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8/3/2019 BANKER Slides
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BANKER CUSTOMER
RELATIONSHIP
LEGAL ASPECTS
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKER & CUSTOMER Definitions:
Banker:Banker means a person transacting the businessof accepting (for the purpose of lending orinvestment) of deposit of money from the public,
repayable on demand or otherwise andwithdraw-able by cheque, draft, order or otherwise as defined in Section 3 (b) ofNegotiable Instrument Act.
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKER & CUSTOMER
Customer:
The Term Customer of Bank is not
defined any where, ordinarily a
person who has an account in a bankis said to be a Customer of the Bank.
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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 RELATIONSHIP
LEGAL ASPECTS
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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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKER & CUSTOMER
Person Natural andArtificial
Money Accepted only against deposit
account, not otherwise.
Undertaking a binding contract.
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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 ofthe Contract Act.
A person having attained majority (excludingartificial person)
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
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 18years.
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKERS & CUSTOMER LEGAL QUALIFICATION OF A CUSTOMER.
Soundness of mind.
As per Section 11 of the Contract Act aperson 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 offorming a rational
judgment as to its effect upon interest.
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BANKER CUSTOMER RELATIONSHIP
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 allinformation pertaining to its customerswhich may be in possession of a bank. Forthis reason banks are expected to
zealously maintain secrecy of all theaffairs of their customers.
The relevant provision are as under:
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKERS DUTY OF SECRECY
Section 33-A of the Banking CompaniesOrdinance, 1962.
No Bank or Financial Institution shall divulge anyinformation relating to the affairs of itscustomers, except in circumstances in whichit is, in accordance with law, practice andusage customary among bankers, necessaryand appropriate.
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKERS DUTY OF SECRECY As per Section 05 of Bankers Book
Evidence Act, 1891:
No officer of a bank shall in any legalproceedings to which the bank is not aparty be compelled to produce anybankers book or to appears as a witness
to the matters, transactions and accountstherein recorded unless by the order of thecourt or judge made for special causes.
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BANKER CUSTOMER RELATIONSHIP
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 ofany document desirable for investigation,
inquiry, trial or other proceedings, they can issue
summons for production of such document,
however, for information relating to the bankaccount, such officer will have to obtain prior
permission of High Court or the Session Judge
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BANKER CUSTOMER RELATIONSHIP
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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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKERS DUTY OF SECRECY Exceptions.
In accordance with Law.
Income Tax LawsCustoms Laws
Police/FIA
Courts of Law
SBP, generally and at the time of
general elections
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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 constructivepossession 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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BANKER CUSTOMER RELATIONSHIP
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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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKERS RIGHT OF LIEN Types of Lien:
a. Particular Lien: which arises from the
particular transaction connected with theProperty subject to lien.
b. General Lien: arises of general dealings
between the two parties (Bankersgeneral lien).
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKERS RIGHT OF LIEN NOTE: A lien does not convey a right of sale but
a bankers lien has been defined as impliedpledge, which empowers a bank to sell the
goods. It is an effective security subject tofollowing condition:
- The property must belong to the customer;
- It must come into bankers possession;
- It must come into bankers possession inordinary course;
- There should be no contract to the contrary
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKERS RIGHT OF SET-OFFIn legal terminology a right of Set-Off means
Total or Partial merger of a claim of one
person against another in a counterclaim.
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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BANKER CUSTOMER RELATIONSHIP
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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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
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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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKERS RIGHT OF SET-OFF Exception:
Banker cannot Set-Off Credit Balance:
1. Of trust account against personal debt;2. 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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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
GEARNISHEE ORDERS Definition: Order passed by a competent
court in execution of Decree directing a
banker for the seizing of an account or forthe 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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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
SAFE CUSTODY The Banks offer safe deposit lockers to
their customers. The relationship betweenthe Bank and person to whom locker isrented out is legally that of licensee and alicensor and not that of customer andbanker.
The ownership in the locker vests in thebank and licensee/locker holder will haveonly right to use it as per agreed terms.
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
SAFE CUSTODY Liability of the Bank:
The Bank will not incur any liability in the
event of partial or complete loss ordestruction of or damage to valuables in
the lockers cause due to theft, dacoity,
fire, accident etc.
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
SAFE CUSTODY Break opening of lockers:
A declaratory suit against licensee of the
in operative locker shall be filed with thecourt of competent jurisdiction to break
open said locker in presence of the
preventative of court.
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
BANKERS OPINIONS
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BANKER CUSTOMER RELATIONSHIP
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 anumber of valid reason but this cannot be
done without giving a formal intimation toCustomer that he whishes to close theaccount after a specified period.
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
CLOSURE OF ACCOUNT If the Customer does not respond to the said
notice the Banker may close the account onfollowing reasons:
1. Obstinacy of Customer;2. Death of the Customer;
3. Insanity;
4. Insolvency;
5. Order of the Court;6. Assignment of the Account; and
7. Unsatisfactory Operation.
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BANKER CUSTOMER RELATIONSHIP
LEGAL ASPECTS
CONCEPT OF NEGOTIABILITY
Negotiation:
Section 14 of the Negotiable InstrumentsAct provides that:
When a Promissory Note, Bill of Exchange
or cheque is transferred to any person, soas to constitute that person the holderthereof, the instrument is said to benegotiated.
