CHAPTER Three

Banker &

Customer Relation

Muhammad Ibrahim SohelBBADepartment of Business AdministrationInternational Islamic University Ctg (Dhaka Campus)

Customer – Definition:Customer – Definition:

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

- John Paget- John Paget

It is known as “Duration theory”It is known as “Duration theory”

Features of CustomerFeatures of Customer

- Have an account in a bankHave an account in a bank

- Dealing with a bankDealing with a bank

- Dealing must be in the nature of banking businessDealing must be in the nature of banking business

- Dealing may be of short or long durationDealing may be of short or long duration

Relationship between a banker and Relationship between a banker and customercustomer

Relationship

GeneralRelationship

SpecialRelationship

General RelationshipGeneral Relationship

General Relationship

Primary Secondary

Primary RelationshipPrimary Relationship

Debtors & creditors relationship:Debtors & creditors relationship:

- Demand for paymentDemand for payment

- Demand at proper timeDemand at proper time

- Demand in proper mannerDemand in proper manner

Secondary RelationshipSecondary Relationship

1. Trustee & Beneficiary relationship (at the time of 1. Trustee & Beneficiary relationship (at the time of keeping valuables):keeping valuables):

- Bankers does not get ownershipBankers does not get ownership

- It does not compensate the creditors at It does not compensate the creditors at the time of bank’s liquidationthe time of bank’s liquidation

- Deposits carry any standing instruction – Deposits carry any standing instruction – (trustee & beneficiary) and vice versa(trustee & beneficiary) and vice versa

- cheque deposits for collection (trustee & cheque deposits for collection (trustee & beneficiary) and vice versa.beneficiary) and vice versa.

Obligation of the bankerObligation of the banker

1. Obligation to honour the Cheques:1. Obligation to honour the Cheques:- Sufficiency of fundsSufficiency of funds

- Applicability of fundsApplicability of funds

- Proper requirements for paymentProper requirements for payment

- No garnishee or attachment order No garnishee or attachment order

2. Obligation to maintain secrecy of 2. Obligation to maintain secrecy of accounts:accounts:

a. Legal necessity – it will disclose if it is a. Legal necessity – it will disclose if it is required by;required by;- Income tax actIncome tax act- Companies actCompanies act- RBI actRBI act- Banking regulation actBanking regulation act- Gift tax actGift tax act- Order to courtOrder to court- Foreign regulation actForeign regulation act

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Garnishee OrderGarnishee Order

The obligation of a banker to honour his customers cheque is extinguished on receipt of on order from the court known as trhe garnishee order

If a debtor fails to pay the debt due to his creditor, the creditor may apply to the debtors bank to issue this order so that the bank account is frozen.

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Parts of Garnishee OrderParts of Garnishee Order

1.Order Nisi :Directs the banker to freeze the debtors account or seeks the banker to explain why the funds in the account should not be used for payment to the creditors.

2.Order Absolute: Directs the banker to pay either the whole or part of the funds lying in the account.

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Features of CustomerFeatures of Customer

- Have an account in a bankHave an account in a bank

- Dealing with a bankDealing with a bank

- Dealing must be in the nature of banking businessDealing must be in the nature of banking business

- Dealing may be of short or long durationDealing may be of short or long duration

b. Banking Practice:

1. Disclosure with customer’s consent

- Express consent (customer can instruct)

- Implied consent (guarantor)

2. Disclosure for banker’s own interest

- To bankers lawyer (recovery of dues)

3. Disclosure of request by other banks

- Can furnish data except the actual figures

4. Disclosure for public interest

- When it helps to find a criminal

- Person involves in Illegal activities

Consequences of wrong disclosureConsequences of wrong disclosure::

Liability to the customer:Liability to the customer: Banker should compensate the loss Banker should compensate the loss

due to the wrong disclosuredue to the wrong disclosure

Liability to the third party:Liability to the third party: Banker should compensate the loss Banker should compensate the loss

for the wrong disclosurefor the wrong disclosure

Rights of a bankerRights of a banker

1. Right of lien:1. Right of lien:- Lien is a right of the person who can retain Lien is a right of the person who can retain

the goods of another in his position until a the goods of another in his position until a debt due to him is paid.debt due to him is paid.

- Particular lienParticular lien – on particular property. – on particular property.

- General lienGeneral lien – Any property can be – Any property can be retained.retained.

Conditions to be satisfied in lien:Conditions to be satisfied in lien:

- Banker must possess the Banker must possess the property/security.property/security.

- Property/security must be in the name Property/security must be in the name of the customer alone.of the customer alone.

- The possession obtained by banker The possession obtained by banker legally.legally.

Exception to the right of lien:Exception to the right of lien:

- Valuable accepted for safe custody.Valuable accepted for safe custody.- Bill of exchange/other documents deposited for Bill of exchange/other documents deposited for

other purposes.other purposes.- Money deposited for special purposes like Money deposited for special purposes like

purchase of securitiespurchase of securities- Documents/valuables left with the banker by Documents/valuables left with the banker by

mistakemistake- Trust a/c operated by the customer against his Trust a/c operated by the customer against his

personal a/c.personal a/c.- Securities lodged with a banker for getting a loan Securities lodged with a banker for getting a loan

before sanctioning such loanbefore sanctioning such loan

2. Right of Set Off:2. Right of Set Off:

- Banker can exercise the right Banker can exercise the right by setting off a debit balance in by setting off a debit balance in one a/c with the credit balance one a/c with the credit balance in another a/c maintained by in another a/c maintained by the same customer.the same customer.

Right of set off subject to the following conditions:Right of set off subject to the following conditions:

- No agreement contrary to this right.No agreement contrary to this right.

- Formal notice to the customer.Formal notice to the customer.

- Capacity of the customer must be same in Capacity of the customer must be same in all the a/c’s.all the a/c’s.

- Different branches of bank will constitute Different branches of bank will constitute one entity.one entity.

- Banker has the option (customer can’t Banker has the option (customer can’t compel the banker).compel the banker).

- Banker can do this even after the receipt Banker can do this even after the receipt of garnishee order.of garnishee order.

3. Right of Appropriation:3. Right of Appropriation:

- Appropriation of amount will arise Appropriation of amount will arise when a customer;when a customer;

- Owes several debts to a banker and Owes several debts to a banker and

- His payment is not sufficient to His payment is not sufficient to discharge all his debts.discharge all his debts.

4. Right of charge interest, incidental 4. Right of charge interest, incidental charges etc:charges etc:

- Banker has the right to charge Banker has the right to charge interest on due from customersinterest on due from customers

- It has the right to charge incidental It has the right to charge incidental charges on customers a/ccharges on customers a/c