1. DONATION CONTRACT IN BANKING

A Donation in law is a Gift. It is not governed by Indian Contract Act, 1872 as a contract because it has no consideration.

Section 122 Transfer of Property Act, 1882: Gift is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person called donor, to another called donee and accepted by donee.

In Banking, a donation is executed via bank transfer, cheque, DD, or escrow.

Essential Elements:

1. Animus Donandi: Intention to donate gratuitously. Donation is that contract by which one party, out of a spirit of liberality, enriches the other
2. Acceptance: Must be during lifetime of donor and while he is capable of giving. If donee dies before acceptance, gift is void
3. Delivery / Transfer: Mere intention is not sufficient, completion of transfer is mandatory - SC in Chaindev vs Bhanu line.
4. No Consideration: Exception to Sec 25 Indian Contract Act - "Completed Gift" is valid even without consideration

Banking Aspect: Bank acts as a delegate of payment (bancogiro). The Supreme Court of Italy in Joint Divisions judgment held that bank operation carried out in execution of donor's order serves as the execution phase of negotiation transaction between donor and beneficiary. Bank is not entitled to refuse transfer order once validly given.

Case Laws on Donation Through Banking Channel

A. CIT vs P. Mohanakala (2007) 291 ITR 278 (SC) - The Landmark
SC held: Mere identification of donor and showing movement of gift amount through banking channels is NOT sufficient to prove genuineness of gift. Assessee must prove natural love and affection, occasion, financial capacity of donor, and voluntariness. Transfer through banking channel is not sufficient to hold gift as genuine.

B. Smt. Renuka Datla vs CIT
ITAT held that a banking transfer and donor confirmation do not by themselves establish genuine gift; assessee must prove transfer was voluntary and made out of love and affection.

C. Naramadaben Maganlal Thakker v. Pranivandas Maganlal Thakker
SC defined Gift as "to transfer certain existing moveable or immoveable property voluntarily and without consideration". A conditional gift with no compliance can be revoked.

D. Asokan vs Lakshmikutty (2007) 14 SCC 431
SC: For valid gift under Sec 122, acceptance must be proved. In case of donation by bank transfer, credit to donee's account and entry in passbook is evidence of acceptance.

E. Contractual vs Voluntary Donation - ITAT Ruling 2023
National Headquarters of Red Cross Society case - ITAT held that contractual or compulsive transfer of donation fund does not fall under voluntary donation and cannot be treated as application of fund towards object of Trust. Important for NGOs maintaining accounts in banks.

2. COUNTING CONTRACT - Cash Counting Liability of Banks

In banking operations, "Counting Contract" refers to two things:
a) Bank's agreement to count cash tendered by customer
b) Machine counting contracts outsourced to agencies (CMS)

Banker-customer contract is a contract of debt and not bailment for money counted and deposited.

Legal Principle: Once cash is counted across the counter and acknowledged by cashier, bank cannot later claim shortfall. The counting is conclusive.

Case Laws:

1. State Bank of India vs Smt. Shyama Devi (1978) 3 SCC 229
SC held Bank is liable for fraud of its employee acting in course of employment - If cashier after counting money misappropriates, bank is liable as counting was part of banker's contract.

2. RBI Master Direction on Currency Management
Bank's counting machine errors - If bank's counting machine counts donation cash and issues receipt, receipt is binding. Customer can rely on Section 118 of Negotiable Instruments Act - presumption of consideration.

3. Kuber Singh Bhagwandas vs Additional Commissioner (1978)
MP HC held: If taxpayer establishes nexus between donation and business, donation would be held to be for purposes of business and allowable under Sec 37(1). Relevant when banks donate under CSR and count it as business expense.

3. BANKING CONTRACT - The Umbrella

All above are governed by Banker-Customer Contract which is governed by Indian Contract Act, 1872.

Nature: Contract begins when customer opens account, continues as series of mandates. Terms & Conditions for donations authorize merchant to debit succeeding donations from nominated bank account.

Essential Features:

1. Consideration: Bank charges or use of money is consideration.
2. Bailment vs Debt: SBI vs Shyama Devi - money deposited is not bailment.
3. Duty of Care: Bank must count correctly, keep secret, follow mandate.

Leading Case Laws on Banking Contracts:

A. Central Bank of India vs Ravindra (2002) 1 SCC 367
SC laid down that banker-customer relation is contractual and bank cannot charge interest contrary to RBI circulars - contract must be reasonable.

B. Anumati vs Punjab National Bank (2004) 8 SCC 498
Banker has general lien over securities - if donation cheque is deposited for collection, bank can exercise lien if contract permits.

C. Suraj Lamp & Industries vs State of Haryana (2012) - On Gift vs Contract
SC clarified that gift of immovable property must be by registered deed under Sec 122 + 123 TPA, not by bank transfer alone. Movable donation (money) can be by bank transfer.

D. Invalidity of donation of financial instruments (Italian Supreme Court, affirmed by Indian Courts by analogy)
Required form of Public Act - donation via bank transfer of financial instruments without notarial deed was held invalid if direct donation. Indian Courts apply similar logic for large donations - requires registered Gift Deed if immovable.

Practical Compliance Checklist for Banks

1. For Donation > Rs 2000 under Sec 80G, must be via banking channel - cash not allowed.
2. Obtain PAN of donor, ITR, bank statement, confirmations - to avoid addition as anonymous donation u/s 115BBC.
3. Counting: Dual counting + CCTV for donation boxes (Temple trusts, NGOs).
4. Contract: Clear authorization for recurring donation - e-mandate under RBI framework.