The Supreme Court of India’s directions on hiring safe deposit lockers- its implementation- new locker agreement/s-stamping- important aspects the locker customers of banks need to know.

Note to the readers:

To reduce the size of the core document and to retain the continuity I have placed important legal concepts, and excerpts from SC’s case based on which the new locker agreements have come into existence, concepts in annexures 1,2 3 and 4. Readers curious and desirous to have insight may please peruse it.

Background:

Keeping gold, jewellery and important documents in bank lockers is an age-old practice in India.

After some high-profile theft/robbery cases in recent times responsibility for contents stolen from lockers has come up.

A group of burglars/robbers, dug a 125 feet long tunnel at the PNB Sonepat branch and decamped with valuables from more than 75 lockers. In the Central Bank of India branch in UP over 40 lockers were completely emptied. In all such cases, the bank has refused to accept any responsibility for valuables lost from the locker. The bank takes responsibility in the event of a deficiency in service only.

For the last two months locker customers of the bank must be experiencing a lot of communications from banks to execute locker agreements. Despite extending the date 100% new agreements execution may not happen. There is a likelihood of extending the date for execution at least once. Banks have moved from the age-old concept of leasing the locker to licensing the locker. Several associated issues are coming up which the locker hirer must know.

The write-up covers major current issues relating to the hiring of Safe Deposit Lockers (SDL).

In the case Amitabha Dasgupta vs United Bank of India’, (Supreme Court of India (SC) Judgment dated February 19, 2021, in CA No. 3966 of 2010 SC of India made a couple of observations and issued directions to RBI on the subject of ‘handling of safe deposit locker business’. We will discuss below the matters that followed after that till now.

From the below-mentioned one many notice there were many areas of confusion:

The number of model locker agreements floating around:

i. Some banks are getting only supplementary agreements executed.

ii. Some banks who have taken the earlier form of IBA’s model agreement (9 pages) are taking an additional/supplementary agreement designed by IBA (4 pages).

iii. Some banks/branches are comfortable with the initial format designed by IBA (9 pages) and have not taken supplementary agreements.

iv. Some banks are taking in IBA’s new format of model agreement for lockers (7 pages)

v. Some private banks are taking agreement in IBA’s new format (7 pages) of model agreement with their additional clauses incorporated.

Ultimately SC’s observation, in the above case (which formed the basis for the new locker agreement) which reads:

“Each bank is following its own set of procedures and there is no uniformity in the rules” has gone for a toss.

Filling the agreements:

Many banks are seen not filling the open/blank portion of the agreement. Currently focus is on signing locker agreements and declaring more and more completed cases before the deadline of 31st Dec,2023.

Who will bear stamp cost/duty:

RBI has directed that Banks will bear the cost of stamp papers while executing supplementary agreements. Many are asking customers to bring stamp paper of value advised by their local HO or controlling office or of a higher value than that.

a) New lockers hired:

Customers are asked to bear the cost of stamp papers

b) Existing/already-hired lockers:

Some banks are bearing stamp duty for supplementary agreements (IBA draft) some are bearing for the new (revised) as well as supplementary agreement taken (wherever applicable).

Executed agreement’s copy:

RBI advised banks to keep the original agreement with the bank’s branch where the locker is situated and pass on the second set duly signed by both parties to the client. What are banks doing? (Probably everybody has guessed about it rightly)

Amount of stamp duty:

Here, the legal departments of each bank (head office/local/regional) demonstrated enormous confusion.

No bank seems to have gone for the document’s adjudication for stamp [Sec 31 of the Indian Stamp Act,1899] with the inspector general of stamp/registration (IGR/IGS) to ascertain the right amount of duty payable on the standard locker agreement/ document bank has been obtaining, so that whole confusion in the respective state could have been put to the rest.

In the process, there had been utter confusion concerning the stamp duty payable. There was no debate on the contents of the agreement to be signed, the nature of the contract, important clauses and confusion around the execution of the old model agreement + supplementary agreement or single new model agreement etc.

Stamp vendors engaged in selling the Non-Judicial (NJ) Stamp Papers to be used for this agreement/s had added fuel to the confusion. In order or get more commission revenue (% age of stamp value) vendors have jumped into foray and started dictating that for locker agreement NJ stamp of Rs. 500 is a must and stopped selling stamps of Rs.100 for this purpose.

Instead of adjudicating documents for stamp and putting all debate to rest banks started bulk buying of NJ stamp paper. While issuing the Stamp paper stamp vendors started writing as issued for (under column purpose) Loan or affidavit, to overcome their perceived amount of stamp duty and also to meet a bulk stamp paper requirement of their needy bank client they chose this route.

