BANKER-CUSTOMER RELATIONSHIP

Types:

There are amongst others the following important type of relationships between a banker and his customer:

  • Debtor and Creditor
  • Creditor and Debtor
  • Principal and Agent
  • Bailer and Baillie
  • Mortgagor and Mortgagee
  • Pledger and Pledgee

Before we move on to discuss the above relationships we need to understand certain terms/concepts including banker, customer, banking and banking company. The same are explained in the following paragraphs.

Banker:

Words Banker/Bank/Banking are interchangeably used. Banker not specifically defined. Meanings inferences and definitions are derived from in- depth study of various statutes relating to banking and writings of renowned economists and jurists. However, in different statutes including banking company’s ordinance, 1962, concepts such as business of banking/functions of banks and business transacted by banks are contained.

Some of the Definitions of Banker:

According to J.W. Gilbert

“A banker is a dealer in capital, or, more properly, a dealer in money. He is an intermediate party between the borrower and the lender. He borrows from one party and lends to another”

According to Dr. Herbert L. Hart

“A person carrying on a business of receiving money, and collecting drafts for customers subject to the obligation of honoring cheques drawn upon him from time to time by the customers to the extent of the amounts available on their current accounts

According to Sir John Paged: (considered as an authority on banking law)

“that no person or body corporate or otherwise, can be a banker, who does not (i) take deposit accounts, (ii) take current accounts, (iii) issue and pay cheques and (iv) collects cheques crossed and uncrossed for his customers”

Sir John Paget further adds that one claiming to be a banker must profess himself to be one, and the public must accept him as such, hi main business must be that of banking, from which generally he should be able to earn his living. This definition is fairly exhaustive, although it makes no mention of many other important functions of the present day banker, which may be put under two heads (a) agency services, comprising of the collection of bills, promissory notes, coupons, dividends, payment of subscription and insurance premiums, and (b) general utility services, e.g., issue of credit instruments, the transaction of foreign exchange business, the safeguarding of valuables and documents against fire, theft, etc. there seems to be no doubt that according to English Law; a person claiming to be treated as a banker, should perform the functions as given by Sir John Paget.

American Version:

“by “banking” we mean the business of dealing in credits, and by a “bank” we include every person, firm or company having a place of business where credits are opened by deposits or collection of money or currency, subject to be paid or remitted on cheque or order, or money is advanced or loaned on stocks, bonds, bullion, bills of exchange or promissory notes or where these are received for discount or sale

United Kingdom’s Version: (According to bills of exchange Act, 1882)

“A banker is any person who carries on the business of banking”

According to Finance Act, 1915:

“Any person carrying on a bonafide banking business in the United Kingdom is a banker

According to Negotiable Instruments Act, 1881 (according to Sec 3 (b) of Negotiable Instrument Act) and BCO, 1962

Banker means a person transacting the business of accepting for the purpose of lending or  investment, of deposit of money form the public, repayable on demand, or otherwise or withdraw able by cheque or otherwise, and includes any post office savings bank.

In Halsbury’s Laws of England:

Banker is defined as an individual, partnership or corporation, whose sole or predominating business is banking, that is, the receipt of money on current or deposit account, and the payment of cheques drawn by and the collection of cheques paid in by the customer.

Conclusion:

We can say that banker is what banker does. It takes us to the business of banking or functions performed by banks

Definition of Banking, Banking Company & Forms of Business– BCO, 1962 Re-visited

Banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft, payable to order or otherwise;

Banking Company” means any company which transacts the business of banking in Pakistan;

Forms of business carried out by the banking company under section 7 BCO, 1962:

In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:-

a) Borrowing, raising, or taking up of money;  the lending or advancing of money either upon or without security; the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundies, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scripts Dealing in (participation term certificates, term finance certificates, musharika certificates, modaraba certificates and such other instruments as may be approved by the State Bank) and other instruments,  the granting and issuing of letters of credit, issuing of traveler’s cheques and circular notes;

(aa) the providing of finance as defined in the Banking Tribunals.

b) Acting agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods,
giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a managing agent or treasurer of a company;
(bb) acting as “modaraba company” under the provision of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980);

c) Contracting for public and private loans and negotiation and issuing the same;

d) The effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue public  or private, Government, municipal or other loans or of shares, stock debentures, (debenture stock or other securities)* of any company, corporation or association and the lending of money for the purpose of any such issue

e) Carrying on and transacting every kind of guarantee and indemnity business;