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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 theexpress words used in the instrument.
(Sec: 51 )
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
CONCEPT OF NEGOTIABILITY Duration of Negotiability:
The Negotiable Instrument can benegotiated 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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LAW RELATING TO CHEQUES
LEGAL ASPECTS
CONCEPT OF NEGOTIABILITY Modes of Negotiation:
Negotiation by Delivery:
A Negotiable Instrument payable to bearer isnegotiable by delivery thereof. (Sec:47)
Negotiation by Endorsement & Delivery:
A Negotiable Instrument payable to order canbe negotiated or transferred by the holder by
Endorsement & Delivery. (Sec:48)
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
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 (ThePerson to whom the Cheque is made). (Sec:07)
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
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 orbearer.
Signed by the Drawer.
G O C Q S
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
PARTIES TO A CHEQUE, THEIR RIGHTS &
OBLIGATIONS
PARTIES TO A CHEQUE:
DRAWER: The maker of the Cheque iscalled the Drawer. He must be
an account holder and he must
signed the Instrument.
DRAWEE: The Banker directed to pay iscalled the Drawee.
PAYEE: To whom or to whose order the
payment is to be made.
LEGAL ASPECTS
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LEGAL ASPECTS
PARTIES TO A CHEQUE, THEIR
RIGHTS & OBLIGATIONS RIGHTS & OBLIGATIONS:
Paying Banker is under an obligation to honorhis Customers Cheque if following essential arefulfilled.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.
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LEGAL ASPECTS
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.
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
PARTIES TO A CHEQUE, THEIR
RIGHTS & OBLIGATIONS9. No legal bar prohibiting payment:
i) Payment stop by the Drawer;
ii) Knowledge as to the title of the presentingperson (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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LAW RELATING TO CHEQUES
LEGAL ASPECTS
CLASSIFICATION OF CHEQUE
Open Cheque:
An open is payable at the counter of the Bank onpresentation. It need not be present through aBank account. It has two kinds:
a. Bearer Cheque: The paying Bank does notneed to see the authenticity of the holder of thecheque.
b. Order cheque: It is also payable at the counter
of the Bank after getting satisfaction about thetrue identity of the holder of the cheque.
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
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 wordsare drawn on the left hand top corner of
the cheque.
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
CLASSIFICATION OF CHEQUE Types of crossing:
a. General Crossing:Means that When the cheque bears across itsface an addition of (i) the words and Companyor any abbreviation thereof between the twoparallel transverse lines, either with or without
the words not negotiable or (ii) two paralleltransverse line with or without the word notnegotiable. (Sec:123)
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
CLASSIFICATION OF CHEQUE
b. Special Crossing:
Where a cheque bears across its face an
addition of the name of a banker eitherwith or without the words notnegotiable.(Sec:124).
It shall not be paid to the bank otherwisethan to the banker to whom it is crossed.(Sec:126)
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
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/CPayee 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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LAW RELATING TO CHEQUES
LEGAL ASPECTS
CLASSIFICATION OF CHEQUEb. Not Negotiable Crossing:
A person taking a cheque crossed
generally or specially bearing in eithercase the words Not Negotiable shall not
be capable of giving a better title to the
cheque that that which the person fromwhom he took it had, however, it remains
transferable. (Sec:130)
LAW RELATING TO CHEQUES
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
ENDORSEMENT & ITS CLASSIFICATION Definition:
When the maker or holder of a negotiable
instrument signs the same, otherwise thanas such maker, for the purpose ofnegotiation, on the back or face thereof oron a slip of paper annexed thereto, or so
signed for the same purpose a stampedpaper intended to be completed asnegotiable instrument.
LAW RELATING TO CHEQUES
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
ENDORSEMENT & ITS CLASSIFICATION
Essentials of valid endorsement:
1.Signature of the holder.
2.It must be made by the maker, astranger 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
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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 theendorsee. (Sec:50)
LAW RELATING TO CHEQUES
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
ENDORSEMENT & ITS CLASSIFICATION KINDS:
1. Blank/ General Endorsement: The endorsersings his name only and does not specify the
name of the endorsee. It makes the instrumenttransferable by delivery and is payable tobearer.
2. Full endorsement: bears the direction for
payment to or to the order of specified person.(sec:16)
LAW RELATING TO CHEQUES
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
ENDORSEMENT & ITS CLASSIFICATION
3. Partial Endorsement:
Sec: 56 provides partial endorsement is not valid,
but where the amount has already been paid inpart endorsement for the balance partial amount
is valid with a note to that effect.
4.Restritive Endorsement:
which prohibits the indorsee from furthernegotiating the instrument, by express
words.(Sec:50)
LAW RELATING TO CHEQUES
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
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.
LAW RELATING TO CHEQUES
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LAW RELATING TO CHEQUES
LEGAL ASPECTS
ENDORSEMENT & ITS CLASSIFICATION7. Facultative Endorsement:
When the endorser expressly gives up
some of his rights under the NegotiableInstruments. Such as notice of the
dishonor.