Why is “Introduction” required for current accounts

It is important to know the rationale behind obtaining a Current account. Not like any other type
of deposit account, current accounts are usually opened with an introduction.
Bankers generally obtain introduction due to three main reasons.
1. To confirm the identity the person who opens a current account
2. To establish the integrity of the new person
3. To establish a person’s suitability to main a current account?
Although the facts are such, Bankers may deviate from this establish practice considering good
acceptable reasons (Such instances are discussed at the later part of this article)
What is an introduction?
This refers to confirming the identity, integrity and suitability of the prospective customer to open
and maintain a current account from a known source.
Who can introduce?
Any known party who is reliable to the bank can introduce. Generally existing current account
holders or any respectable person from the area can introduce.
Why only for current accounts
Current accounts are mainly deal with cheques. Cheques are deposited to a current account
and cheques can be issued from a current account. Hence there are two main functions.
a) Collection of cheques
b) Issuance of cheques

a) Collection of cheques
First reason for obtaining introduction relates to this. When customers deposits cheques to their
current accounts, Bank will collect the proceeds of those cheques there by discharging the
Agency function. Bank act as an Agent to the customer. Accordingly, the Bank will become the
“collecting banker”.
The main risk that a collecting banker runs is the risk of “conversion” The customer who deposit
the cheque may have not a title (ownership) to it or have a defective title to it and the collecting
banker is liable to the true owner of the cheque for conversion.
Conversion
In simple terms it is depriving the ownership of the true owner and giving it to another.
What are the protections available?
Collecting banker commonly rely on section 82 of the Bill of Exchange Ordinance (BEO)
What is Section 82?
This is the section which gives protection to a collecting banker that read as “when a banker in
good faith and without negligence received payment for a customer of a cheque crossed
generally or specially to himself and customer has no title or defective title to it, the banker shall
not incur any liability to the true owner of the cheque by reason only of having receive such
payment.
To obtain protection under this section, the collecting banker should collect the cheque
1. For a customer
2. In good faith &
3. Without negligence
We now see how a bank can satisfy these requirements
Customer
Since the BEO doesn’t provide legal definitions, references has to be made to the decided court
cases.
 As decided in the GREAT WESTERN RAILWAY vs LONDON & COUNTY BANKING
CO (1901) customer is a person who has an account with the bank
 According to COMMISSIONERS OF TAXATION vs ENGLISH, SCOTTISH &
AUSTRALIAN BANK (1920) the word “customer” signifies the relationship in which
duration is not the essence.
 IN LADBROKE CO vs TODD (1914) it was held that a person becomes a customer with
the first transaction.
Therefore, an account holder can be safely considered as a customer.
In Good Faith
As explained in sec 92of the BEO “a thing deemed to be done in good faith, where it is in
fact done honestly whether it is done negligently or not.”
Without Negligence
Failure to exercise due care is known as negligence.
Since BEO doesn’t provide legal explanations, it is left for the case law to provide an
explanation.
Collecting banker’s negligence can discuss under three headings.
1. Negligence at the time of opening an account
2. Negligence at the time of collecting cheques
3. Negligence during the tenor of the account

Accordingly under 1 above, if a banker fails to obtain an introduction at the time of opening
an account, the banker will be considered negligence.
As decided in the case of GUARDIANS OF St. JOHN’S HAMPSTEAD vs BARCLAYS BANK
(1923) if the introducer is unknown, follow up is necessary and failure will be result in banker
being negligence.
Therefore, banker’s failure to obtain introduction will result in negligence and bank will not
be able to get the protection under section 82 of the BEO. Hence, Bankers are more careful
to obtain introduction preferably from existing customers.
b) Issuance of cheques
When a current account is opened, the customer is having the possession of a cheque book
and bank has no control over the customer’s cheque book. It is his duty to issue cheques
within the availability of funds in the account or an agreed credit limit.
Hence, from a banker’s point of view, it is very important to ensure the suitability of a
person, who opens up current accounts.
Banker’s failure to adhere to this requirement will cause adverse effects such as reputational
and financial losses to the bank and also to the banking industry.
Suppose if anyone who wishes to open up a current account is not in a position to get an
introducer we should be mindful of as to how such a request is to be looked into.
A preliminary interview will assist us to ascertain the geniuses of the prospective customer
and if the manager is satisfy as to the identity, the suitability of on boarding him/ her as a
customer, can proceed in two ways as explained below.
1. Make note in the current account mandate in an acceptable manner as to why the bank
has taken the decision to open up a current account without an introduction..
2. If the bank satisfies himself at the preliminary interview and decides to open a current
account, then the manager too has an option to introduce the new account.
3. Moreover, if an existing savings account holder wishes to open a current account and
that person is not in a situation to get someone to introduce, then again the bank can
make a note to the effect that said person is maintaining a banking relationship over a
period of time (please be specific about the time frame) and due to that, the current
account was opened without an introduction.

Such action always indicates that the account has been opened in good faith and without
negligence; thereby safeguarding the bank’s position to obtain the legal protection under
sec 82of the BEO as the collecting banker.

Source: Journals of IBSL

Law and Practice of Banking by F E Perry