However, it was seen that such non-judicial (NJ) stamp papers purchased are/were used for locker agreements/supplementary agreements or both. That is creating another round of confusion as to the validity/enforceability of the agreement executed on this paper in this manner.

Bank of Maharashtra was asking for Rs120/- stamp paper. Private banks like HDFC Bank and PSU SBI were seen asking for a stamp paper of Rs600. Some banks are asking for Rs. 500 stamp paper.

Bank of India (BoI) and a few other PSU banks are asking for Rs.300 stamp paper through three stamp papers of 100 each [one for the main agreement, one for supplementary agreement and one towards registration of leave and license agreement]. Do not know where such agreements are going to be registered.

The majority of banks are asking locker hirers to procure and submit Rs 500 paper and execute agreements on it and submit,  A very few say a Rs 100 stamp paper is fine. It is an undue burden on the clients in the majority of cases.

In some PSU banks, the cost of stamp paper for a new licence agreement is borne by the bank concerned. A complete confusion.

Points to note:

Banks will bear the cost of stamp papers while executing supplementary agreements. Many are asking customers to bring stamp paper.

No bank is providing clients with an unstamped but jointly executed set of agreement/s to locker hirers, for their records, as directed by RBI.

Is stamp paper required for the bank locker agreement? The answer is yes. Banks have been adopting the IBA model format (called standard agreement)

In Maharashtra stamp duty for locker agreement as per Art 5(h)  (B), if not otherwise provided for, is Rs.100.

Explanation – No duty shall be chargeable on agreements or records covered under sub-clauses (b) and (c) of this article if proper duty is paid under Article 51A.

I repeat had the locker agreement been sent for adjudication (as there is no system of advanced ruling like the one that exists in GST, Income Tax or Custom segment) many things could have been sorted.

A simple step of adjudication for the stamp by any bank operating in the state could have resolved the issue, beyond doubt (for each such agreement executed within that state). More details on adjudication for stamp duty can be perused under Annexure 4.

Model agreement designed by IBA is based on a concept of ‘licence’ which is a species of of transfer of immovable property under the Easements Act, 1882, which is a major deviation from banks hitherto treating the hiring of the locker (not being bailment) a contract of leasing (lessor and lessee relationship). Though lessor and lessee are in vogue, globally, for leasing immovable assets (like ships, aircraft etc) in India it explicitly applies to the immovable property again species of transfer of immovable property under the Transfer of Property Act,1882.

The difference between a lease (lessor/lessee relationship) and a Licence (licensor and licensee relationship) can be perused in Annexure 1.

It is worth noting that in the last 2 years, no public debate has taken place on the legal aspects and why IBA chose to document model agreement as licensor and licensee from the age-old practice of lessor/lessee (it gives an advantage to banks over the earlier one)

Banks (both members of IBA or not) also without framing proper locker’s board-approved policy quickly chose to adopt IBA’s format of the model lease agreement, supplementary agreement and new model lease agreement after figuring IBA model document’s name in RBI’s circular of Jan,2023.

Another question is why RBI which was directed by the honourable Supreme Court of India to frame suitable rules and regulations suggested banks adopt a model locker agreement designed by the Indian Bank’s Association (IBA) or recognized/endorsed IBA’s document. One may note that RBI treats IBA to be a Self-Regulatory Organisation (SRO) while IBA has many times clearly stated that it is not an SRO.

It is worth reading relevant observations of the honourable Supreme Court of India (Annexure-2)

RBI has remained silent and passed on the buck to the banks and its board to comply with SC’s directions and incorporate excerpts/clauses from SC’s order and its observations in the case. Relevant reference *RBI/2021-2022/86 DOR.LEG.REC /40/09.07.005/ 2021-22  August 18, 2021 can be perused in Annexure-3.

RBI issued two circulars after the Supreme Court’s direction*

Supreme Court in the case of Amitabha Dasgupta vs United Bank of India’, (Judgment dated February 19, 2021, in CA No. 3966 of 2010  made the following observation*:

It appears to us that the present state of regulations on the subject of locker management is inadequate and muddled. Each bank is following its own set of procedures and there is no uniformity in the rules. Further, going by their stand before the consumer fora, it seems that the banks are under the mistaken impression that not knowing the contents of the locker exempts them from liability for failing to secure the lockers themselves as well.

As much as we are the highest Court in the country, we cannot allow the litigation between the bank and locker holders to continue in this vein. This will lead to a state of anarchy wherein the banks will routinely commit lapses in proper management of the lockers, leaving it to the hapless customers to bear the costs. Hence, we find it imperative that this Court lays down certain principles which will ensure that the banks follow due diligence in operating their locker facilities, until the issuance of comprehensive guidelines in this regard.

