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Banker Customer Relationship

What Is a Banker:
According to Section 3(b) Negotiable Instruments Act (Amendment) 1962 a "Banker means a person transacting the business of accepting, for the purpose of lending or investment, of deposits of money from public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise and includes any Post Office Saving Bank".
Banker has been defined in almost the same terms in section 5(b) of Banking Companies Ordinance 1962.

In simple words we can say banker is one who

(1) Takes deposits of money from the people,
(2) Repays these deposits to the people according to agreed terms and conditions including on demand, and
(3) Lends and/or invests these deposits in profitable ventures.

Who Is a Customer. The term customer has not so far been defined in any banking law, however, some eminent writers on banking and jurists have tried to define it. Sir John Paget says: "To constitute a person being called a “customer” there must be some recognisable course or habit of dealing in the nature of regular banking business". The most important point, according to Sir John Paget, was the sufficiently long "duration" of relationship between the banker and a customer, but it was ruled off by the judgement of Mr. Justice Bailhache in the case of Ladbroke v/s Todd (1914) who observed "the relationship of banker and customer begins as soon as the first cash deposit is accepted or a cheque is paid in and accepted for collection and not merely when it is paid". This was confirmed by Privy Council in the case of Commissioner of Taxation v/s English, Scottish, and Australian Bank (1920). "The word 'Customer' signifies a relationship in which duration is not of the essence. A person whose money has been accepted on the footing that the bank undertakes to honour cheques up to the amount to his credit is, in the view of their Lordship, a customer of the bank in the sense of statute irrespective of what his connection is, of long or short standing". (What is a statute?)

To restate the concept; the word 'Customer' generally denotes a relationship resulting from habit or continued dealings. We know that a person cannot be regarded as a customer of a shop unless he makes a practice or habit of purchasing articles from that shop. An isolated transaction is not sufficient to suggest that the purchaser is a customer. However for a bank customer this habit of dealings is not essential. A person becomes customer as soon as he opens an account with the bank.

On the other hand if a person comes to bank for encashment of cheques daily, which means he is a regular visitor of bank, but these frequent visits, will not entitle him to become a customer of bank. Only the opening of an account establishes the relationship of banker and customer.

In the light of what has been said above and banking practice we can say that any person having an account in a bank is a customer, whatever the nature of his account. Whether or not he operates his account regularly and whether his, account is of long or short duration, the account holder is a customer.

Who Can Be A Customer: The relationship of banker and customer is a contractual one, therefore, any person who has the capacity to enter into a contract, can be a customer.
He / She must, therefore, be a person who:
(i) has attained the age of majority,
(ii) is of sound mind; (when he opens an account he should be capable of understanding it and making a rational judgment as to its effect on his interests)
(iii) is not disqualified from contracting by any law to which he is subject. (should not be a proclaimed offender, should not be undischarged bankrupt and should not be alien enemy) (Who is an undischarged bankrupt?)

However, there is one exception to this law and that a minor can be a customer according to the banking practice. Such accounts are opened only to broaden the banking facilities. These accounts are operated by their guardians or to benefit the minor under Courts Wards Act. A minor,however, cannot operate an account.
(By law the property of a minor can be used for the benefit of the minor only. A loan against the property of a minor should only be given after great care.)

What Is The Nature Of Banker Customer Relationship: As stated earlier, bank relationship is a contractual one and for every valid contract there must be an offer and its acceptance. Similarly, there is an offer and its acceptance in such cases. The depositor offers his/her money and banker accepts or the banker offers to accept deposits and customer in acceptance of this offer, deposits his money.

Types of Relationships
General Relationship: The general relationship of banker customer is that of debtor and creditor; which of these two, entirely depends on the ‘current’ state of account. When the customer borrows from the bank he is debtor and when builds up balance in the account he / she is a creditor of the bank.
This relationship of debtor and creditor was for the first time recognised in 1848 in the case of Foley v/s Hill by the court of law. A customer brought an action against a banker to account for money received, claiming that the relationship was ‘equitable’, akin to that of Principal and Agent and that he was entitled on that basis to know, what had happened to his money and what profit had been derived from it. The court decided that the relationship is that of debtor and creditor and not that of Principal and Agent. The decision enabled the banker to use the money according to their own discretion. When customer deposits money in his account, he has a right to withdraw it, but he cannot enquire about its utilization.

