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M A H Sazzad Shikder
Banker-Customer Relationship
Introduction
Banking industry occupies an important place in a nation’s economy. A bank is an indispensable
institution in a modern society. One cannot think of the development of any nation without the
active assistance rendered by financial institutions. Banks, in fact, do finance trade, industry and
commerce. The modern business and the entrepreneur cannot carry on the commercial activities
without the different methods of financing done by the banks. Gone are the days when borrowing
was criticised and objected to and the borrower was looked down upon. But today, the time and
circumstances have changed. It is natural that every businessman has to change according to the
new challenges. Right from small businessman, up to the biggest business tycoon, they
invariably depend upon finances of different types given by the banks. Therefore, one has to
accept that the banking industry play a vital role in every field and at every juncture of the
business. This chapter deals with the relationship that exists between the banker and customer.
All the legal aspects associated with these two vital organs of the banking operations are
discussed. The relationship between the customer and the banker is vital. The relationship starts
right from the moment an account is opened and it comes to an end immediately on closure of
the account. The relationship stands established as soon as the agreement or contract is entered
into. The nature of the relationship depends upon the state of the customer’s account. Before we
take up the relationship that exists between a banker and his customer, let us understand the
meaning of the terms ‘banker’ and ‘customer’.

Meaning and Definition of a Banker

The term ‘banker’ refers to a person or company carrying on the business of receiving moneys,
and collecting drafts, for customers subject to the obligation of honouring cheques drawn upon
them from time to time by the customers to the extent of the amounts available on their current
accounts. There are differences of opinion regarding the meaning of the term banker. We have
discussed here some of the important ones.
1. Sheldon H.P.: “The function of receiving money from his customers and repaying it by
honouring their cheques as and when required is the function above all other functions
which distinguishes a banking business from any other kind of business.”
2. Sir John Paget: “No person or body corporate or otherwise can be a banker who does
not take deposit accounts, take current accounts, issue and pay cheques and collect
cheques crossed and uncrossed for his customers.”
3. G. Crowther: “A banker is a dealer in debt, his own and other people.”
4. Macleod: “The essential business of banker is to buy money and debts, by creation of
other debts. A banker is therefore essentially a dealer in debts or credit.”
5. Dr. H.L. Hart: “A banker or bank is a person or company carrying on the business of
receiving moneys, and collecting drafts, for customers subject to the obligation of
honouring cheques drawn upon them from time to time by the customers to the extent of
the amounts available on their current accounts.”

Meaning and Definition of a Customer

The term ‘customer’ of a bank is not defined by law. In the ordinary language, a person who has
an account in a bank is considered its customer. The term customer also presents some difficulty
in the matter of definition. There is no statutory definition of the term either in Bangladesh or in
England. However, the legal decisions on the matter throw some light on the meaning of the

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term. According to an old view, as expressed by Sir John Paget, “to constitute a customer, there
must be some recognizable course or habit of dealing in the nature of regular banking
business...... It has been thought difficult to reconcile the idea of a single transaction with that of
a customer that the word predicates, even grammatically, some minimum of custom, antithetic to
an isolated act.” According to this view, in order to constitute a customer of a bank, two
conditions are to be fulfilled.

(a) There must be some recognizable course or habit of dealing between the customer and
the banker.
(b) The transactions must be in the form of regular banking business.

Further, for a person to be a customer of a bank, he should have some sort of account with the
bank and the initial transaction in opening an account would not constitute the relation of banker
and customer; there should be some kind of continuity. The concept of duration does not hold
good any longer. At present to constitute a customer, duration is not essential.

According to Dr. Hart “a customer is one who has an account with a banker or for whom a
banker habitually undertakes to act as such.” Supporting this view point, the Kerala High Court
observed: (Central Bank of India Ltd., Bombay Vs V. Gopinathan Nair and others – A.I.R.,
1970, Kerala 74). “Broadly speaking, a customer is a person who has the habit of resorting to the
same place or person to do business. So far as banking transactions are concerned he is a person
whose money has been accepted on the footing that the banker will honour up to the amount
standing to his credit, irrespective of his connection being of short or long standing.”
Thus, a person who has a bank account in his name and for whom the banker undertakes to
provide the facilities as a banker is considered to be a customer. It is not essential that the
account must have been operated upon for some time.

