Chapter Four
Banker and
Customer
Relationship
Bank and Banker
• Generally the term bank and banker are used
interchangeably. The bank is used to strictly to refer
to the corporate body while the term banker may
mean both the institution and the individuals that
work within the corporation.
• A banker is an intermediate party between the
borrower and the lender. He borrows from one party
and lends to another.
• H.L. HART – the banker is one who receives money,
collects cheques and drafts, for customers, with an
obligation to honour the cheques
drawn by
customers from time to time subject to availability of
amounts in the account.
What is the meaning of Banker?
Section 3 of NI Act 1881, and Section 2 of Bill of
Exchange Act 1882 state that the term banker includes
person or corporation or a company acting as banker.
According to Banking Company Act 1991
(Amended up to 2013) Sec. 5 "banking" means the
accepting, for the purpose of lending or investment,
of deposits of money from the public, repayable on
demand or otherwise, and withdrawable by cheque,
draft, order or otherwise.
Who is a customer?
• A person who buys goods or services from a shop
or a business entity.
• A person/ company/entity who has an account
with a bank is a customer.
• A casual transaction like encashment of a cheque does
not entail a person to be customer.
• The duration of association of the customer with the bank
is of no essence.
Who is a customer?
• Under the LAW of contract person are able in
‘‘section 11: of contract act’’
• Person have maturity aged (+18)
• Person is sound mind
• Person is not disqualified in contract by court.
Customer of a Bank
The term customer- has not been statutorily defined
although the term has been used in Section 131 of
Negotiable Instruments Act, 1881. Hence, we are to
depend on convention and legal decisions.
According to the judgment in the case of Lord Davay G.W
Railway vs. London and County Bank-1901
"A customer is a person who has some sort of an
account either deposit in current or some similar
relation with a bank".
Customer of a Bank
In practice, the following are necessary to constitute a
customer.
i) One should have an account with the Bank.
ii) One should deal with the bank in its nature of
regular banking business, and
iii) One should have dealing with the bank with an
intention to continue such dealings frequently.
Banker - Customer Relationship
• The relationship between a banker and a customer
depends on the activities, products or services provided
by the bank to its customers.
• The relationship between a banker and its customers
is a transactional relationship, totally reciprocal/ mutual
inter-changeable.
• The relationship depends on trust and it is sometime
risky. If one party breaches the trust then the other
party causes loss of the breach.
Banker and Customer Relationship
• The relationship between the banker and
customer is very important. It is generally
studied under the following two heads.
–
–
General Relationship
–
Debtor and Creditor;
Special Relationship
Special Relationship
1.
2.
3.
4.
5.
6.
7.
Principal and agent;
Bailor and Bailee;
Pawner and Pawnee;
Mortgager and Mortgagee;
Trustee and Beneficiary;
Hypothecator and hypothecate; and
Lessor-Lessee
General Relationship
• Debtor and Creditor:
• The true relationship between banker and
customer is primarily of a debtor and creditor.
• When a customer deposits money with a
bank, then his/her account shows a credit
balance, then the bank is the debtor and the
customer is the creditor.
General Relationship- Debtor and Creditor
• The customer expects from the bank that
– His money will be kept safe by the bank;
– It will be returned on demand within business
hours;
– The money will be intact and safe and will give
some thing by the way of return (interest).
General Relationship- Debtor and Creditor
• The position is reversed if the customer is
advanced loan then the banker becomes
creditors and the customer is debtors, because
the customer owes money to the banker. The
banker demand the repayment of loan on the due
date, and the customer has to repay the debt.
• A customer (creditor) does not get any charge over
the assets of the banker (debtor), the customer’s
status that of an unsecured creditor of the
banker.
General Relationship- Debtor and Creditor
• The debtor-creditor relationship of banker and
customer differs from other commercial debts in
the following ways:
―The creditor must demand payment;
―The creditor must demand the payment at the
right time and right place;
―The creditor must make the demand for
payment in a proper manner, cheques/pay
order.
Special Relationship
Principal and agent:
• Banks provide ancillary services such as collection of
cheques, bills etc. They also undertake to pay regularly the
electricity bills, phone bills etc.
• The relationship arising out of these ancillary services is of
principal-agent between the customer and the bank.
• He also gives written instructions to the bank to purchase
securities, pay insurance premium, installments of loans
etc. on his behalf.
• When the bank performs such agency services, he
becomes an agent of his customer.
Bailer and Bailee
• A bailment is the delivery of goods in
trust. A bank may accept the valuables of
his customer such as jewelry, documents,
securities for safe custody.
• In such a case the customer is the bailer
and the bank is bailee.
• The bank (bailee) charges a very
small amount as service charges for
safe custody of the valuables from
his customer (bailer).
• This relationship between the bank
and the customer as bailee and bailer
started from the days of earlier
goldsmiths.