Other Relationships:
i) Bailer and Bailee. When the banks provide safe custody / locker facilities to customers for their valuables, the relationship becomes that of bailer and bailee under Contract Act, 1872. It is an old relationship of banker and customer which started from the days of earlier bankers, i.e., goldsmiths. The goldsmiths used to keep the belongings and valuables of public for safe custody with themselves. Later on they started lending a part of that deposit which was nothing but a breach of contract of bailment.
Section 148 of the Contract Act, 1872, defines bailment as

“A bailment is delivery of goods by one person to another for some purpose, upon a contract”.

A distinction should be made between a ‘gratuitous’ bailee and ‘bailee for reward’. A gratuitous (meaning: done without any compensation or reward) bailee is required to “take the same care as a reasonably prudent and careful man may fairly be expected to take of his own property of the like description”. A bailee for reward must take greater care and make use of the most effective appliances available for the safekeeping of the valuables appropriate for the nature of goods entrusted to his care.

The extent and character of bank’s obligations as a bailee will vary with the different forms of deposits. When shares and securities are lodged with instructions to handle them, the banker must have notice of the particulars of the articles bailed, but when articles are put in a sealed box or packet or kept in a safe deposit locker the banker is not supposed to have any notice of the contents. In the latter case, the banker’s obligation is to return the box or packet with seals intact or allow the customer to operate his locker which should be unhampered and inaccessible to the banker independently.

The receipt granted by the banker for safe custody of articles is not a negotiable instrument or transferable document. In case the bailer of a deposited article is unable to call at the bank to take back the articles when required to be withdrawn, the banker should take care to ensure that the person deputed for the purpose is duly authorized by the bailer, otherwise the banker will be liable for conversion.

(ii) Principal and Agent: When bank perform agency service they become agent of their clients and customers, such as collection of cheques etc and payment of premium of insurance company or membership fee to clubs on behalf of their customers under their standing instructions.

(iii)Pawner and Pawnee / Pledger and Pledgee /Mortgagor and Mortgagee: When we make advance to our customer against security it is the relationship of pawner and pawnee. Besides these, bankers also act a Trustee, Executor, Attorney and Guarantor etc.
When a customer pledges his movable property like goods and documents and passes on physical possession thereof to the banker as security for an advance, he becomes the pledger and the banker becomes the pledgee. Similarly when advance to the customer is made against security of immovable property, the relationship becomes that of mortgagor and mortgagee, the customer being the mortgagor and the banker mortgagee.

In terms of the deed of pledge and deed of mortgage executed by the borrower at the time of taking advance, the banker has express authority to dispose of the movable or immovable property of the borrower in case of his failure to liquidate the debt when it becomes due without reference to a court of law.

How Banking Relationship Is Established: The opening of an account establishes the relationship. An account may be opened either by cash deposit or by tender of negotiable instrument for credit to the account. According to the banking practice in Pakistan, accounts are generally opened with cash deposits. If party is well-known a cheque or any other negotiable instrument may also be accepted in lieu of cash.

How Does The Relationship Subsist: This relationship starts with the knowledge about the customer and gradually builds up over a period of time. This relationship continues so long as it is carried out according to the terms of contract embodied in the rules of the bank.
{Subsist = to exist; to be valid}

How And By Whom The Relationship Can be Terminated: This relationship can be terminated by any of the contracting parties, if the party agrees to do so or on the happening of an event that would give to one of the party option to avoid when there is avoidable contract. The relationship can be terminated by the:

1) By Customer: According to terms of the deposits, if it is payable on i) demand by withdrawing whole balance and closing the account, ii) Fixed maturity - the payment of the balance at such maturity.

2) By Bank: The bank may close the account when it becomes unremunerative or tedious or tiresome or for any other reason risky to maintain (Obstinacy of Customer) or when bank exercises the right of set-off. Bank should close the account after proper notice to the customer, otherwise it may drag the bank into litigation.

3) By Operation Of Law:
When the customer
i) dies or
ii) becomes insane or
iii) becomes bankrupt or
iv) the bank itself becomes bankrupt or
v) any other contractual incapacitation of the parties.

Rights And Duties Of Bankers:
Banker has the following rights /duties towards its customers

Rights of Bankers:
1) Payments and receipts must be in business hours:
2) Right to refuse payment of:
i) Stale cheque (dated more than 6 months before presentation)
ii) Post-dated cheque (date which has not yet arrived on the date of presentation)
iii) Undated cheques, or
iv) Any other irregularity in the cheque such as difference in amount written in words and figures or signature differs.
3)Right to debit the account which was previously credited by clearing item which is returned unpaid.
4)Right to have reasonable time for posting.
5)Right to utilize the customer's funds according to its own will.
6) Right to charge for services rendered.