A more acceptable view is that expressed in Ladbroke Vs Todd (1914, 30, TLR., 433).
According to the Learned Judge: “The relation of banker and customer begins as soon as the
first cheque is paid in and accepted for collection. It is not essential that the person should have
drawn on any money or even that he should be in a position to draw any money.”

Therefore, neither the number of transactions nor the period during which business has been
conducted between the parties is material in determining whether or not a person is a customer.

In a later case that took place between official Assignee Vs Natesam Pillai: (Indian case),
According to learned judge “the fact that person had no prior banking transaction with the bank
would not by itself exclude the possibility of his becoming a customer when he paid in the
amount.”

All these court decisions lay stress on the fact that the customer need not have continuous
transactions with the bank to become a customer. Mere opening, any type of account will satisfy
the basic condition to become a customer. His position must be such that transactions are likely
to become frequent. When the accounts are opened with the bank, there will be an implication
that the person is likely to operate the account frequently.

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Thus, in order to constitute a person as a customer, he must satisfy the following conditions:

1. He must have an account with the bank – i.e., saving bank account, current deposit
account, or fixed deposit account.
2. The transactions between the banker and the customer should be of banking nature i.e., a
person who approaches the banker for operating Safe Deposit Locker or purchasing
travellers cheques is not a customer of the bank since such transactions do not come
under the orbit of banking transactions.
3. Frequency of transactions is not quite necessary though anticipated.

The Banker-Customer Relationship

The relationship between the banker and the customer arises out of the contract entered in
between them. This contract is created by mutual consent. A contract that exists between a bank
and its customer is a loan contract. This is because if the customers account is in credit, the bank
owes him that money and vice versa, if the account is overdrawn. This contractual relationship
between banker and customer is regulated by the rules contained in the Negotiable Instruments
Act, 1881 and the Contract Act, 1872. The relationship between the banker and the customer is
vital. The relationship starts right from the moment an account is opened and it comes to an end
immediately on closure of the account. This relationship is of two types:

A. General relationship, and B. Special relationship.

A. General relationship:
The general relationship between banker and customer can be classified into two types, viz.,

1. Primary relationship, and

2. Secondary relationship.

These are discussed below.

1. Primary Relationship
Primary relationship is in the form of a ‘Debtor’ which arises out of a contract between the
banker and customer. Banker is neither a bailee nor a trustee nor an agent but only a debtor.
Thus, the fundamental relationship is that of “Debtor and Creditor.” Sometime the banker
discharges agency functions like collection of bills, cheques etc., acts as a bailee by keeping
valuables in safe custody and acts as trustee by administering the property for the benefit of
defined beneficiary. Here the relationship is not that of ‘Debtor and Creditor’. The authorities on
banking law and many court decisions have said that primary relationship is that of ‘Debtor and
Creditor’.

Relation of Debtor and Creditor

The true relationship between a banker and his customer is that of a debtor and a creditor. Sir
John Paget says: “The relation of banker and customer is primarily that of a debtor and creditor,
the respective positions being determined by the existing state of the account. Instead of money
being set apart in the safe room, it is replaced by a debt due from the banker. The money

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deposited with him becomes his property and is absolutely at his disposal.” As long as the
customer’s account shows a credit balance, the banker would be a debtor and in case the
customer’s account show a debit balance, the banker would be creditor.