RBI lays down comprehensive directions mandating the steps to be taken by banks with respect to locker facility/safe deposit facility management. The banks should not have the liberty to impose unilateral and unfair terms on the consumers.

*Given the same, we direct the RBI to issue suitable rules or regulations as aforesaid within six months from the date of this judgment”.

In the case under reference, the Supreme Court held that clearly, the relationship between the bank and locker holder is like the bailor and bailee, even though the bank was not privy to the contents of the locker. SC also observed that there existed only draft guidelines on lockers issued by RBI DBOD.No.Leg 5049 /09.07.005/2006-07 December 4, 2006,  followed by its reference in a master circular on customer service.

*This judgment is the origin of the new locker agreement through which a new explicit contractual relationship is being established.

What does it mean?

Supreme Court was concerned due to the stand taken by the involved bank (this was also supported by RBI) that it is not a contract of bailment.

To put things at bay/rest it appears that IBA without adequate debate chose to treat and document the relationship as licensor/licensee for taking a different stand from conventional lessor lessee (contract of leasing)  to licensor/licensee relationship (contract of license). However, there seems to be no enquiry from RBI to IBA nor there was any concern seen to have been expressed, in the public domain.

For obvious advantages (as one can notice from the points of difference enumerated in the annexure) IBA changed the nature of the relationship overnight from lessor lessee (contract of leasing)  to licensor/ licensee relationship (contract of license). In my view, the concept of ‘licensor/ licensee relationship’ does not fit the relationship and has no explicit support/backing of laws [Transfer of Property Act,1882 and Indian Easements Act,1882], also due to the unilateral and unfair terms imposed in the agreement/document.

While the subject agreement is to be executed by both bank and client/s views of locker customers, their associations or individual clients were not taken at all.

Every bank started communicating with locker clients about this new agreement in the following manner:

It is being taken to comply with the Supreme Court of India (SC) directions to comply with Rules framed by RBI to comply with SC’s directions. Everyone seemed to have assumed that both the model agreements, now being sought to be executed by millions of locker customers, have a seal of approval of one of them (RBI/SC) or both. Hence, everyone without exception signed on the dotted line.

The residual focus had gone to the stamping of the agreement.

Various serious clauses impacting locker customers’ rights visa-a-vis earlier contractual relationships have drastically changed without their knowledge.

Once the execution of this new relationship agreement (the draft of IBA ) is complete there would not be any use to have a debate on it.

I wish and hope interested industry associations may take up the matter with RBI/Govt to make this an unbiased relationship (not skewed to banks).

It is not clear what happens to white-labelled lockers (locker services rendered by multipurpose/co-op credit societies offering locker service. A couple of them are not regulated by RBI.

I may repeat that the concept [new relationship (cannot say contractual) now created] is not supported by explicit law or long-prevailing practice that could create legally tenable and binding obligations on the parties to the contract.

The purpose of this write-up is to initiate a public debate so that those who had no clear picture of the impact would react to it.

Point to note:

1. Compensation of 100 times annual (!) locker rent is not automatic. The compensation policy for hiring lockers will determine eligibility and quantum (upon the happening of the applicable event pre-agreed).

Insurance:

Clauses of bailment hereafter will no longer be applicable. Customers may have to privately insure the contents of lockers, and cannot keep  cash (as it is explicitly banned and agreed upon under the new agreement/contract of hiring locker)

Customers may ensure that certain rules now made by RBI are implemented by banks:

1. Banks shall send an email and SMS alert to the registered email ID and mobile number of the customer before the end of the day as a positive confirmation intimating the date and time of the locker operation

2. Banks will have a binding obligation to check whether the lockers are promptly closed post each locker operation and if the same is not done locker must be immediately closed and higher shall be promptly informed through email and registered mobile number through SMS.

Locker customers need to ensure that:

The compensation policy for lockers is formally communicated to them indicating the Liability of banks in specified situations

The banks shall put in place a detailed Board approved policy outlining the responsibility owed by them for any loss or damage to the contents of the lockers due to their negligence as banks owe a separate duty of care to exercise due diligence in maintaining and operating their locker or safety deposit systems. The duty of care includes ensuring the proper functioning of the locker system, guarding against unauthorized access to the lockers and providing appropriate safeguards against theft and robbery. Further, banks shall adhere to the Master Directions on Frauds for reporting requirements about the instances of robberies, dacoities, thefts and burglaries.

Customers may also remember that banks are not liable to locker clients for loss arising from natural calamities like earthquakes, floods, thunderstorms, lightning etc. or due to sole negligence of the customer The bank shall not be liable for any damage and/or loss of contents of the locker arising from natural calamities or Acts of God like earthquakes, floods, lightning and thunderstorms or any act that is attributable to the sole fault or negligence of the customer. Banks shall, however, exercise appropriate care to their locker systems to protect their premises from such catastrophes.