Pawner and Pawnee
• When a customer Pledge goods and
documents as security for an
advance he then become Pawner
(Pledger) and the bank becomes the
pawnee (pledgee).
• The pledged goods are to be
returned intact to the pawner
after the debt is repaid by him.
Mortgager and Mortgagee :
• Mortgage is the transfer of an interest in
specific immovable property for the
purpose of securing the payment of
money advanced or to be advanced by
way of loan.
• When a customer pledges a specific
immovable property with the bank as
security for advance, the customer
becomes mortgager and banker is the
mortagee.
RIGHTS AND DUTIES
OF THE
CUSTOMER TOWARDS
THE BANKER
• The main rights and duties of a
customer towards the banker, in
brief, are as under:
• Rights of a customer:
– A customer who has deposited money
can draw a check on his account up to
the extent of his credit balance or
according to overdrawing limit
sanctioned by the bank.
–A customer has the right to receive
statement of accounts from the
bank.
–A customer has the right to sue the
bank for compensation of a
wrongful dishonor of his check.
–A customer has a right to sue and
demand compensation if the bank
fails to maintain the secrecy of his
account.
Duties of a customer
– It is the duty of the customer to
present checks and other negotiable
instruments during the business hour
of the bank.
– The instruments of credit should be
presented by the customer within the due
time from their dates of issue.
– A customer must keep the checkbooks
issued by the bank in safe custody. In case
of theft or loss, it is the duty of the customer
to report the matter immediately to the
bank.
Duties of a customer
– A customer should fill the check with
utmost care.
– If a customer find any forgery in the
amounts of the check issued by him. It
should then immediately be reported to
the bank.
RIGHTS AND DUTIES
OF THE
BANKER TOWARDS
THE CUSTOMER
•Duties or obligations
of a banker towards
the customer
To honor a customer’s
check:
The banker is to honor the check of
the customers provided the check
are:
–
–
–
–
Properly drawn
The customer has balance to his credit
The loan contract has been signed
There is no legal bar or restrictions
attaching to the customer’s funds.
Dishonor of cheques
The bank has a right to dishonor cheque
under the following grounds
1. Insufficient fund
2. The death of the drawer
3. Irregular signature
4. Non-existing account
5. Bankruptcy
6. Frozen account
7. When there is attention
8. A post-dated check
9. A stale cheque
10. Difference between the amount written in words
and that in figures
11. When payment is stopped
Standing orders
• It is the duty of the bank to abide by
the standing orders of the customers
in making periodical payments on his
behalf such as club, library, insurance
premium, etc.
Secrecy of the
customer’s account
• The bank owes a contractual duty
not to disclose the customer’s
financial position without his
consent.
• However the obligation of secrecy is
not considered essential on the
following occasions.
Secrecy of the customer’s account
1. Disclosure under compulsion of Law:
• Order of the court
• Companies Act
• Income tax act
• Bangladesh Bank
2. Disclosure in public interest
3. Disclosure in Bank’s own interest
4. Disclosure with customer’s consent
5. Disclosure of request by other banks
Garnishee order
(order of the court)
• In case a debtor fails to pay money due to his creditor, the latter may
apply to the court to issue a garnishee order, on the debtor’s banker.
As a result of this order, the debtor’s account with the bank is frozen
and the bank cannot make any payment out of the account.
• The creditor on whose request such an order is issued is called the
judgment creditor;
• The debtor whose account is frozen is called the judgment debtor.
• The banker who has the customer’s account is called the Garnishee
• Suppose A owes B Rs 2,000/. A refuses to repay the amount
to B and B sues A. He obtains a decree in his favor. Here B is
a judgment-creditor and A is the judgment-debtor.
Garnishee order
• The garnishee order issued by the court in two stages:
• Order Nisi:
• a) Asks the banker to freeze the debtor’s account b) Asks
the banker to explain why the funds in the account, so
froze should not be used for payment of judgment
creditor.
• Order Absolute: this order directs the banker to pay either
the whole or a part of the funds lying in the account against
which “Order Nisi” has been issued to the judgment creditor.
**Suppose A owes B Rs 2,000/. A refuses to repay the amount to B
and B sues A. He obtains a decree in his favor. Here B is a judgmentcreditor and A is the judgment-debtor.
Garnishee order
Garnishee order on various accounts
1. Joint Account: A joint account can be attached only
when all the joint account holders are joint judgement
debtors. In case of joint debt, the individual account of
the judgement debtors can be attached since their
liability for a joint debt is joint as well as several.
2. Partnership Accounts: A personal account of a partner
can be attached for payment of a firm’s debt. Firm’s
account cannot be attached for payment of a personal
loan of any partner.
3. Trust accounts: the money lying in Trust Account, even
though opened in trustee’s name, cannot be attached for
payment of personal liabilities of trustees.