In the case of Joachimson Vs Swiss Banking Corporation, it was held that “the banker
undertakes to receive money and collect bills for its customer’s account and that money so
received is not held in trust for the customer but borrowed from him with a promise to repay it or
any part of it.” Even in Indian courts similar opinion is given. By perusing these court decisions
and sayings of the authorities on the subject, it is clear that the relationship that exists between
the banker and customer is primarily that of debtor and creditor. The mere fact that the banker
invites deposits and is prepared to pay interest, and on this condition, the customer deposits his
savings, is a clear indication that the customer object to non-payment of interest by the banker so
long as the banker is ready and willing to return the deposits, through a legal tender, when
demanded in the proper form.

I. The Creditor must Demand Payment: Although the banker is a debtor and the
customer is creditor, it is not at all necessary for the debtor to go to the creditor to pay the
amount. This is normally expected in case of commercial transactions where in there are
two parties one a debtor and the other a creditor i.e., ordinary debtorcreditor relationship.
But, here in case of banker and customer relationship, though the banker is a debtor, he is
not expected to approach the creditor for settlement of dues. Here, the relationship is
different and has a special feature, namely, demand is necessary from the customer.
Case : Joachimson Vs Swiss Banking Corporation 1921 - It was held that in case of debt due
from a bank, an express demand for repayment by the customer is necessary before the debt
becomes “actually and accruing due.” In case the banker pays the amount on his own accord, he
would be indirectly closing the customer’s account.

II. Proper Place and Time of Demand: The demand by the creditor must be made at the
proper place and in proper time. It means that the customer should present the cheque for
payment at that place of the bank where the customer’s account is maintained. It is quite
clear that at other places, the customer of the state of his account are not known. It is also
essential that the customers should demand payment on a working day i.e., not on a
holiday or a day which is closed for public. And in addition, it must be presented during
business hours i.e., it should not be presented either before or after the business hours.
III. Demand Must be Made in Proper Form: The demand made by the customer must be
in the prescribed form as required by the bank. It means that the demand for the refund of
money deposited must be made through a cheque or an order as per the common usage
amongst the bankers. Otherwise the banker has every right to refuse payment. So far we
have discussed the primary relationship between the banker and the customer. There are
other types of relationship called secondary relationship.

2. Secondary Relationship

It will be in the form of:

(a) Banker as agent
(b) Banker as trustee

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(c) Banker as bailee

Let us analyse these three aspects.

(a) Banker as Agent: A banker acts as an agent of his customer and performs a
number of agency functions for the convenience of his customers. These are as
follows:

(1) Purchasing or selling of securities.

(2) Collection of income
(3) Making periodical payments as instructed by his customers.
(4) Collecting interest and dividend on securities lodged by his customers.
(5) Receiving safe custody valuables and securities lodged by his customers.
(6) Collecting cheques, hundies, drafts of the customers.

In this case, the banker and customer relationship is, in the form of an ‘Agent’ and ‘Principal’.

(b) Banker as Trustee: Ordinarily, a banker is a debtor of his customer in respect of

the deposits made by the latter, but in certain circumstances he acts as a trustee
also. The customer may request the banker to keep his valuables in safe vaults or
one may deposit some amount and can request the bank to manage that fund for a
specific purpose, which the bank does, or in case of corporate debentures, the
bank can become trustee for debenture holders or the bank collects the cheques,
hundies of the customers in the capacity of trustee. Thus, there are wide varieties
of trustee functions discharged by the banker.
(c) Banker as Bailee: Section 2 of the Contract Act defines that bailment as the
delivery of goods by one person to another for some purpose upon a contract that
they shall, when the purpose is accomplished, be returned or otherwise disposed
of according to the direction of the person delivering them. As a bailee, the banker
should protect the valuables in his custody with reasonable care. If the customer
suffered any loss due to the negligence of the banker in protecting the valuables,
banker is liable to pay such loss. If any loss is incurred due to the situation beyond
the control of the banker, he is not liable for penalty. To conclude, the primary
general relationship exists when the account is opened by customer with bank.
The relationship is that of debtor and creditor. When the bank acts as trustee or
agent or bailee for the valuables, he will be establishing the secondary general
relationship.

B. Special relationship
The special relationship between banker and customer takes the form of rights which the banker
can exercise and the obligations which he owes to his customers.