Customers may also remember that the liability of banks arising from events like fire, theft, burglary, dacoity, robbery, or building collapse if does not occur in the bank’s premises due to its shortcomings, negligence and any act of omission/commission.

in instances where the loss of contents of the locker is due to incidents mentioned above or attributable to fraud committed by its employee(s the bank liability of banks arising shall be for an amount equivalent to one hundred times the prevailing annual rent of the safe deposit locker.

A couple of other important observations:

Banks locker room process of each bank documents the following:

 There shall be a system of interchange of locks whenever the locker is surrendered by the hirer before it is let to another.

In my banking career of over 3.5 decades, I must humbly submit I have not seen a single case where there is an active system of interchange of locks, in practice and/or ever verified in any of the audits/inspections.

I wonder why explicitly mentioned covenants as obligations of banks in RBI’s two circulars, though classified as rules or directions by RBI do not figure in the IBA’s model license agreement.

One may also assert why the locker compensation policy has not been made part of the locker policy and is a copy of the policy not linked to this agreement.

Why RBI extended the timeline for execution of new lease agreements.

-IBA’s model agreement was unidirectional or was biased towards licensors/banks and it was felt that probably Supreme Court might assert RBI for not overseeing it, as directed, as balanced and removing onerous terms clamped on the locker clients.

-Confusion around the stamp duty and mammoth work of contacting locker hirers residents, and non-residents and getting new agreements or additional supplementary agreements executed.

To give time to IBA to design a comprehensive new agreement (and supplementary agreement to supplement the old agreement executed by the clients who had already executed the old model agreement) and facilitate Bank management to amend the locker policy.

Conclusion:

This new agreement has brought in a new breed/type/class of hitherto legally untested* contractual relationships (untested* in the absence of a well-defined legal relationship). It may not stand in the law court.

Though Supreme Court of India(SC) had observed and directed that banks should not have the liberty to impose unilateral and unfair terms on consumers and issue suitable rules or regulations. One may observe that through the back door (IBA model form of agreement) banks are imposing unfair terms on consumers.

If one looks at the IBA’s revised model agreement one can easily notice that it is lopsided, It covers aspects like bank rights to terminate the licence, breaking open the locker, while shifting a branch, bank’s discharge from obligation and liability, service charges for operations beyond certain limit, customer’s undertakings and obligations, in detail, but it does not state the customers’ rights and bank’s obligations under this agreement except a generic reference in one line* reading as:

“The Customer shall have, subject to terms of this agreement, in case the Bank fails to keep belongings and expect reasonable care, avail of such remedies as may be available from time to time under the applicable law and regulations”.

There is no mention in the model agreement about specifics such as a right to receive an SMS after each operation of the locker upon operation, the bank’s responsibility for verifying the closure of the locker after every operation by the locker customer and the obligations of the bank arising out of it, compensation policy for lockers etc.

From the above one will know that there is no established law applicable to contracts of hiring locker  (SDL). Leave and license as a form of agreement /relationship is not ‘prescribed’ by RBI nor lessor lessee relationship is ‘proscribed/prohibited/forbidden’ by RBI.

If I have missed out on any important aspect I shall be glad to hear from readers. I shall send this communication (write-up) to RBI and Govt for perusal and appropriate action. 

Important points locker customers may bear in mind

A couple of readers have called me and some through email informed me that though the article is very good, informative and legally correct a common man/reader finds it difficult to comprehend the important aspects that can be related while executing the agreement and keep in mind while conducting operations. I have added an executive summary covering this aspect and requested the publisher to append it at the beginning of the write-up.

For the last two months locker customers of the bank must be experiencing communication/s from respective banks to execute locker agreement/supplementary agreement.

In nutshell:

Different types of agreements are floating around with banks for execution by the locker customers:

For those who have not executed an agreement so far: Such customers need to execute a revised new model format designed by IBA (7 pages)

Those who executed a Locker agreement a few quarters ago (in the last year) would need to execute a supplementary agreement designed by IBA and adopted by the bank.

Stamp duty for a new locker hired customers are asked to pay. For existing customers stamp duty is bone by the bank concerned whether it is for a revised new model agreement or supplementary agreement. For supplementary agreement, RBI vide its circular Cir dt:23-01-2023  mentioned that banks may pay the stamp duty.

The agreement needs to be signed by both all the customer/s who hired that locker and the bank’s authorized signatory (authorized to sign such agreements on behalf of the bank) and provide a copy of it i.e. second set (unstamped) to the customer without it being asked.

Customers should see whether a locker compensation clause that binds the bank to pay compensation, in certain situations is included specifically or not.

