BANKER – CUSTOMER

RELATIONSHIP

LEGAL ASPECTS
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

“BANKER” & “CUSTOMER

• Definitions:

• Banker:
Banker means a person transacting the business
of accepting (for the purpose of lending or
investment) of deposit of money from the public,
repayable on demand or otherwise and
withdraw-able by cheque, draft, order or
otherwise as defined in Section 3 (b) of
Negotiable Instrument Act.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

“BANKER” & “CUSTOMER

• Customer:
The Term Customer of Bank is not
defined any where, ordinarily a
person who has an account in a bank
is said to be a Customer of the Bank.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

“BANKER” & “CUSTOMER”

• However, definition of Customer provided in
the Recovery of Finance Ordinance 2001 under
Section 2 ( c) is a person to whom finance has
been extended by a financial institution and
includes a person on whose behalf a guarantee
or letter of credit has been issued.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

“BANKER” & “CUSTOMER

• Furthermore, the definition of Customer
based upon a judgment of 1920 of the
Privy Council is as under:

• “A person whose money has been

accepted by a Bank on the footing that
they undertake to honour Cheques upto
the amount standing to his credit.”
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

“BANKER” & “CUSTOMER

• Person – Natural and Artificial

• Money Accepted – only against deposit

account, not otherwise.

• Undertaking – a binding contract.

 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

“BANKER” & “CUSTOMER

LEGAL QUALIFICATION OF A CUSTOMER:

• The nature of relationship is contractual;---

• Who could enter into a contract - section 11 of

the Contract Act.

• A person having attained majority (excluding

artificial person)
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

“BANKER” & “CUSTOMER

• LEGAL QUALIFICATION OF A CUSTOMER.
• Definition of “Majority”

• According to section 3 of the Majority Act,

1875, a person is deemed to have majority
when he has completed his age of 18
years.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

“BANKERS & CUSTOMER”

• LEGAL QUALIFICATION OF A CUSTOMER.
• Soundness of mind.
• As per Section 11 of the Contract Act – “a
person is said to be of sound mind for
entering into contract if at the time when
he makes it, he is capable of
understanding it, and of forming a rational
judgment as to its effect upon interest”.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

BANKER’S DUTY OF SECRECY

• A bank is in the position of a trustee for its
customers and such trust extends not only
to funds of the customers but also all
information pertaining to its customers
which may be in possession of a bank. For
this reason banks are expected to
zealously maintain secrecy of all the
affairs of their customers.
• The relevant provision are as under:
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

BANKER’S DUTY OF SECRECY

• Section 33-A of the Banking Companies

Ordinance, 1962.

• No Bank or Financial Institution shall divulge any

information relating to the affairs of its
customers, except in circumstances in which
it is, in accordance with law, practice and
usage customary among bankers, necessary
and appropriate.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

BANKER’S DUTY OF SECRECY

• As per Section 05 of Bankers Book
Evidence Act, 1891:
No officer of a bank shall in any legal
proceedings to which the bank is not a
party be compelled to produce any
banker’s book or to appears as a witness
to the matters, transactions and accounts
therein recorded unless by the order of the
court or judge made for special causes.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

BANKER’S DUTY OF SECRECY

• Section 94 of Cr.P.C.:
Whenever any court or any officer in charge of a
police station considers that the production of
any document desirable for investigation,
inquiry, trial or other proceedings, they can issue
summons for production of such document,
however, for information relating to the bank
account, such officer will have to obtain prior
permission of High Court or the Session Judge
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

BANKER’S DUTY OF SECRECY

• Information relating to affairs of

the customer.

• Statement of A/c.
• Other Documents.
• Private information.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

BANKER’S DUTY OF SECRECY

• Exceptions.
• In accordance with Law.
Income Tax Laws
Customs Laws
Police/FIA
Courts of Law
SBP, generally and at the time of general
elections
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

SAFE CUSTODY
• The Banks offer safe deposit lockers to
their customers. The relationship between
the Bank and person to whom locker is
rented out is legally that of licensee and a
licensor and not that of customer and
banker.
• The ownership in the locker vests in the
bank and licensee/locker holder will have
only right to use it as per agreed terms.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

SAFE CUSTODY
• Liability of the Bank:
The Bank will not incur any liability in the
event of partial or complete loss or
destruction of or damage to valuables in
the lockers cause due to theft, dacoity,
fire, accident etc.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

SAFE CUSTODY
• Break opening of lockers:
A declaratory suit against licensee of the
in operative locker shall be filed with the
court of competent jurisdiction to break
open said locker in presence of the
preventative of court.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

CLOSURE OF ACCOUNT
• Since banker-customer relationship is a
contractual one it may be terminated by
either party serving a notice on the other.
• Notice by a Banker: A Banker may like to
close the account of its Customer for a
number of valid reason but this cannot be
done without giving a formal intimation to
Customer that he whishes to close the
account after a specified period.
 BANKER – CUSTOMER RELATIONSHIP
LEGAL ASPECTS