Following are the rights enjoyed by the banker with regard to the customer’s account:

1. Right of general lien

2. Right of set-off

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3. Right to appropriate payments
4. Right to charge interest, incidental charges
5. Right not to produce books of accounts
6. Right under Garnishi order
7. Right to close accounts

Some of these rights are discussed below.

1. Right of General Lien: One of the important rights enjoyed by a banker is that of
general lien. A lien may be defined as the right to retain property belonging to a debtor
until he has discharged a debt due to the retainer of the property. In case lien is exercised
by a trader on his customer’s goods, he has no right to use the goods nor any right to sell
them. All that he can do is to retain the goods until the obligations are cleared. Once the
obligations are cleared by the customer, it is an obligation on the part of the trader to
return back his goods immediately. There are two kinds of lien:

(a) Particular lien, and (b) General lien.

(a) Particular Lien: A particular lien confers a right to retain the goods in respect of
a particular debt involved in connection with a particular transaction. This lien is
enjoyed by the persons who have spent their labour on such properties and have
not yet recovered their labour charges or service charges from the debtors. For
example, a tailor has the right to retain the cloths made by him for his customer
until his tailoring charges are paid by the customer. So is the case with public
carriers and the repair shops.
(b) General Lien: A general lien confers a right to retain goods not only in respect of
debts incurred in connection with a particular transaction but also in respect of
any general balance arising out of the general dealing between the two parties.
This right can be exercised only by persons such as bankers, factors, policy
brokers, wharfingers, attorneys of High Court, etc. The basic object of general
lien is to have protection for the bank funds. The loans or advances granted to
customers can be recovered easily if the general lien is exercised by the bankers.
Banker’s lien is a general lien. It has been held in Brandao Vs Barnett (1864, 3,
CB 519) that bankers have general lien on all securities deposited with them as
bankers by a customer, unless there be an express contract or circumstances that
show an implied contract, inconsistent with the lien.

Further, in the same judgement, a banker’s lien has been defined as an implied pledge. Pledge is
superior and strengthens the hands of the person who exercises the pledge. In case of pledge, not
only the goods will come into the possession f the pledge but in addition, if default is made in
complying with the terms of the pledge, the pledgee after giving reasonable notice, can definitely
auction the property pledged, recover the proceeds and appropriate the same towards his
outstanding arrears. It is because of this reason pledge is said to be much superior and more
powerful than lien. But in case of bankers, whenever they exercise their power of lien, it has the
effect of pledge. Therefore, it is rightly said that the banker’s lien is an implied pledge.

The banker can exercise his power of lien in respect of the following:

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(a) Bonds and coupons belonging to the customer deposited for collection.
(b) Customer’s securities leftover with the banker after paying the loan.
(c) Any security given by the customer for the purpose of a covering loan.

The banker cannot exercise his power of lien in respect of the following:
(a) Contents of safe deposit lockers belonging to the customer.
(b) Securities and money deposited for specific purpose.
(c) In respect of trust accounts wherein his customer (on whom the banker desires to put up
his lien) is acting in the capacity of trustee.
(d) Amounts not due.
(e) In respect of joint accounts wherein one of the joint account holder is a customer on
whom the banker desires to exercise his lien.
(f) Documents etc., submitted for getting a loan.
(g) A general lien cannot arise in respect of property of a customer pledged as security for a
particular debt.
(h) No lien arises over properties on which the customer has no title.
(i) The banker cannot exercise lien when credit and liability are not in the same rights.
(j) The banker’s lien is not affected by the Limitation Act.