Customers may remember that the bank is not liable if there is a loss to customers in the event of fire, theft, burglary, decoity or building collapse if such act is not as a result of negligence or omission commission on the part of the bank.

However, the bank is liable if the loss is caused due to the negligence of the bank or fraud by its employees.

The customer should remember that the new relationship created through this agreement is that of the licensor and licensee and does not remain as it hitherto existed (under the old agreements) where the relationship was expressed to be that of the lessor and lessee.

If the bank is asking for payment of stamp cost/duty more than the applicable duty under the relevant section of the Indian Stamp Act customer may seek the article under which the bank is asking such duty to be paid and if it is different lodge a formal complaint.

Customers whenever the new locker is hired seek confirmation whether the bank is following ‘a system of interchange of locks’ whenever the locker is surrendered by the earlier hirer and offered for new hire.

Customers may seek a locker application waitlist number whenever is recorded (on/offline) and the bank does not demand FDs other than equal to 3 years of rent, customers may not consent to other business like an insurance policy from a group company, MF business is not imposed as a condition to provide locker facility applied for etc.

As per RBI’s directions to banks following are the rights of the customer

-To receive an SMS and email communication (wherever email has been provided) from the bank on the respective day of the customer does locker operation.

-To get informed on the day of an instance of the customer leaving the locker open. The bank is obliged to communicate to the customer such an act as per the rules stated by RBI in its circular of 18-08-2021.

– May provide appropriate nomination and seek acknowledgement for it.

Customer/s may note that they have specifically agreed that they will not store any illegal or hazardous substance that may include cash (legal tender of domestic currency or foreign currency) and keep explosives, gun/s & ammunition etc. Such an act may give certain rights to the bank to take the agreed action as documented in a binding contract/agreement.

Customers may note that neither the Supreme Court of India nor the Reserve Bank of India directed to adopt a specific format of an agreement to be signed between the bank and the customer nor it approved any format whether designed by any bank or IBA.

It is only RBI that banks may adopt format-designed IBA. RBI had advised banks that this agreement shall conform to instructions and the directions of the Hon’ble Supreme Court in this regard. Banks shall ensure that any unfair terms or conditions are not incorporated in their locker agreements. Further, the terms of the contract shall not be more onerous than required in the ordinary course of business to safeguard the interests of the bank.

Last but not least the licensor and licensee relationship said to have been set in (upon executing the agreement) is untested in the courts not created under explicit law, and not explicitly directed or approved by the competent authority.

 On the safer side, clients hired lockers may keep a copy of RBI’s circulars (dt: 18-08-2021 and dt:23-01-2023).

Shivaprasad Laxman Chhatre, Pune

Annexure-1

A lease is a specie of transfer of immovable property under the Transfer of Property Act 1882 the concept is applied to immovable.

Section 105 of the Transfer of Property Act:

Lease: A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

A license is also a specie of transfer of immovable property under the Easements Act, 1882

Section 52 of the Easements Act, 1882:

License: Where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license.”

Both concepts are defined and are linked to Immovable property.

Immovable property is a property that cannot be moved from one place to another. It is generally connected/attached to the ground or land on which it sits. Safe Deposit Locker units are not embedded in the earth and are not immovable property.

Examples of immovable property include: 

Lands and buildings, Residential properties, Warehouses, Manufacturing machinery, Factories, Houses, and Fields. Table indicating major points of difference between contract of lease and contract of licence

Lease

Licence 
It is the transfer of an interest  in immovable property 

Section 105 of the Transfer of Property Act,1882

It is a mere permission to do something without any transfer of interest in immovable property.

Section 52 of the Indian Easements Act,1882

The lease is transferable and heritable Licence is neither transferable nor heritable

Concern :*important: upon the death of the licensee one has to go through the new locker hiring’ waiting list process etc)

Comes to an end only following the terms and conditions stipulated in the contract Can be withdrawn at any time at the pleasure of the grantor

Concern: Notwithstanding what has been stated in the agreement it can be terminated by the bank without any breach by the licensor)

Unaffected by the transfer of the property by sale in favour of a third party and it continues Licence Comes to an end immediately if the property is sold to a third party

Concern: Technical risk in times of bank mergers

Lessee has the right to protect the possession in his own right licensee cannot defend his possession in his name as he does not have any propriety right in the property
Does not come to an end either by death of the grantor or the grantee

Comes to an end with the death of either the grantor or the grantee

Concern: Upon the death of the licensee, one has to go through the new locker hiring’ waiting list process etc.