(ee) purchase or acquisition in the normal course of its banking business of any property, including commodities, patents, designs, trade-marks and copyrights with or without buy-back arrangements by the seller, or for sale in the form of hire purchase or on deferred payment basis with mark-up or for leaning or licensing or for rush-sharing or for any other mode of financing;

f) Managing, selling and realizing any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims;

g) Acquiring and holding and generally dealing with any property or any right, title or interest in any such property which may form security or part of the security for any loans or advances or which may be connected with any such security; for any loans or advances or which may be connected with any such security;

h) Undertaking and executing trusts;

i) Undertaking the administration of estates as executor, trustee or otherwise;

j) Establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex-employees of the company or the dependents or connections of such persons; granting pensions and allowances and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent objects or for any exhibition or for any public, general or useful object;

k) The acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purpose of the company;

l) Selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company;

m) Acquiring and undertaking the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in this sub-section;

n) Doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company;

o) Any other form of business which the Federal Government may, by notification in the official Gazette, specify as a form of business in which it is lawful for a banking company to engage. (2) No banking company shall engage in any form of business other than those referred to in sub-section (1)

Customer Defined:

The entire law relating to banking rotates on the interplay of forces governing the relationship between a banker and a customer. The question arises as to who may be called a customer and it is most surprising that the word “ Customer” has not been defined and at the same time one must know as to who is a customer. In some of the judgments pronounced by different courts an attept has been made to give definitions of a customer but it is not an exhaustive attempt and they havenot been able to give such definition which may be termed as a satisfactory definition of this word.

According to Heber L. Hart:

A customer is a person who has an account with a banker. Coming to the meaning of the word, Hart says that a person is a “customer” of a bank within the meaning of section 82 of the Bills of Exchange Act, 1882, if he keeps either a current or a deposit account with the bank, or , it would seem if the bank systematically transacts with him, or for him, any kind of banking business.

According to Sec 131 of Negotiable Instruments Act, 1881

In the above cited section a reference has been made with regard to the Customer– that protection shall be available to a banker collecting cheques on behalf of his customer

According to Sir John Paget:

“To constitute a customer, there must be some recognizable course of habit of dealing in the nature of regular banking business”

According to the judgment in the case cited as    “Lad Broke V Todd (1914) given by Justice Bail Hache, customer’s domain is maintained as under

“in my opinion a person becomes a customer of a bank when he goes to the bank with money or a cheque and asks to have an account opened in his name, and the bank accepts the money or cheque and is prepared to open an account in the name of that person; after that he is entitled to be called the customer of bank. It is further added, “I think such a person becomes a customer the moment the bank receives the money or cheque or agrees to open an account.”

Legal Requirements to be qualified as Customer:

Customer should be of age of majority should be of sound mind

Not debarred under any law there must be an offer/ proposal and acceptance of that offer/ proposal.

Rights and Duties of Customer

The customer has the following universally accepted rights:

(a) To draw cheques against his credit balance, or in the ab­sence of credit balance, when there are arrangements for accommodation made with the banker earlier;

(b) To receive a statement of his account from a banker.

(c) To sue the bank for any loss and damages.

(d) To sue the banker for not maintaining the secrecy of his account.

The customer has the following duties towards his banker:

- (i)   Section 72 of the Negotiable Instruments Act, 1881, lays down that the customer must present the cheques for pay­ment and collection within the business hours of his banker.

- (ii)  Section 84 of the Negotiable Instruments Act, 1881, lays down that the customer should see that the cheques and other instruments are presented for payment within a rea­sonable time from the date of their issue.

- (iii) He should take reasonable care for safe custody of the cheque books. If a customer fails in this duty, he is to be held responsible for his negligence in leaving his cheques unprotected.

(iv) He should draw the cheques very carefully and in such a way that there is no room left for any fraudulent alternations and additions. In Yany V Grote, the Lord Chancellor said:

“A cheque drawn by a customer is in point of law, a mandate to the banker to pay the amount according to the tenor of the cheque. It is beyond dispute that the customer is bound to exercise reasonable care in drawing the cheque to prevent from being misled. If he draws the cheques in a manner which facilitates fraud, he is guilty of a breach of duty to himself and the banker, and he will be responsible to the banker for any loss suffered by the banker as a natural and direct consequence of this breach of duty”.

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