2. Right of Set-off: The right of set-off is a statutory right which enables a debtor to take into
account a debt owed to him by a creditor, before the latter could recover the debt due to him
from the debtor. In other words, the mutual claims of debtor and creditor are adjusted together
and only the remainder amount is payable by the debtor. A banker, like other debtors, possesses
this right of set-off which enables him to combine two accounts in the name of the same
customer and to adjust the debit balance in one account with the credit balance in the other. For
example, Abdul has taken an overdraft from his banker to the extent of Tk. 10,000 and he has a
credit balance of Tk. 5,000 in his savings bank account, the banker can combine both of these
accounts and claim the remainder amount of Tk. 5,000 only. This right of set-off can be
exercised by the banker if there is no agreement - express or implied contrary to this right and
after a notice is served on the customer intimating the latter about the former’s intention to
exercise the right of set-off. To be on the safer side the banker takes a letter of set-off from the
customer authorising the banker to exercise the right of set-off without giving him any notice.
There are conflicting decisions regarding the application of right of set-off. In the case of Garnett
Vs Mckean (1872, 27, L.T. 560), it was held that in the absence of any special agreement to the
contrary, a banker might set-off a customer’s credit balance against a debt due to him from the
customer and that there was no legal obligation on a bank to give notice to a customer of his
intention to combine accounts. But in another subsequent case Greenhalgh and Sons Vs Union
Bank of Manchester (1924, 2, K.B. 153), the Learned Judge observed: “If the banker agrees with
his customer to open two accounts or more; he has not in my opinion, without the assent of the
customer, any right to move either assets or liabilities from one account to the other; the very
basis of his agreement with his customer is that the two accounts shall be kept separate.” In view
of these conflicting opinions, the banker can be on the safer side by taking an agreement from the
customer authorising him to combine the accounts at any time without notice and to return
cheques which, as a result of his having taken such action, would overdraw the combined
account. However, in such cases as the death or bankruptcy of the customer, the banker can

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exercise the right of set-off without notice even in the absence of an agreement, in order to
ascertain the net amount owing to him.

Conditions Necessary for Exercising the Right of Set-off

The right of set-off can be exercised subject to the fulfillment of the following conditions:

(a) The accounts must be in the same name and in the same right.
(b) By giving notice to customer of banker’s intention to combine accounts.
(c) The right can be exercised in respect of debts due and not in respect of future debts or
contingent debts.
(d) The amount of debts must be certain.
(e) If there is letter of set-off given by customer.
(f) If the accounts are of dissimilar nature.
(g) The right may be exercised in the absence of an agreement to the contrary.
(h) The banker has the right to exercise this right before the Garnishee order is made
effective.

Conditions Under which the Right Cannot be Exercised

(a) If the accounts are not in the same right.

(b) The right of set off cannot be extended to a future contingent debt e.g., a bill which will
mature in future.
(c) If the amounts of debts are uncertain.
(d) Trust account in which personal account of the customer cannot be combined.
(e) The account balance of an individual cannot be set-off against a joint account balance in
which he is one of the account holders.

Automatic Right of Set-off

The banker enjoys the right of Automatic set-off in following cases:

(a) On the death, insolvency or insanity of customer.

(b) On the insolvency of a partner.
(c) On receipt of Garnishee order
(d) On receiving the notice of assignment of a customer’s credit balance.
(e) On receiving the notice of second mortgage on the security on which the bank holds first
charge.
(f) On the winding up of a company.

Thus, the right of set-off a statutory right. But to exercise this right, it is the normal practice of
the banker to obtain a letter of set-off from the customer.

3. Right to Appropriate Payments: Whenever the customer deposits funds into his
account in the bank, it is his duty to inform the bank to which account they are to be
credited (provided the customer has more than one account at the same bank). Once the

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customer gives specific directions regarding appropriation, the banker has no right to
alter them. It is his bounden duty to carry out the instructions of the customer. This right
of appropriation is to be exercised by the customer at the time of depositing funds and not
later. In case the customer is silent or fails to give instructions, the banker has every right
to appropriate in his own way. In case both have not used their powers, the rule given in
Clayton’s case would be applicable. In this famous case (Davayness Vs Noble, 1816, 1-
Merivale 529, 572), the verdict given by the court was as follows: The first item on the
debit side is reduced by the first item on the credit side.

