18 February, 2011


Before we take up the relationship that exists between a banker and his customer, let us understand the definitions of the terms banker and customer.
Definition of Banking:
According to the section 3 of the Negotiable Instrument Act 1881, "Banker includes persons, or a corporation or a company acting as bankers."
According to the section 5(0) of the Banking Companies Act 1991, "Bank Company" means any company serves transactions (Banking Business in Bangladesh) including new bank and specialized banks.
According to the section 5(P) of the Banking Companies Act 1991, "Banking Business" means accepting, in order to lend or invest, of deposits of money from the public which will be paid on demand or otherwise and will be withdrawal by cheque, draft, order or otherwise.

The salient features of this definition are as follows:
a) A banking company must accept deposit and lend or invest the same. If the purpose of accepting deposit is not to lend or invest, it does not constitute banking business. In other words, acceptance of deposit with a view to lending or investing the same is the business of banking.
b) The definition specifies the time and mode of withdrawal of deposits. The deposited money must be repayable to the depositor on demand made by the latter or according to the agreement reached between the two parties. The most important point here to be noted that the banker does not refund the money on his own accord, even if the period for which it was deposited expires. The depositor must make a demand and the withdrawal should be effected through cheque, draft, and order or otherwise.

It is, thus, clear that the underlying principle of the business of banking is that the resources mobilized through the acceptance of deposits must constitute the main stream of funds which are to be utilized for lending or investment purposes. A bank is, thus, an intermediary and deals with the money belonging to the public.

Definition of Customer:
The term "Customer" has not yet been statutorily defined. Generally, the term customer means a person who has an account with bank. Banking experts and legal judgments in the past, however, used to qualify this statement by laying emphasis on the period for which such account had actually been maintained with the bank.
Sir John Paget was one of those experts from the past. According to him, "to constitute a customer, there must be some recognizable course of habit of dealing in the nature of regular banking business."
This definition from Sir -John Paget lays emphasis on the duration of the dealings between the bank and the customer. According to his view, a person does not become a customer of the banker on the opening of an account; he must have been accustomed to deal with the banker before he is designated as a customer.
The emphasis on duration of the bank account is now discarded. According to Dr. Hart, "a customer is one who has an account with banker or for whom a banker habitually undertakes to act as such."
The above view point was confirmed by the Kerala High Court in the case of Central Bank of India Ltd., Bombay V. Gopinathan Nair and other. The lordship observed:
"Broadly speaking, a customer is a person who has the habit of resorting to the same place or person to do business. So far as the banking transactions are concerned he is a person whose money has been accepted on the footing that the banker will honor his cheques up to the amount standing to his credit, irrespective of this connection being of short or long standing".

Thus, in order to constitute customer, a person should satisfy the following conditions:
a) He should have an account with bank; and
b) The dealings should be of banking nature.

RELATIONSHIP: The relationship between a banker and customer depends upon the type of service rendered by the banker. The primary relationship between a banker and customer is legal based on contract as per Contract Act, 1872. However, the most valued relationship for the banking business is the behavioral relationship.

I) Debtor and Creditor;
II) Principal & Agent;
III) Pledgor & Pledgee;
IV) Mortgagor & Mortgagee;
V) Lessor & Lessee; and
VI) Trustee & Beneficiary.

The primary relationship between banker and his customer is that of a debtor and a creditor. This relationship imposes the following special obligations on the banker:
A) OBLIGATION TO HONOR CHEQUE: The deposits accepted by a banker are his liabilities repayable on demand or otherwise. The banker is, therefore, under a statutory obligation to honor his customer's cheque in the ordinary course of business. Section 31 of the Negotiable Instrument Act, 1881, lays down that:
" The drawee of a cheque having sufficient funds of the drawer in his hands, properly applicable to the payment of such cheque, must pay the cheque, when duly required so to do and in default of such payment must compensate the drawer for any loss or damage caused by such default."
Thus, a banker is bound to honor his customer's cheques provided that following conditions are fulfilled:
1) There must be sufficient funds of the drawer in the hands of the drawee. By sufficient funds is meant that funds at least equal to the amount of the cheque presented for payment. Any over draft arrangement or facility granted in favor of the customer needs to be taken into consideration and payment to be made within the limit.
2) The funds must properly be applicable to the payment of the cheque. A customer might have several bank accounts in his various capacities. If some funds are earmarked by the customer for some specific purposes, the said funds are not available for honoring his cheque. In addition, it is to be noted here that in case of a few special types of accounts can not be drawn upon in the personal capacity of a trustee, executor etc., funds are not available for honoring the customer's cheque in such case.
3) The banker must duly be required to pay the cheque. It means that the cheque, complete and in order, must be presented before the banker for payment.

A Banker has the statutory obligation to honor his customer's cheques unless there are valid reasons for refusing payment of the same. In case he dishonors a cheque, intentionally or by mistake, he is liable to compensate the customer for the loss suffered by him.

As already noted above, the words "loss or damage" in section mean and include:
I) The monetary loss suffered by the customer; and
II) II) The loss of credit or reputation in the marker.
It is, therefore, to be noted that the banker is liable to compensate the drawer not only for the actual monetary loss suffered by him; but also for the injury to or loss of his reputation, as a result dishonor of a cheque

Keeping secrecy means that the state of affairs of a customer's account is not made known to others by any means. The banker is, thus, under an obligation not to disclose , deliberately or intentionally, any information regarding his customers' accounts to a third party and also to take all necessary precautions and care to ensure that no such information leaks out of the account books.
However, the general rule about the secrecy of customers' accounts may be dispensed with in the followings circumstances:
I) When the law requires such disclosure to be made; and
II) When the practices and usages amongst the bankers permit such disclosure.

In addition, the banker has obligations to do the following:
I) To credit the deposited money to the customer's account;
II) To provide customer with the statement of account in an agreed manner or any certificate regarding his account if requested;
III) To abide the stop payment instruction;
IV) To abide by the standing instruction; and
V) To credit interest or pay interest as per rule etc. and
VI) To give or provide customer with financial advisory services.

a) The banker has the right to return deposit if not in proper manner and time. b) The banker has the right to return the cheque if not drawn properly or in time or for some other reasons. C) The banker has the right to debit the customer's account for any charges, interest and commission if recoverable. d) The banker has the right to exercise lien, right of set-off etc.

The customer has the following rights based on his relationship with the banker:
a) To deposit money in his account on time; b) To demand repayment by issuing cheque or written order properly in proper time and place; c) To get statement of account in agreed manner; d) To stop payment of his cheque; e) To give standing instruction; f) To claim interest on his deposit balance in the interest bearing account; g) To claim damages for any loss or damage caused due to wrongful dishonor of his cheque by bank; h) To claim money when the payment is not made in due course; i) To have secrecy of his account etc.

A customer has the following duties and obligations to perform:
I) He must deposit amount properly and in time;
II) He must demand payment issuing cheque or written order properly and he must present the cheque for payment within banking hour;
III) He must pay the bank charges, interest and commission payable;
IV) He must abide by the laws;
V) He must keep his cheque book in his safe custody;
VI) He must inform the bank on time for any loss of cheque leaf or cheque book;

There are a number of valid reasons which terminates the banker -customer relationship. A few of them is stated below:
I) Notice given to each other with view to closing the account;
II) Upon the death of a customer;
III) When a customer is adjudicated as insolvent by a court of law;
IV) When customer ceases to enter into a contract.

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