Rights of a banker
–Right to set off:
– It is a right of the banker to adjust his
outstanding loans in the name of the
customer from his credit balance of any
of the accounts he is maintaining with
the bank.
Right to set off
This right can be exercised by the banker subject to the
following conditions:
a) There must not be a contract to the contrary.
b) The customer has been given a formal notice regarding
the banker’s intention to exercise the right of set-off.
c) The capacity of the account holder in all the accounts
must be the same.
d) The right can be exercised in respect of debts that have
become due and not in respect of future debts.
e) The amount due must be certain.
Right to lien
– A banker has the right to retain the
property belonging to the customer until
the debt due from him has been paid.
Right to lien
1. General lien: This lien gives a right to a person to
retain the goods not only in respect of a particular
debt but also in respect of the general balance due
from the owner of the goods to the person
exercising the right of lien.
2. Particular lien (ordinary lien): It is so-called
because it confers a right to retain the goods in
connection with which a particular debt arose. A
particular lien applies to one transaction or certain
transactions only.
Right of appropriation
If the customer has more than one loan
account, the customer can direct the
repayment of the loan as credit into any
account. If there are no specific directions from
the customers the banker has a right to
appropriate as per his choice.
Right to charge interest
As a creditor the banker has right to
charge interest on the funds he lends as
per the norms and as per the contract.
Termination of
relationship
• Account close by customer:
➢
When customer shift some where & it is not
feasible and convenient to maintain the account in
particular branch.
➢
When customer is dissatisfied with the branch
service.
➢
When bank not offering the particular service
which is required by customer.
➢
When customer not receive the periodically
account statement.
➢
When customer find improper behaviour of bank
staffs.
Termination of relationship
• Account close by the bank:
1. When customers pass habitual cheques for payment
without having sufficient balance in A/C.
2. When the customer account balance is nil for more than 6
months.
3. When customers regularly present the cheque for payment
after counter hours of the bank.
4. When customers do not maintain a minimum balance in the
account.
5. When customers involve in money laundering.
6. When the customer is insolvent.
7. When customer id declared as insane.
Case-1
Mr. Rana had an overdraft with HSFC
Bank at the Dhaka branch and a savings
bank balance at the Rangpur branch. On
non-payment of overdraft balance of
Dhaka Branch even after expiry of the
notice, his S/B deposit balance at
Rangpur branch was adjusted towards
overdraft amount. Whether HSFC bank is
justified in this action and why?
Case-2
At two different branches of HBFC Bank, balances in
accounts were as under Branch A BDT. 50000
Branch B BDT. 20000. The customer issued a
cheque for BDT. 51000 on branch A for advance
payment of the purchase of property worth 15 lakh.
This cheque was dishonored by the branch ignoring
the fact that he had enough balance at the other
branch. He lost his reputation and could not buy the
property and claims BDT. 15 lakh for this loss and
another 10 lakh for reputation loss. Discuss.
Case-3
Mrs. X had a fixed deposit of BDT. 20,000 with the
bank branch. She issued a cheque on his savings
bank account for BDT. 50,000 that had a balance of
BDT. 49,000. at the same branch. The cheque was
dishonored by the bank.
Discuss the rights and liabilities of both the parties.
Case-4
Mr. Raj, a reputed businessman had enjoyed
overdraft facilities up to BDT. 20,000 from time to
time for the last four years with ABC Bank, Khulna
branch without any loan agreement in writing due
to his reputation and relations. The new branch
manager returned a cheque for BDT. 50000 as the
credit balance in the account was BDT. 45000. On a
complaint by the customer, the branch manager
replied that there was no contract in writing, so the
bank is not liable for consequences for returning the
cheque.
Discuss the liability of the bank.
Case-5
Which ones of the following are correct in respect of the right of
set-off:
a. X has to pay an overdraft of BDT.50,000 but has defaulted.
Bank can recover this amount from a joint account in the name
of X and his wife Y.
b. X Enterprises (X is the proprietor of this firm ) owes
BDT.10000 to the bank. There is a credit balance of BDT.12,000
in the SB account in the personal name of X. Bank can exercise
the right of set-off.
c. Money owed by the father can be recovered from the
account of his minor son under the guardianship of the father.
Case-6
Which one of the following is correct in respect of the right of Lien:
a. A scooter mechanic can hold the scooter repaired by him if the
repair charges have not been paid. It is not a case of a particular lien.
b. If the debt is not paid, Bank can sell the securities under lien
without giving reasonable notice for sale to the debtor.
c. Bank can exercise lien for debt in the single name on fixed deposit
in joint names
d. Bank has a lien on safe custody articles like shares or bonds, or
money tendered for remittance to some other person or securities
held in trust or securities left with bankers by mistake.