7) Right Of Lien: Lien is a right of a Bank to retain the “property” belonging to a customer until the debt due from the customer is paid. Suppose a customer has not repaid a loan on time or has not paid bank’s charges, etc. The bank receives a dividend warrant from a company for credit to this customer’s account. The bank will have a lien on the proceeds of the dividend warrant till such time the customer clears the banks dues. Items under lien can be sold/appropriated by the bank only after the bank gives due ‘notice’ to the customer.

8) Right Of Set Off: It consists of the right of the bank to fully or partially merge the credit balance of a customer account with a claim that the bank has against the customer. The banker has this right of set off when:
i Account is in the same name and right,
ii There is no contract to the contrary.
The bank can execute the set off only after giving due notice to the customer.

Duties Of Banker:
1) Obligation to pay/honour the cheques:
i. when there is credit balance or
ii. when there are other arrangements like overdraft facilities.
iii. To pay cheques drawn by the customer on the branch of the bank where the account is kept, or under special arrangement at agreed places.

2) To provide a statement containing a copy of his account with the banker at regular intervals;

3) To pay profit/return to the customers on their balances as per agreed rates.

4) To collect the proceeds of cheques and other orders instruments deposited for credit to the account; Collection of cheques and other negotiable instruments - Banker collects cheques and other negotiable instruments on his customer’s behalf from banks and financial institutions on which these are drawn. He thus acts as agent of the customer. Banker as agent has certain responsibilities which he must discharge meticulously. Banker is expected to keep his customer advised of the fate of the instruments under collection. The customer’s account can be debited with the usual commission or collection charges as per bank’s rules and practice. As this service is not rendered free of charge the banker is liable for any inordinate and avoidable delays in the collection or in advising fate of the instrument to the customer.

5) To give reasonable notice to the customer before closing the account or determining the relationship. (In law the word ‘determining’ means ending, closing)

6) To Maintain Secrecy Of Customer's Account: It is most important legal duty of banker not to disclose the state of customer's account to any unauthorised person. The banker cannot disclose the state of account even to the wife or husband of account holder who are otherwise one and the same thing. This duty does not end with the closing of account but it continues even after that. A prudent banker must, therefore, exercise greatest care to observe this duty of secrecy. Any inadvertent disclosure made during the busy time may have serious consequences.
However banker can disclose the state of account on proper and reasonable occasions which are: -
1. Under Compulsion Of Law,
2. In The National Interest,
3. Common Courtesy To Other Banks,
4. In Banks Interest,
5. Expressed Or Implied Consent Of Customer.

Rights and Duties of a Customer Towards the Banker

RIGHTS:
The customer has the following universally accepted rights:

(1) to draw cheques against his credit balance or in the absence of credit balance there are arrangements for accommodation made with the banker beforehand, to this effect.

(2) to receive a Pass Book or a statement containing a copy of his account with the banker. In case he finds any over-crediting or over-debiting in his account he has a right to get it corrected;

(3) to sue the bank for the costs, loss and damages when his cheque is wrongfully dishonoured;

(4) to sue when the banker has not maintained the secrecy of his account.

(5) to claim for and receive the profit / return on his deposits as promised by the bank.


DUTIES:
The customer has the following duties towards his banker:

(1) Negotiable Instruments Act lays down that the customer must present the cheques
for payment and collection within the business hours of his banker.

(2) Negotiable Instruments Act lays down that the customer should see that the
cheque and other instruments are presented for payment within a reasonable time from the date of their Issue.

(3) He should keep his cheque book under lock and key so that no unauthorised person gets access to it. If a customer fails in this duty he is to be held responsible tor his negligence in leaving his cheques unprotected.

(4) He should draw the cheques very carefully and in such a way that there is no room left for any fraudulent alterations and additions.

In the case, London Joint Stock Bank vs. Macmillan and Arthur -(l918-A.C 77) Lord Findlay 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 the bank from being misled. If he draws a cheque 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 sustained by the banker as a natural and direct consequence of this breach of duty."