Certain conditions have to be fulfilled to apply the rule in Clayton’s case. They are:

(a) This rule cannot be applied to the accounts which were stopped in the middle and
revived after certain date.
(b) The rule is not applicable to broken accounts.
(c) If two separate accounts are maintained the rule is not applicable.
(d) Contrary intentions should not be evidenced by the parties concerned.

4. Right to Charge Interest: As a creditor, a banker has the implied right to charge interest
on the advances granted to the customer. The rate of interest is nowadays levied as per
the directions of Bangladesh Bank. It is charged on half yearly or quarterly basis and
generally compound interest is used. The interest is directly debited, i.e., charged to the
customer’s account and then the interest is calculated on the principal with interest.
Interest may also be fixed by the banker and customer by mutual consent. It may not
however be beyond the prescribed limits of Bangladesh Bank. Banks also charge
incidental charges on the current accounts to meet the incidental expenses on such
accounts.
5. Right not to Produce Books of Accounts: According to the provisions of the Bankers
Book Evidence Act, the banker need not produce the original books of accounts as an
evidence in the cases in which the banker is not a party. He can issue only an attested
copy of the required portion of the account which can be utilised as an evidence before
the court. When the court is not satisfied with the certified copy, the court can summon
the original books. But when a banker is a party to the suit, the court can force the banker
to produce the original records in support of his claim.
6. Right under Garnishee Order: The term “Garnishee” is derived from the Latin word
“garnire” which means “to warn.” This order warns the holder of money of judgement
debtor, not to make any payment out of it till the court directs. It is an order issued by a
competent court of law addressed to a banker instructing him to stop or withhold payment
of money belonging to a particular person who has committed a default in satisfying the
claim of his creditors. Therefore, whenever a bank receives such an order, the banker has
to obey the order fully. Let us take an example to clearly explain this procedure. Mr. “X”
is a contractor and obtains a loan from Mr. “Y” a money lender or banker. Mr. “X” fails
to pay the money to Mr.”Y” as per the stipulation. Hence Mr. “Y” files a suit in the court
of law for dues. Mr. “Y” also knows that the money is due to Mr. “X” from the agency
(third party) with which he is doing his contract business. Now Mr. “Y” can request the
court to issue an order directing the Mr. “X”s agency not to make any payment to Mr.
“X”. If the court issues the order that becomes a garnishee order. In this suit Mr. “X” is

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judgement debtor and Mr. “Y” is a judgement creditor. The third party is garnishee.
Sheldon defines Garnishee order thus, “It is an order obtained by a judgement creditor
attaching funds in the hands of a third party, who owes the judgement debtor money,
warning the third party, not to release the money attached until directed by court to do
so.” Thus, garnishee order is a direction given by the court to a third party who is due to
the judgement debtor not to make any payment till it gives a verdict regarding the paid
money. This order is issued at the request of the judgement creditor.

The Garnishee order is issued in two parts.

A. Order-Nisi: It is an order issued by a court on a specific banker ordering

him, not to release any funds belonging to a particular customer
(judgement debtor) until further orders are issued. In the meantime, the
judgement debtor is requested to appear before the court for further
proceedings.
B. Order-Absolute: This is an order of the court issued to a banker after
completion of the hearing of the parties concerned and through this
order, the court specifies how much amount is to be kept separate. The
banker has to follow these orders after looking at the position of the
customer’s account.

In the following circumstances the Garnishee order would not be applicable:

(a) Where the account of the judgement debtor is a joint account holder with another person;
(b) Where the identity of the judgement debtor is doubtful;
(c) Where the account of the judgement debtor is held by him in the capacity of a trustee;
(d) Where the judgement debtor has previously made an official assignment of his balance in
favour of a third party and the banker is informed about it in writing;
(e) Where the account of the judgement debtor reveals a debit balance.

7. Right to Close Accounts: Banker also enjoys the right to close his customer’s account
and discontinue operations. This process terminates the relationship between banker and
customer. This is done only in situations where the continuation of relationship seems
unprofitable to the banker.