*concern about licensees under the new locker agreement is mentioned just below the column licence

Generally, a lease contemplates the following:

a) a demise or a transfer of a right to enjoy property;

b) for a term or in perpetuity;

Parties in Lease

The parties to the lease are the transferor, who is called the lessor or landlord, and the transferee, who is called the lessee or tenant. Both the parties must be competent to contract. The lessor and the lessee cannot be the same person, they have to be two different persons. A lessor can be an absolute owner of the land or a joint tenant or a lessee himself above all must be competent to contract.

Duration of Lease

When the lease is for a specific period, its period cannot be infinite by mere provisions of renewal every year.

The primary distinction between a lease and a licence is that the lease is a transfer of a right in a specific immovable property, whereas, the licence is a bare permission without any transfer of an interest.

Primary distinctions between Lease and Licence:

1. A lease is a transfer of an interest in a specific immovable property, while a licence is a bare permission

2. A lease creates an interest in favour of the lessee concerning the property, but a licence does not create such an interest.

3. A lease is both transferable and heritable, a sub-tenancy can be created by the tenant and on the death of the tenant, the tenancy can be inherited by his/her legal heir, whereas, the licence is neither transferable nor heritable.

4. A licence comes to an end with the death of either the grantor or the guarantee since it is a personal contract, but a lease does not come to an end on either the death of the grantor or grantee.

5. A licence can be withdrawn at any time at the pleasure of the grantor but the lease can come to an end only following the terms and conditions stipulated in the contract of the tenancy agreement.

6. A lease is unaffected by the transfer of the property by sale in favour of a third party. It continues and the purchaser has to wait till the period for which the tenancy was created is over before he can get possession, whereas, in the case of a licence, if the property is sold to a third party, it comes to an end immediately.

7. A lessee has a right to protect the possession in his own right. Whereas, a licensee cannot defend his possession in his name as he does not have any proprietary right in the property.

8. A lessee in possession of the property is entitled to any improvements or accessions made to the property, while a licensee is not.

The contract of hiring a locker is neither lease nor leave or license in the strict sense. The contract does not come explicitly under any specific defined law.

The Supreme Court did not fully support the bank’s and regulator’s stand that it is different from bailment (hence the claim of a client was denied).

In the absence of an explicit contract defining the rights and liabilities of both parties, it is difficult to decide on a claim and counterclaim hence the Supreme  Court probably felt exclusive agreement which should be based on standard model agreement as directed by the banking regulator should be in place (RBI wants it to be approved by the bank’s board).

Whether a Lease of a Licence

One should not go by the title of the agreement. To ascertain if a document creates a lease or a licence, the substance of the document should be preferred to its form. Where it creates an interest in the property, it is a lease; but, if it only permits another to make use of the property, of which legal possession and control continues with the owner, it is a licence. A licence does not create any estate or interest in the property to which it relates. Thus, whether an instrument operates as a lease or licence is not a matter of words contained in the instrument creating it, but of its substance.

A document, which expresses the intention of both parties or of one party to create a license will nevertheless create tenancy if the rights and obligations enjoyed and imposed satisfy the legal requirements of tenancy.

A lease is much more extensive than that licence, and it confers a great amount of right to the transferee which cannot be extinguished so easily. A person entering into a lease deed cannot invalidate it unilaterally, but in the case of a licence, the transferor would be able to end the licence.

 A license, inter alia, (a) is not assignable; (b) does not entitle the licensee to sue the stranger in his name; (c) it is revocable and (d) it is determined when the grantor makes subsequent assignment.

Moving from the relationship of Lessor and Lessee to Licensor Licensee. 

Hitherto for several decades, when a customer hires a safe deposit locker from the bank, the relation between the bank and the customer was claimed to be of lessor and lessee. The bank had been the lessor (licensor) and the hirer of the safe deposit locker had been the lessee (licensee/tenant).

I wonder why an age-old relationship was redefined overnight by banks at the behest of IBA without any debate or directions from the court/banking regulator asking clients to sign the new relationship before the deadline. 

Annexure-2

A few observations of the honourable Supreme Court of India in the case Amitabha Dasgupta vs United Bank of India’, (Judgment dated February 19, 2021, in CA No. 3966 of 2010  are appended for quick reference. 

 “It appears to us that the present state of regulations on the subject of locker management is inadequate and muddled. Each bank is following its own set of procedures and there is no uniformity in the rules. Further, going by their stand before the consumer fora, it seems that the banks are under the mistaken impression that not knowing the contents of the locker exempts them from liability for failing to secure the lockers themselves as well.

As much as we are the highest Court in the country, we cannot allow the litigation between the bank and locker holders to continue in this vein. This will lead to a state of anarchy wherein the banks will routinely commit lapses in proper management of the lockers, leaving it to the hapless customers to bear the costs. Hence, we find it imperative that this Court lays down certain principles which will ensure that the banks follow due diligence in operating their locker facilities, until the issuance of comprehensive guidelines in this regard.