General Terms and Conditions Applicable to Account Opening
Following are the terms and conditions commonly used by banks in their account opening form.
• Any person(s) opening or operating an account with the Bank will be deemed to have read, understood and accepted the Terms of Account and the applicable Schedule of Bank Charges issued and amended from time to time by the Bank.
• Not more than one account of each category, i.e. foreign currency, current and saving, PLS saving, or similar accounts can be opened in any branch of the Bank.
• Proper identification in the form of Computerized National Identity Card/Passport/Alien Registration Card will be required before the Bank opens any account, at its sole discretion, which will be independently verified by the Bank through NADRA. In case of non-validation or mismatch/ incorrect information, the Bank has the right to stop the transaction till clearance of ambiguity or closure of the account. Each account shall possess a distinctive number, which shall be quoted in all correspondence with the Bank in relation to the account.
• Any change in the address or constitution of the account holder/depositor should be immediately communicated in writing to the Bank. The post office and other agents for delivery shall be considered agents of the account holder(s)/depositor(s) for delivery of letters, remittance etc., and no responsibility shall be accepted by the Bank for delay, non delivery, etc.
• To safeguard the Bank’s interest, the Bank may, at its discretion, and for any other purpose as per the law of the land in force, share any information, details or the data relating to the customer’s transactions with any competent authority or agency. The Bank, in complying with laws and regulations, may intercept and investigate any payment message and other information or communications sent to or by the account holder or on the account holder’s behalf via another Bank. This process may involve making further future enquiries.
• The method of calculating return/profit under the profit/loss sharing scheme is governed by the Bank Rules under prevailing Regulations/Directives of the State Bank of Pakistan and is subject to change without prior notice.
• No profit or interest is paid on current accounts, whether in respect of local or foreign currency.
• Any sum to be deposited in the account should be accompanied by a duly completed deposit slip showing the name and number of the account to be credited and the depositor’s signature. Such deposits must be entered at cash counter only.
• The bank may accept for collection cheques and other instruments promptly but by the account holder/depositor him/herself at his/her sole risk. All cheques and other instruments should be crossed before they are deposited for crediting in the account.
• In the event of any instrument deposited being returned for any reason whatsoever or being returned at any time, although previously advised as paid, the account holder will refund the proceeds of the said instrument and indemnify the Bank against all losses and costs arising there from and authorize the Bank to debit such amount and expenses to any account which the account holder may have with the bank.
• The bank will take due care to ensure that the credit and debit entries are correctly recorded in the accounts of the account holder/depositor, but in case of any error, the Bank shall be within its right at all times to make the correct adjusting entries without prior notice and recover any amount due from the account holder/depositor without prior notice.
• In the case of a deposit maturing on a public or bank holiday, then the Bank shall pay the deposit and/or the interest/return/profit on the next working day when the Bank is open for banking business. Cheques may only be drawn on printed cheques supplied by the Bank. The Bank reserves at all times the right to refuse payment of cheques drawn otherwise.
• Cheques should be signed by the account holder/depositor as per specimen signature supplied to the Bank and any alteration(s) thereon must be authenticated by the drawer’s full signature. In order to comply with any instructions given by the account holder/depositor, the Bank shall only rely on the signature as provided/inscribed by the account holder/depositor on the specimen signature card at the time of opening of the bank account.
• In the case of the Bank receiving notice of the demise of an individual customer, the Bank will not be obliged to allow any operation or withdrawal except on production of the succession certificate or other court orders from a court of competitive jurisdiction.
• In the case of an operating instruction ‘either or survivor’, in the event of the death of either the account holder(s)/depositor, the credit balance in the account will be payable to the surviving account holder(s)/depositor.
• Current/saving accounts that remain inoperative for one year will be classified as dormant. Any change of address/signature(s) can be requested during the period of dormancy of the account, but the account will not be charged for any change in the status of the dormant account. For reactivation of any dormant account, the account holder must in person request a change of status and will produce original CNIC or Passport or Pakistan Origin Card (POC) or National Identity Card for Overseas Pakistani (NICOP) with a photocopy for Branch / Bank attestation.
• If a deposit account / instrument remains inoperative for a period of ten years, then it will become an unclaimed deposit and will be surrendered to SBP as per the provisions of the Banking Companies Ordinance 1962.
• Periodic statements of account shall be issued by the Bank to the account holder / depositor concerned. Any discrepancy in the statement of account should be promptly brought to the notice of the Bank in writing within fourteen days of dispatch, failing which the statement of account shall be deemed to be final and conclusive, for all purposes whatsoever,
• If a statement of account is lost or spoiled, a duplicate statement of account may be provided by the Bank, subject to charge as is applicable under its Schedule of Bank Charges, upon receipt of written request by the customer / account holder only.
• Rupee and foreign currency accounts not meeting the Bank’s minimum balance requirement may be subject, at the discretion of the Bank, to service charges as per the Schedule of Bank Charges. However, the following accounts will be exempted from levy of service charges: I) Students, II) Mustahiqueen of Zakat, III) Employees of Government / Semi-Government institutions for salary and pension purposes, IV) Basic Banking Account. Details of minimum balance requirement service charges with exemptions are listed in the Bank’s Schedule of Charges and are also displayed in all the branches.
• The Bank, at its sole discretion, shall be constrained to close those accounts which show nil balance at the time of half yearly closings. Besides this, the Bank reserves the right to close without prior notice, any account which in its opinion is not satisfactorily operated, or for any other reasons whatsoever. It shall not be incumbent on the Bank to disclose to the account holder / depositor the reason(s) for doing so.
• The account holder / depositor wishing to close the account must surrender unused cheques, if any.
• The Bank shall have discharged its liability with respect to any account so closed by mailing to the account holder / depositor at his/her last known address as per the Bank’s record, a Bank draft in the currency of such account, payable to the account holder / depositor of the amount of the credit balance of such account less deduction(s) in respect of the amount of any claim that the Bank may have on such funds.
• The Bank shall determine from time to time the rate of interest/return/profit payable on the account/deposit in accordance with the prevailing rules and regulations of the State Bank of Pakistan and the policies of the Bank which are subject to change from time to time and the account holder / depositor agrees to accept such rate of interest/return/profit.
• Foreign currency current or savings accounts and time deposits may be established in the U.S. Dollar, Pound Sterling, Euro, Jap Yen and such other currencies as the Bank shall determine/allow and in accordance with the local regulations in force from time to time.