CLOSURE OF ACCOUNT
• If the Customer does not respond to the said
notice the Banker may close the account on
following reasons:
1. Obstinacy of Customer;
2. Death of the Customer;
3. Insanity;
4. Insolvency;
5. Order of the Court;
6. Assignment of the Account; and
7. Unsatisfactory Operation.
 LAW RELATING TO CHEQUES
LEGAL ASPECTS

REQUISITES OF A VALID CHEQUE

• What is Cheque:
A Cheque is a bill of exchange drawn on a
specified Banker and not expressed to be
payable otherwise than on demand. (Sec:06)
• Parties to a Cheque:
Drawer (Maker of a Cheque), Drawee (the Bank
on which the Cheque is drawn), Payee (The
Person to whom the Cheque is made). (Sec:07)
 LAW RELATING TO CHEQUES
LEGAL ASPECTS

REQUISITES OF A VALID CHEQUE

• Requisites:
It should be in writing.
An unconditional order.
Drawn on a specified Banker only.
Payable on demand.
Certain Amount of Money.
Payable to or to the order of a certain person or
bearer.
Signed by the Drawer.
 LAW RELATING TO CHEQUES
LEGAL ASPECTS

PARTIES TO A CHEQUE, THEIR RIGHTS &

OBLIGATIONS

PARTIES TO A CHEQUE:

DRAWER: The maker of the Cheque is

called the Drawer. He must be
an account holder and he must
signed the Instrument.
DRAWEE: The Banker directed to pay is
called the Drawee.
PAYEE: To whom or to whose order the
payment is to be made.
 LEGAL ASPECTS

PARTIES TO A CHEQUE, THEIR

RIGHTS & OBLIGATIONS
• RIGHTS & OBLIGATIONS:
Paying Banker is under an obligation to honor
his Customer’s Cheque if following essential are
fulfilled.
1. Cheque should be in proper form in
accordance with Sec.06.
2. Cheque should not be crossed.
3. Cheque should be drawn on the
particular branch.
4. Cheque should not be mutilated.
 LAW RELATING TO CHEQUES
LEGAL ASPECTS

PARTIES TO A CHEQUE, THEIR RIGHTS

& OBLIGATIONS
5. No un-authorized alterations(of date, sum
payable, the time of payment, the place
of payment). (Sec:03(F))
6. Funds Must be sufficient and available.
7. Cheque should not be post-dated or
stale.
8. Cheque should be present in banking
hours.
 LAW RELATING TO CHEQUES
LEGAL ASPECTS

PARTIES TO A CHEQUE, THEIR

RIGHTS & OBLIGATIONS
9. No legal bar prohibiting payment:
i) Payment stop by the Drawer;
ii) Knowledge as to the title of the presenting
person (holder in due course);
iii) Notice of an assignment of the
available credit; and
iv) Notice of garnishee injunction or other
court order restraining payment.
 LAW RELATING TO CHEQUES
LEGAL ASPECTS

CLASSIFICATION OF CHEQUE
• Open Cheque:
An open is payable at the counter of the Bank on
presentation. It need not be present through a
Bank account. It has two kinds:
a. Bearer Cheque: The paying Bank does not
need to see the authenticity of the holder of the
cheque.
b. Order cheque: It is also payable at the counter
of the Bank after getting satisfaction about the
true identity of the holder of the cheque.
 LAW RELATING TO CHEQUES
LEGAL ASPECTS

CLASSIFICATION OF CHEQUE
• Crossed Cheque:
It is not payable at the counter, its
payment is made on through the collecting
banker through the Customer. A cheque is
said to be crossed when two parallel
transverse lines with or without any words
are drawn on the left hand top corner of
the cheque.
 LAW RELATING TO CHEQUES
LEGAL ASPECTS

CLASSIFICATION OF CHEQUE
• Types of crossing:

a. General Crossing:
Means that When the cheque bears across its
face an addition of (i) the words “and Company
or any abbreviation thereof” between the two
parallel transverse lines, either with or without
the words not negotiable or (ii) two parallel
transverse line with or without the word not
negotiable. (Sec:123)
 LAW RELATING TO CHEQUES
LEGAL ASPECTS

CLASSIFICATION OF CHEQUE
b. Special Crossing:
Where a cheque bears across its face an
addition of the name of a banker either
with or without the words ‘not negotiable’.
(Sec:124).
It shall not be paid to the bank otherwise
than to the banker to whom it is crossed.
(Sec:126)
 LAW RELATING TO CHEQUES
LEGAL ASPECTS

CLASSIFICATION OF CHEQUE
In addition to two types of crossing there are
other crossing which are adopted by the banks:
i. Account Payee Crossing: the words ‘A/C
Payee’ or ‘Payee’s A/C only’ are added to the
general or special crossing. It has following
effects:
(a) It becomes non-transferable; and (b)
collecting banker is duty bound to credit,
proceeds to the account of named payee.