RBI lays down comprehensive directions mandating the steps to be taken by banks with respect to locker facility/safe deposit facility management. The banks should not have the liberty to impose unilateral and unfair terms on the consumers.

Given the same, we direct the RBI to issue suitable rules or regulations as aforesaid within six months from the date of this judgment”.

Readers may please note:

The banks should not have the liberty to impose unilateral and unfair terms on consumers.

SC directed RBI to lay down comprehensive directions mandating the steps to be taken by banks with respect to locker facility/safe deposit facility management.

 RBI issued two circulars:

1. Safe Deposit Locker/Safe Custody Article Facility provided by the banks – Revised Instructions

{RBI/2021-2022/86 DOR.LEG.REC/40/09.07.005/2021-22  August 18, 2021}

Though it was titled as Safe Deposit Locker/Safe Custody Article Facility provided by the banks – Revised Instructions first time after 17th April 2007.

2. Safe Deposit Locker/Safe Custody Article Facility provided by banks

[RBI/2022-23/168 CO.CEPD.PRS.No.S1233/13-01-018/2022-2023  January 23, 2023]

The second was issued to correct the situation:

It was noticed that

1. The compensation policy/liability of banks for lockers was not included in IBA’s old format locker agreement format,

2. Banks were seen to be not providing a copy of the executed agreement to the customer.

3. Few banks froze operations of lockers for non-execution of the agreement by January 1, 2023, etc

While directing the banks on the above RBI explicitly directed them that the Stamp duty for supplementary agreements be borne by the banks.

Despite all this, I feel the agreement purely focused on covenants that cover the licensor’s/bank’s rights and customer/lessee’s obligation and passing/casual reference to the rights of the licensee and corresponding binding obligations of licensors/banks more specifically mentioned in the body of this writeup.

Annexure 3

If you peruse the circular* carefully RBI has remained silent and passed on the buck to the banks and its board to comply with SC’s directions and incorporated excerpts/clauses from SC’s order and its observations in the case.

*RBI/2021-2022/86 DOR.LEG.REC/40/09.07.005/2021-22  August 18, 2021

“2.1.1 Banks shall have a board-approved agreement for safe deposit lockers. For this purpose, banks may adopt the model locker agreement to be framed by IBA. This agreement shall conform with these revised instructions and the directions of the Hon’ble Supreme Court in this regard.

Banks shall ensure that any unfair terms or conditions are not incorporated in their locker agreements. Further, the terms of the contract shall not be more onerous than required in the ordinary course of business to safeguard the interests of the bank”.

Banks shall renew their locker agreements with existing locker customers by January 1, 2023.

2.1.2 At the time of allotment of the locker to a customer, the bank shall enter into an agreement with the customer to whom the locker facility is provided, on a paper duly stamped.

A copy of the locker agreement in duplicate signed by both parties. The original Agreement shall be retained with the bank’s branch where the locker is situated, copy shall be furnished to the locker hirer to know his/her rights and responsibilities.

Original Agreement shall be retained with the bank’s branch where the locker is situated part is complied but no bank is routinely furnishing jointly signed documents by licensor and licensee (2nd set- copy) to the hirer of the locker.

Annexure-4

Adjudication of the document – locker agreement

Stamp duty is a tax levied on certain legal documents to make them legally enforceable.

Section 31.   Adjudication as to proper stamp.

When any instrument, whether executed or not and whether previously stamped or not, is brought to the Collector, and the person bringing it applies to have the opinion of that office as to the duty (if any) with which it is chargeable and pays 1[a fee of one hundred rupees], the Collector shall determine the duty (if any) with which, in his judgment, the instrument is chargeable.

What is Adjudication of Stamp Duty? 

One aspect of the adjudication process involves the adjudication of stamp duty.

 Issuance of Adjudication Certificate 

Upon successful completion of the adjudication process, an adjudication certificate is normally issued. This certificate serves as proof that the document has undergone adjudication and is legally valid.

The certificate is a crucial document that substantiates the authenticity and compliance of the adjudicated document.

Adjudication of stamp duty involves determining the appropriate amount of stamp duty payable on a particular document. This process ensures that the document is duly stamped as per the prevailing stamp duty laws.

Adjudication of stamp duty is essential to avoid legal complications and ensure the enforceability of the document in question.

Generally, the process takes approximately 30 to 45 days.