• Profit on foreign currency saving and term deposits is paid at periodic intervals as determined by the Bank and/or upon respective maturity dates of such deposits at such rate as may be determined by the Bank from time to time.

. Foreign currency accounts/deposits are opened and maintained subject
to Foreign Exchange Regulations and Directives of the Government of
Pakistan, or any of the organizations/agencies and State Bank of Pakistan from time to time.

• Zakat, wherever applicable, shall be deducted on valuation data from
applicable accounts having balance in excess of the exempted limit as declared for that particular Zakat year.

. Declaration on prescribed Performa for exemption of deduction of Zakat will be registered with the Bank at least one month prior to valuation date or as per Zakat rules applicable from time to time. Zakat will be deducted as per Zakat and Usher Ordinance 1980.

. ALL applicable taxes shall be recovered as per tax laws in force. The Bank shall within its right make investment of credit balance deposits in any manner at its sole discretion and make use of funds to the best of its judgment in the banking business under the PLS system.

• The account holder/depositor undertakes to reimburse the Bank with any claim in respect of losses/charges on the basis of half yearly/yearly closing of the Bank’s books of account. The Bank would be within its authorized rights to debit their accounts for the amount(s) of such claims/charges in settlement of business accounts of the Bank.

• The Bank is subject to all applicable circulars, orders, directives, rules, regulations, laws, decrees and restrictions issued by competent Government and other regulatory authorities in Pakistan and the liability of the Bank for payment is governed by applicable laws and regulation in force in Pakistan at the relevant time. Repayment of any deposit account, balances, or interest/profit thereon is subject to any acts of the Govt, of Pakistan or the State Bank of Pakistan or any competent governmental and other regulatory authority in Pakistan.

• On a request for Hold Mail service, the Bank will hold all mail addressed to the account holder/depositor. The account holder will collect any mail so held personally, or through an authorized person, unless he/she advises the bank to the contrary in writing. It is acknowledged that the request for Hold Mail service is being made entirely for the account holder’s convenience and at his/her risk and responsibility and without any obligation on the part of the Bank. All transactions will be charged as per Schedule of Charges.

• For a BBA account, a maximum of two deposits and two withdrawals per month are allowed free of charge as per policy in force. However, any transaction in a calendar month over those mentioned above will be charged a flat fee as per the prevailing Schedule of Bank Charges.
• Any existing customer wanting to convert his/her account into BBA can do so by giving a written application to the Branch Manager, after which a new BBA account will be opened. A new account number will be provided to the customer after due account opening procedures, including submission of CNIC, if not provided earlier. The statement of account will be issued once a year. The account is exempt from levy of service charges in the case of not meeting minimum balance requirements. Only one account per CNIC shall be allowed to be opened regardless of the branch. No duplication shall be allowed, even as a joint account or sole proprietorship account.
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“Whenever you find yourself on the side of the majority, it is time to pause and reflect.” -Mark Twain