BANKER Slides

Embed Size (px)

Citation preview

  • 8/3/2019 BANKER Slides

    1/53

    BANKER CUSTOMER

    RELATIONSHIP

    LEGAL ASPECTS

  • 8/3/2019 BANKER Slides

    2/53

    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.

  • 8/3/2019 BANKER Slides

    3/53

    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.

  • 8/3/2019 BANKER Slides

    4/53

    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.

  • 8/3/2019 BANKER Slides

    5/53

    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.

  • 8/3/2019 BANKER Slides

    6/53

    BANKER CUSTOMER RELATIONSHIP

    LEGAL ASPECTS

    BANKER & CUSTOMER

    Person Natural andArtificial

    Money Accepted only against deposit

    account, not otherwise.

    Undertaking a binding contract.

  • 8/3/2019 BANKER Slides

    7/53

    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)

  • 8/3/2019 BANKER Slides

    8/53

    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.

  • 8/3/2019 BANKER Slides

    9/53

    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.

  • 8/3/2019 BANKER Slides

    10/53

    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:

  • 8/3/2019 BANKER Slides

    11/53

    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.

  • 8/3/2019 BANKER Slides

    12/53

    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.

  • 8/3/2019 BANKER Slides

    13/53

    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

  • 8/3/2019 BANKER Slides

    14/53

    BANKER CUSTOMER RELATIONSHIP

    LEGAL ASPECTS

    BANKERS DUTY OF SECRECY

    Information relating to affairs of

    the customer.

    Statement of A/c.

    Other Documents.

    Private information.

  • 8/3/2019 BANKER Slides

    15/53

    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

  • 8/3/2019 BANKER Slides

    16/53

    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.

  • 8/3/2019 BANKER Slides

    17/53

    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)

  • 8/3/2019 BANKER Slides

    18/53

    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).

  • 8/3/2019 BANKER Slides

    19/53

    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

  • 8/3/2019 BANKER Slides

    20/53

    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.

  • 8/3/2019 BANKER Slides

    21/53

    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.

  • 8/3/2019 BANKER Slides

    22/53

    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.

  • 8/3/2019 BANKER Slides

    23/53

    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.

  • 8/3/2019 BANKER Slides

    24/53

    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.

  • 8/3/2019 BANKER Slides

    25/53

    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.

  • 8/3/2019 BANKER Slides

    26/53

    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.

  • 8/3/2019 BANKER Slides

    27/53

    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.

  • 8/3/2019 BANKER Slides

    28/53

    BANKER CUSTOMER RELATIONSHIP

    LEGAL ASPECTS

    BANKERS OPINIONS

  • 8/3/2019 BANKER Slides

    29/53

    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.

  • 8/3/2019 BANKER Slides

    30/53

    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.

  • 8/3/2019 BANKER Slides

    31/53

    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.

  • 8/3/2019 BANKER Slides

    32/53

    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 )

  • 8/3/2019 BANKER Slides

    33/53

    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)

  • 8/3/2019 BANKER Slides

    34/53

    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)

  • 8/3/2019 BANKER Slides

    35/53

    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)

  • 8/3/2019 BANKER Slides

    36/53

    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

  • 8/3/2019 BANKER Slides

    37/53

    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

  • 8/3/2019 BANKER Slides

    38/53

    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.

  • 8/3/2019 BANKER Slides

    39/53

    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.

  • 8/3/2019 BANKER Slides

    40/53

    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.

  • 8/3/2019 BANKER Slides

    41/53

    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.

  • 8/3/2019 BANKER Slides

    42/53

    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.

  • 8/3/2019 BANKER Slides

    43/53

    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)

  • 8/3/2019 BANKER Slides

    44/53

    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)

  • 8/3/2019 BANKER Slides

    45/53

    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.

  • 8/3/2019 BANKER Slides

    46/53

    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

  • 8/3/2019 BANKER Slides

    47/53

    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

  • 8/3/2019 BANKER Slides

    48/53

    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

  • 8/3/2019 BANKER Slides

    49/53

    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

  • 8/3/2019 BANKER Slides

    50/53

    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

  • 8/3/2019 BANKER Slides

    51/53

    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

  • 8/3/2019 BANKER Slides

    52/53

    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

  • 8/3/2019 BANKER Slides

    53/53

    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.