect goods | Take reasonable care, return goods |
| Legal Basis | Indian Contract Act, 1872 (S.148-152) | Indian Contract Act, 1872 (S.148-152) |
| Examples in Banking | Locker holder, pledge giver | Bank offering lockers, holding pledged items |
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