These are the rights enjoyed by the banker with regard to the customer’s account.

Obligations of Bankers
Bankers are under the obligations to fulfill certain duties while dealing with customers. Such
obligations are as under:

1. Obligation to honour the customer’s cheques.

2. Obligation to maintain secrecy of customer’s account.
3. Obligation to receive the cheques and other instruments for collection.
4. Obligation to honour the cheques of customers across the counter.
5. Obligation to give reasonable notice before closing the customer’s accounts.

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Some of these obligations are discussed below.

1. Obligation to Honour the Customer’s Cheques

Section 31 of the Negotiable Instruments Act, 1881, imposes a statutory obligation upon
the banker to honour the cheques of his customer drawn against his current account so
long as his balance is sufficient to allow the banker to do so, provided the cheques are
presented within a reasonable time after their ostensible date of issue. The section runs as
follows:

“The drawee of a cheque having sufficient funds of the drawer in his hands, properly applicable
to the payment of such cheque, must pay the cheque when duly required so to do and in default
of such payment, must compensate the drawer for any loss or damage, caused by such default.”

This provision clearly indicates that the banker should honour the customers demand for
payment by cheque on certain conditions which are stated below.

(a) Sufficient Balance: There must be sufficient funds in the account of the drawer. The
cheques sent for collection by the customer are not treated as cash in the hands of the
banker until the same are realised. The banker credits the amount of such cheques to the
account of the customer on their realisation. If the customer draws a cheque on the
unrealised amounts, the banker is justified in dishonouring the cheque with the remark
“effects not cleared.”
(b) Application of the Funds: The funds must be capable of being properly applied to the
payment of customer’s cheque. This means, the funds maintained for a specific purpose
or trust funds or the funds assigned in the name of some other person cannot be applied
for honouring the cheques. Thus, the funds so sought by the customer by cheque should
be unencumbered and must be capable of being properly applied.
(c) Duly Required to Pay: The banker is bound to honour the cheques only when he is duly
required to pay. This means that the cheque, is complete and in order, must be resented
before the banker at the proper time. Ordinarily a period of six months is considered
sufficient within which a cheque must be presented for payment. On the expiry of this
period the cheque is treated as state and the banker dishonours the cheque. Similarly, a
post-dated cheque is also dishonoured by the banker because the order of the drawer
becomes effective only on the date given in the cheque.
(d) The instrument used for drawing the amount should be properly written and fulfill and
legal obligations.
(e) The banker should have reasonable time to collect the bill or cheque.
(f) There should not be any legal restriction to pass the cheque for payment say in case of
Garnishee order, restriction is imposed in the account.
(g) The banker need not honour the cheques presented against domiciled bills. Thus, the
banker should be very careful while honouring a cheque drawn by a customer.

Consequences of Wrongful Dishonour of Cheque

A cheque may be dishonured by a banker by mistake or by negligence on the part of any of his
employees. Even though there is sufficient balance, and the cheque has been drawn in a proper

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Lecturer in Finance; DBA; IIUC; Web: www.mahiiuc.weebly.com
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M A H Sazzad Shikder
manner. The banker will be held responsible for wrongful dishonour of a cheque because of loss
or damage to the customer. The phrase “Loss or damage” in Section 31 of the Negotiable
Instruments Act, 1881 includes (a) The monetary loss suffered by the customer, and (b) The loss
of credit or reputation in the market. Thus, the banker is liable to compensate the drawer not only
for the actual monetary loss suffered by him, but also for the injury top or loss of his reputation,
as a result of dishonour of a cheque. In case the customer happens to be a trader, the loss would
be substantial damages. In case the customer is a non-trader, the banker would be liable only for
normal damages. In the case of Sterling Vs Barclay’s Bank Ltd., where the banker had made a
mistake in wrongfully dishonouring the customer’s cheque, the customer was not entitled to
substantial damages but reasonable damages as the customer had two cheques dishonoured
earlier and further, people in that trade did not think much of cheques being dishonoured as they
just carried on their living with bare necessaries. (Case: Davidson Vs Barday’s Bank Ltd., 1940
AII. E.R. 316). The customer had issued a cheque for £ 2-15-8 and it was dishonoured and the
matter was referred to the court and the court ordered that substantial damages to the tune of £
250 should be paid.