Note:

As mentioned above to avoid messy situations and to have uniformity across the state could have got the locker agreement/document adjudicated and avoided undue hardship to bank clients to follow the funny directions of each bank and also dance according to the tunes of stamp vendors

Shivaprasad Laxman Chhatre

Author Bio

Qualification: Post Graduate
Company: BNP Paribas, Kotak Mahindra Bank, ICICI Bank, PSU Banks, Ex- CEO FIMMDA
Location: PUNE, Maharashtra, India
Member Since: 03 Oct 2019 | Total Posts: 24
35 years of supervisory level banking experience which includes the experience as Group Head of Compliance of an MNC Bank, 15 years in senior positions in Banks Integrated Treasuries of ICICI Bank, Kotak Mahindra Bank; Securities Market (in New Private and PSU Banks), and 10 years in Wholesale & View Full Profile

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2 Comments

  1. chhatres says:

    Important points locker customers may bear in mind
    A couple of readers have called me and some through email informed me that though the article is very good, informative and legally correct a common man/reader finds it difficult to comprehend the important aspects that can be related while executing the agreement and keep in mind while conducting operations. I have added an executive summary covering this aspect and requested the publisher to append it at the beginning of the write-up.
    For the last two months locker customers of the bank must be experiencing communication/s from respective banks to execute locker agreement/supplementary agreement.
    In nutshell:
    Different types of agreements are floating around with banks for execution by the locker customers:
    For those who have not executed an agreement so far: Such customers need to execute a revised new model format designed by IBA (7 pages)
    Those who executed a Locker agreement a few quarters ago (in the last year) would need to execute a supplementary agreement designed by IBA and adopted by the bank.
    Stamp duty for a new locker hired customers are asked to pay. For existing customers stamp duty is bone by the bank concerned whether it is for a revised new model agreement or supplementary agreement. For supplementary agreement, RBI vide its circular Cir dt:23-01-2023 mentioned that banks may pay the stamp duty.
    The agreement needs to be signed by both all the customer/s who hired that locker and the bank’s authorized signatory (authorized to sign such agreements on behalf of the bank) and provide a copy of it i.e. second set (unstamped) to the customer without it being asked.
    Customers should see whether a locker compensation clause that binds the bank to pay compensation, in certain situations is included specifically or not.
    Customers may remember that the bank is not liable if there is a loss to customers in the event of fire, theft, burglary, decoity or building collapse if such act is not as a result of negligence or omission commission on the part of the bank.
    However, the bank is liable if the loss is caused due to the negligence of the bank or fraud by its employees.
    The customer should remember that the new relationship created through this agreement is that of the licensor and licensee and does not remain as it hitherto existed (under the old agreements) where the relationship was expressed to be that of the lessor and lessee.
    If the bank is asking for payment of stamp cost/duty more than the applicable duty under the relevant section of the Indian Stamp Act customer may seek the article under which the bank is asking such duty to be paid and if it is different lodge a formal complaint.
    Customers whenever the new locker is hired seek confirmation whether the bank is following ‘a system of interchange of locks’ whenever the locker is surrendered by the earlier hirer and offered for new hire.
    Customers may seek a locker application waitlist number whenever is recorded (on/offline) and the bank does not demand FDs other than equal to 3 years of rent, customers may not consent to other business like an insurance policy from a group company, MF business is not imposed as a condition to provide locker facility applied for etc.
    As per RBI’s directions to banks following are the rights of the customer
    -To receive an SMS and email communication (wherever email has been provided) from the bank on the respective day of the customer does locker operation.
    -To get informed on the day of an instance of the customer leaving the locker open. The bank is obliged to communicate to the customer such an act as per the rules stated by RBI in its circular of 18-08-2021.
    – May provide appropriate nomination and seek acknowledgement for it.
    Customer/s may note that they have specifically agreed that they will not store any illegal or hazardous substance that may include cash (legal tender of domestic currency or foreign currency) and keep explosives, gun/s & ammunition etc. Such an act may give certain rights to the bank to take the agreed action as documented in a binding contract/agreement.
    Customers may note that neither the Supreme Court of India nor the Reserve Bank of India directed to adopt a specific format of an agreement to be signed between the bank and the customer nor it approved any format whether designed by any bank or IBA.
    It is only RBI that banks may adopt format-designed IBA. RBI had advised banks that this agreement shall conform to instructions and the directions of the Hon’ble Supreme Court in this regard. Banks shall ensure that any unfair terms or conditions are not incorporated in their locker agreements. Further, the terms of the contract shall not be more onerous than required in the ordinary course of business to safeguard the interests of the bank.

    Last but not least the licensor and licensee relationship said to have been set in (upon executing the agreement) is untested in the courts not created under explicit law, and not explicitly directed or approved by the competent authority.
    On the safer side, clients hired lockers may keep a copy of RBI’s circulars (dt: 18-08-2021 and dt:23-01-2023).

    Shivapasad Laxman Chhatre
    Pune

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