Banker customer relationship

& Negotiable Instruments

Banker:
As per section-3 of NI Act. Banker means a person
transacting the business of 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, order or otherwise and includes
any post office savings Bank”.

➢ An organization involved in “Banking business” to be

treated as Bank as well as Banker.
➢ All officials representing the organization involved in
“banking business” are also to be treated as Banker.

Investment and finance companies etc. cannot be

treated as Banker, since they may accept term deposit
but cannot use cheque for withdrawal of deposits.
 Customer
In general any individual/organization who maintains account with
the bank is treated as a customer. But in some situations Banker
extend their services to the individuals/organizations even if they
are not customer as defined above.

According to duration concept a customer should run transactions

of banking business for a recognizable period.

But in practice period of transactions is not an important factor

for considering an entry as a customer.

Broadly Bank-Customer relationship may be divided into two

categories:

➢ General relationship.

➢ Special relationship
Different kinds of General
relationship are given below:

Contractual relationship: Basically Banker-Customer

is a contractual relationship established through opening
of account. This contract shall remain valid till the
account is closed. As per contract as well as Section
5(P) of Bank Company Act. deposit of the customer is
repayable on demand.

Besides this contractual relationship, there are other

kinds of general relationships between the banker and
customer depending on the services rendered by the
bank. Generally the following are the major forms of
relationships between a banker and his customers:
Debtor- Creditor: The general relationship between a banker and
customer (account holder) is that of a debtor and creditor. If the
customer’s account shows credit balance, the bank is debtor and customer
is creditor. The bank in this case has to repay on demand. On the other
hand, if the account of customer is overdrawn, relationship is just the
reverse and here the customer has to repay since he is the debtor.

Agent- Principal: Banks provide agency services to their customers. When

a banker buys or sells securities on behalf of his customers he performs
an agency function. Similarly when he collects cheques, bills, interest and
dividend etc. or when he pays insurance premium from the customer’s
account, as per his mandate, he acts as an agent. In case of agency
services, the law of agency governs the relationship between the banker
and customer. Here banker is the agent and customer is the principal.

Bank as trustee: A trustee is one who holds property for the benefit of a
person or beneficiary. The banker is a trustee when a customer deposits
his valuables and securities for the safe custody. The bank cannot use the
articles kept for safe custody anyway he likes. Fund, if any, coming to the
hands of the bank, as a trustee must also be applied for specific purposes
as the trust deed indicates.

Bailor-Bailee: When a bank advances money to a customer against

merchandise, the bank might bring the merchandise under his control. In
this case, the relationship between a customer and a banker is that of a
bailor and bailee. Here law of contract operates.
 Special Relationship between Banker-Customer:

The rights of one party are the duties of other and vice
versa. The rights and duties are the subjects of special
relationship between a bank and it’s customers. Special
relationship between a banker and customer are
discussed under the following heads:

Banker’s obligation to a customers:

a) Acceptance of deposit
b) Honoring Cheques
c) Maintenance of secrecy of the account
d) Notice to be given in case of closure of accounts
e) Payment of interest
f) Furnishing statement
g) Providing services
Banker’s rights to customers:
Bankers’ lien:
A banker has the right of general lien in respect of the dues to him by
the customer. It is the right of the creditor to retain the goods and
securities in his possession, belonging to the debtor, until the debt is
discharged.
Right of appropriation:
When more than one debt remain outstanding by the debtor, then
frequently a relevant question arises as to which of the debts is to be
discharged if the amount paid by the debtor is not enough to discharge
all the debts. The problem has been addressed by the contract act. As
per this act, the debtor has the first choice and he can appropriate the
amount, as he likes at the time of payment. If the creditor does not
agree, he may refuse to accept the payment and take the recourse of
ordinary law.

Banker’s right of set-off:

Banker has the right to set-off. This right entitles him to adjust a debt
balance in some account/accounts of a customer against any credit
balance in his other accounts.

Banker’s right of automatic set-off:

Banker has the automatic right of set-off in circumstances like death,
insanity or insolvency of the customer, on receipt of a garnishee order
etc.

Right to charge interest and commission:

Banker has an implied right on the customers to realize charges for
various services rendered to them. The charges are required to be
reasonable.
Customer’s obligation to Banker:
a) Draw cheques within the balance available in the
account or under previous arrangements with the
bank.
b) Draw cheques in such a manner that reduces chances
of fraudulent alterations.
c) Keep the cheque book carefully so that third parties
may not have easy access to them.
d) Pay reasonable charges.
e) Make deposits only at the branch where the account is
maintained if not otherwise allowed.
f) Make a formal demand for payment of deposit by
issuing cheque or by any other approved manner.
g) Inform the banker about any fraudulent attempt of
encashment of his cheque.
 Customer’s rights on banker:

a. Deposit money and cheque etc. into his

account.
b. Issue a cheque on his account
c. Transact within the banking hours
d. Avail of any other services provided by
the bankers.
NEGOTIABLE INSTRUMENTS

NI Act. 1881 came into force on 1st March 1882. After

liberation it was adapted through Bangladesh Bank Order
– 1972 (P.O.127). Originally there were 141 sections. As
the section 2 & 139 have been repealed through
Amendment, present number of section of the Act is 139.

