Bank locker agreement does little to help you, but you have no choice

If you have a bank locker, you may have been receiving SMSes and emails from your bank since last December, asking you to visit your branch and sign a new locker agreement. The initial deadline was December 31, 2022, but it was later extended by a year, to December 31, 2023.

You may have wondered why you suddenly needed to sign a new contract with the bank even though you have held a safe-deposit locker with it for decades together, and the bank has diligently debited the locker rent from your savings account once a year. The bank may have told you perfunctorily that the fresh contract is happening as instructed by the Reserve Bank of India (RBI), and you may have pressed no further.

Not that you have a choice. You just know the RBI has mandated you to sign a new contract and, if you don’t, you simply have to give up your bank locker. However, signing any contract, especially related to your most valuable possessions, is potentially a risky proposition. So, it is important to know what exactly you will be agreeing to in that contract and how it can impact you and your valuables.

While the fact remains that you do not have much choice in the matter, you should at least enter the contract with your eyes wide open.

Contract of lease vs contract of bailment

So, first of all, why has the RBI come up with the new contract rule? It dates back to the case of Amitabha Dasgupta vs United Bank of India, from two years ago, which was related to missing bank locker contents. While deciding the case, the Supreme Court faced the dilemma of deciding whether the relationship between a bank renting out a locker and the hirer (customer) is a contract of lease or bailment.

Also read: RBI decision to limit banks’ liability for safety lockers makes no sense

Bailment involves the delivery of goods from one person to another for a specific purpose. Once the purpose of the contract is fulfilled, the goods must be returned to the person who has delivered the goods or dealt with as directed by the latter.

A lease, on the other hand, is an arrangement between two parties — a lessor and lessee. By this arrangement, the lessor grants the lessee the right to use a property owned or managed by the lessor for a specified period in exchange for a periodic payment of rentals.

Hence, if the locker facility is a bailment, the bank must return the contents. If it’s a lease, the bank does not have any responsibility, as only the place (locker) has been let out.

Not being able to decide whether a locker facility is a contract of lease or bailment, the SC directed the RBI to issue rules regarding the responsibility of banks for any loss or damage to the contents of lockers. The RBI, in turn, came up with new guidelines that describe the extent of the bank’s liability in the case of a loss of locker content.

Extent of bank’s liability

All along, the banks had taken the “lease” stand — that is, they are only letting out the locker space on rent and, since they do not have any way of knowing what has gone into a locker, they cannot be held accountable for missing content.

Also read: Locker insurance can be highly valuable; here’s what you should know

The RBI, in a notification dated August 18, 2021, instructed banks to make sure no unfair terms or conditions were incorporated in their locker agreements. The aim was to ensure that the terms of the contract were not more onerous on the customer than what was needed to safeguard the bank’s own interests.

The RBI also directed banks to come up with a board-approved agreement for lockers. For this, they could adopt the model locker agreement framed by the Indian Banks’ Association (IBA). This agreement was to conform with the directions given by the SC.

Clauses of the new agreement

The new agreement form (contract), which you have been asked to sign, now contains the following clauses:

“The bank shall not be liable for any damage and/or loss of contents of locker arising from natural calamities or Acts of God like earthquake, floods, lightning and thunderstorm or any act that is attributable to the sole fault or negligence of the customer.”

“While the bank will exercise all such normal precautions as it may in its absolute discretion deem fit, it does not accept liability or responsibility for any loss or damage whatever sustained to items deposited with it. In instances where loss of contents of locker are due to incidents of bank’s own shortcomings, negligence and by any act of omission/commission or attributable to fraud committed by its employee(s), the bank’s liability shall be for an amount equivalent to one hundred times the prevailing annual rent of the safe deposit locker.” (As stated in the Bank of Baroda agreement form available online).

What customers must understand

So, this new contract offers some relief, but it’s a small one. The banks were pleading earlier that they were not responsible for the loss of any locker content, whatever be the reason. Now, at least, they will accept responsibility for any fraud committed by their own staff, or if the loss is due to their own shortcomings.

However, the bank’s liability is restricted to just 100 times the annual rent. So, for example, Punjab National Bank’s locker rent starts from ₹1,250, and, if you have hired a locker at this rate, the bank’s liability is restricted to ₹1,25,000. Your actual locker content may have been worth many times that amount.

And that makes the new contract highly dubious and the RBI’s passing of it quite irresponsible in protecting customers’ interests.

The several shortcomings

This contract poses several shortcomings for the customer in the case of any missing content. Some of these are:

• It will be almost impossible to prove the contents of a locker. Barring the person who hires the locker, no one knows what is inside. So, how to prove it to others?
• How to prove that a bank employee indeed committed the fraud?
• Assuming you somehow show proof of the locker’s content, as well as of the involvement of the bank staff in fraud, how can the bank’s liability be restricted to 100 times the locker rent?

So, the clause in the locker agreement to restrict the bank’s liability is highly questionable. It may be challenged in court in the years to come.

Also read: Safe deposit lockers: What banks owe their customers

Section 357 of the Criminal Procedure Code contains provisions for the payment of compensation in the case of fraud. The power of the court to grant such compensation cannot be taken away by an RBI direction. There cannot be any contract contrary to the existing provisions of the CrPC. Section 23 of the Indian Contract Act will make any such agreement void in any case.

Therefore, as a customer, you must understand the implications of signing the new agreement. Since the alternative seems to be giving up your bank locker altogether, you really do not have much of a choice. Make an informed decision.

(The writer is a retired banker. The views expressed here are his own, and do not constitute investment advice.)