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.

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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.

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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.

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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)

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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.

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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.

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LEGAL ASPECTS

BANKERS 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:

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BANKERS 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.

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BANKERS 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 bankers 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.

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LEGAL ASPECTS

BANKERS 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

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LEGAL ASPECTS

BANKERS DUTY OF SECRECY Information relating to affairs of the customer. Statement of A/c. Other Documents. Private information.

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LEGAL ASPECTS

BANKERS 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

BANKERS RIGHT OF LIEN

Lien Defined: The term lien stands for security. The lien is the right of a creditor who is in actual or constructive possession of a debtors property to retain such property till the payment of debt. _ The borrower is still the owner of the Property, but _ the creditor has possession of the property.

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LEGAL ASPECTS

BANKERS RIGHT OF LIEN

Bankers Lien: Stands for security which is very peculiar to banking. In banking terminology this security is known as bankers general lien. A very special feature is attached to it, as a banker without having any express agreement with its customer can retain, any goods or security bailed to it, for general balances of its customers, if there is no contract to the contrary. (Sec.171 of Contract Act)

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LEGAL ASPECTS

BANKERS RIGHT OF LIEN

Types of Lien: a. Particular Lien: which arises from the particular transaction connected with the Property subject to lien. b. General Lien: arises of general dealings between the two parties (Bankers general lien).

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BANKERS RIGHT OF LIEN

NOTE: A lien does not convey a right of sale but a bankers lien has been defined as implied pledge, which empowers a bank to sell the goods. It is an effective security subject to following condition: - The property must belong to the customer; - It must come into bankers possession; - It must come into bankers possession in ordinary course; - There should be no contract to the contrary

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LEGAL ASPECTS

BANKERS RIGHT OF SET-OFF

In legal terminology a right of Set-Off means Total or Partial merger of a claim of one person against another in a counter claim. Set-Off is the right of a debtor to take into account a debt owing to him by his creditor in order to arrive at the net balance due between them.

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LEGAL ASPECTS

BANKERS RIGHT OF SET-OFF

Conditions necessary for exercise of right:

1. The amounts to be set-off must be certain; 2. Due between the same parties; 3. Due in the same right i.e. due from a person in his private capacity cannot be set-off against debt due to him as trustee; 4. There is no contract to contrary.

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BANKERS RIGHT OF SET-OFF

Events where Right of Set-off Accrue: 1.Death of the Customer; 2.Mantel incapacity of a Customer ; 3.Bankruptcy of the Customer; and 4.Liquidation of the Customer.

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BANKERS RIGHT OF SET-OFF

1. 2. Exception: Banker cannot Set-Off Credit Balance: Of trust account against personal debt; Of current account against contingent liability till customer is insolvent or bill is over due; 3. Of joint or partnership against debt balance on personal account of joint party or partner; 4. On a loan account against a credit balance on current account without reasonable notice.

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GEARNISHEE ORDERS
Definition: Order passed by a competent court in execution of Decree directing a banker for the seizing of an account or for the partial amount lying in the account of customer. The Banker must act accordingly to the terms of the order served on him.

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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.

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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.

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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.

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BANKERS OPINIONS

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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.

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LEGAL ASPECTS

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

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LEGAL ASPECTS

CONCEPT OF NEGOTIABILITY
Negotiation: Section 14 of the Negotiable Instruments Act provides that: When a Promissory Note, Bill of Exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated.

LAW RELATING TO CHEQUES

LEGAL ASPECTS

CONCEPT OF NEGOTIABILITY
WHO CAN NEGOTIATE: Every maker/(s), drawer/(s), payee/(s) or indorsee/(s) or all of them jointly can negotiate an instrument provided such instrument has not been restricted by the express words used in the instrument. (Sec: 51 )

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CONCEPT OF NEGOTIABILITY
Duration of Negotiability: The Negotiable Instrument can be negotiated or transferred at or after maturity, if it has not been paid or satisfied. Negotiation stops once the liable party has paid it at or after maturity.(Sec:60)

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CONCEPT OF NEGOTIABILITY
Modes of Negotiation: Negotiation by Delivery:
A Negotiable Instrument payable to bearer is negotiable by delivery thereof. (Sec:47)

Negotiation by Endorsement & Delivery:

A Negotiable Instrument payable to order can be negotiated or transferred by the holder by Endorsement & Delivery. (Sec:48)

LAW RELATING TO CHEQUES

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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

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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.

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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.

LAW RELATING TO CHEQUES

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PARTIES TO A CHEQUE, THEIR RIGHTS & OBLIGATIONS

RIGHTS & OBLIGATIONS: Paying Banker is under an obligation to honor his Customers 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

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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

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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.

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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.

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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.

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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)

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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)

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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 Payees 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.

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CLASSIFICATION OF CHEQUE
b. Not Negotiable Crossing: A person taking a cheque crossed generally or specially bearing in either case the words Not Negotiable shall not be capable of giving a better title to the cheque that that which the person from whom he took it had, however, it remains transferable. (Sec:130)

LAW RELATING TO CHEQUES

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ENDORSEMENT & ITS CLASSIFICATION Definition: When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signed for the same purpose a stamped paper intended to be completed as negotiable instrument.

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ENDORSEMENT & ITS CLASSIFICATION

Essentials of valid endorsement: 1.Signature of the holder. 2.It must be made by the maker, a stranger cannot endorsed. 3. It must on the back/face/slip of paper annexed thereto. 4. Intention must be to transfer the instrument to third party and is completed by delivery.

LAW RELATING TO CHEQUES

LEGAL ASPECTS

ENDORSEMENT & ITS CLASSIFICATION Effect of Endorsement: The ownership of the instrument and the right of further negotiation passes to the endorsee. (Sec:50)

LAW RELATING TO CHEQUES

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ENDORSEMENT & ITS CLASSIFICATION

KINDS: 1. Blank/ General Endorsement: The endorser sings his name only and does not specify the name of the endorsee. It makes the instrument transferable by delivery and is payable to bearer. 2. Full endorsement: bears the direction for payment to or to the order of specified person. (sec:16)

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ENDORSEMENT & ITS CLASSIFICATION 3. Partial Endorsement: Sec: 56 provides partial endorsement is not valid, but where the amount has already been paid in part endorsement for the balance partial amount is valid with a note to that effect. 4.Restritive Endorsement: which prohibits the indorsee from further negotiating the instrument, by express words.(Sec:50)

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ENDORSEMENT & ITS CLASSIFICATION

5. Conditional Endorsement: When the negotiability is made dependent on the happening of a specified event, although such event may never happen.(Sce:52) 6. Sans Recourse Endorsement. When the endorser excludes his own liability in case of dishonor.

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ENDORSEMENT & ITS CLASSIFICATION

7. Facultative Endorsement: When the endorser expressly gives up some of his rights under the Negotiable Instruments. Such as notice of the dishonor.