Definition of Negotiable Instruments: Section 13 states as

under:

A “Negotiable Instrument” means a promissory note, Bill

of Exchange, or cheque payable either to order or bearer.
Specimen copy of Promissory Note
Specimen copy of Bill of Exchange
Tk. 10,000/- Dhaka
Bill of Exchange May 2, 2010

Five months after date pay Tarun or (to his) order the sum of Taka Ten thousand only for value
received.

To Accepted Stamp
Sameer Sameer
Address

Rajib
Specimen copy of Cheque
Promissory Note:

Section 4 states as under:

A " promissory note" is an instrument in writing (not

being a bank-note or a currency-note) containing an
unconditional undertaking, signed by the maker, to pay
a certain sum of money only to, or to the order of, a
certain person, or to the bearer of the instrument.
Characteristics:
➢ It must be written undertaking.
➢ The maker must sign.
➢ The amount payable must be specific(certain).
➢ Payee of the note must be specific.
➢ Unconditional promise.
➢ It should be stamped.
➢ It must be an undertaking to pay money and only money.

Parties involved:

Maker and payee.

Bill of Exchange:

Section 5 states as under:

A "bill of exchange" is an instrument in

writing, containing an unconditional
order, signed by the maker, directing a
certain person to pay a certain sum of
money only to, or to the order of, a
certain person or to the bearer of the
instrument.
Characteristics:

➢ A bill must be in writing, duly signed by its

drawer, accepted by its drawee and properly
stamped as per Stamp Act.
➢ It must contain an order to pay. Words like
‘please pay Rs 5,000/- on demand and oblige’ are
not used.
➢ The order must be unconditional.
➢ The order must be to pay money and money
alone.
➢ The sum payable mentioned must be certain or
capable of being made certain.
➢ The parties to a bill must be certain.

Parties involved:
Drawer, Drawee, Acceptor, Payee (Endorser &
Endorsee)
Cheque:
Section 6 states as under:

A "cheque" is a bill of exchange drawn on a specified banker and

not expressed to be payable otherwise than on demand.

Characteristics:

➢ A cheque must be in writing and duly signed by the drawer.

➢ It contains an unconditional order.
➢ It is issued on a specified banker only.
➢ The amount specified is always certain and must be clearly
mentioned both in figures and words.
➢ The payee is always certain.
➢ It is always payable on demand.
➢ The cheque must bear a date otherwise it is invalid and shall
not be honoured by the bank.

Parties involved:

Drawer, Drawee, Payee (Endorser & Endorsee)

 Types of Cheque:
i. Bearer Cheque
ii. Order Cheque

The cheque which contains the word “bearer” after the

payee’s name is a “bearer cheque”.

Specimen copy of bearer Cheque

As regards bearer cheque section-85(2) of NI. Act. states as under:

Where a cheque is originally expressed to be payable to bearer, the -

drawee is discharged by payment in due course to the bearer thereof,
notwithstanding any endorsement whether in full or in blank appearing
thereon, and notwithstanding that any such endorsement purports to
restrict or exclude further negotiation.

According to the subject “section” a bearer cheque is as good as cash. It

can be transferred to anybody by mere hand to hand delivery i.e.
without written endorsement on the cheque. Even if a stolen bearer
cheque is paid, over the counter, drawee bank cannot be made liable for
effecting payment if it is made in due course. A cheque originally
expressed as bearer cheque and if it is subsequently made restricted for
negotiation by endorsement, drawee bank shall not be made liable for
payment. It may be kept in mind that “once a cheque is issued as
bearer it is always bearer”.

As per section-50 legally a bearer cheque can be charged to order

cheque by a restrictive endorsement. Since intension of the transferor is
to get the payment by a specific person it is advisable that the paying
bank to find out the bonafide person before making payment to avoid
dispute or litigation through law does not require it.
Order cheque

The cheque in which the words “or bearer” are strike out
and order is given by the drawer to a specific person for
payment, is an order cheque.

Specimen copy of order Cheque

Section85(i) states as under:

Where a cheque payable to order purports to be

endorsed by or on behalf of the payee, the drawee is
discharged by payment in due course.

The order cheque may be paid over the counter but the
drawee bank shall have the responsibility to verify the
identification of the named person.

As per section 47 & 48 an order cheque is negotiable

by endorsement and delivery thereof.