2. Obligation to Maintain Secrecy of Customer’s Account

In every profession, there are certain things to be maintained absolutely in secret; for
example, a doctor is not expected to disclose the details of his patients to others. The
profession demands from him that he must maintain those matters in strict confidence.
Similarly, a bank’s profession also demands that he should maintain the particulars of his
customer’s accounts in secret. The banker has an implied obligation to maintain secrecy
of the customers account. He should not disclose matters relating to the customer’s
financial position since it may adversely affect the customer’s credit and business. This
obligation continues even after the account of the customer is closed.

Only in the following circumstances, disclosure is justified:

(a) To Satisfy Statutory Requirements: According to the Income Tax Act, the banker is
required to give out information regarding his customers to the Income Tax Department.
Similarly, whenever the court needs any information regarding the customers, the banker
is required to give the information. According to the Banking Regulation Act, all banks
are required to give in the prescribed forms detailed information regarding the customers
to the Bangladesh Bank.
(b) As a Common Courtesy: In this case, it is a common practice followed among bankers to
exchange information regarding their customers, accounts etc., as a matter of common
courtesy. Whenever the banker is called upon to give information regarding his
customers, he can do so without any difficulty. As far as possible, he should furnish bare
facts while expressing his opinion. He should be very careful while expressing his
opinion. He should not exaggerate nor underestimate the financial standing of his
customers.
(c) Disclosure at the will of Customer: The banker can disclose the state of affairs of the
customer’s account when the customer gives his consent to disclose the accounts. The
auditor of the organisation can fully examine the customer’s account when an express
consent is given by him. Similarly when a customer gives the name of a guarantor, the

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Lecturer in Finance; DBA; IIUC; Web: www.mahiiuc.weebly.com
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M A H Sazzad Shikder
guarantor can examine the accounts of the customer which the banker should furnish.
When banker acts as a reference, he can disclose the accounts of the customer.
(d) To Protect his Own Interest: Whenever the banker is required to protect his own interest,
if he discloses the details of a customer’s account, it must be a reasonable and proper
occasion. For example, if the banker is to recover his own money from a particular
customer, he may give the details to his lawyers.
(e) To Protect Public Interest: The Banking Commission (1972) opined as follows: When
banks are required to give out information regarding their customers in the interest of the
public, the information should relate to financial aspect of the customers. The following
are instances of such cases:

I. Where considerable amounts are received from other countries.

II. In case the bank thinks that the customer is carrying on such activities which are not
congenial in the interest of the nation.
III. In case the banker thinks that the customer is trying to break the provisions of the law
on the basis of his records.
IV. When the Government calls upon the bank to give information regarding a particular
customer and when the bank feels that a particular customer has committed an
offence.
3. Obligation to Receive Cheques and Other Instruments for Collection
Basically, the business of banking, as it is known today, comprises acceptance of money
on deposit account and payment of cheques. It also includes collection of cheques. It may
rightly be contended that anyone who does not perform these essential services is not a
banker. Whenever a banker is entrusted with the job of collection of cheques, they must
be collected as speedily as possible through the accepted channels. Failure to exercise
proper care and employ the recognised route for collection may make the bank liable for
any loss which the customer may sustain.
4. Obligation to Give Reasonable Notice before Closing the Account
According to law, a debtor and a creditor may terminate the relationship without notice
by the debtor paying off the balance or the creditor recalling the debt. It is not so simple
between a banker and a customer for the obvious reason that the banker is under an
obligation to honour his customer’s cheques. If this obligation could be terminated by the
banker without notice, the customer might be faced with an embarrassing situation.
Reasonable time must be granted to enable him to make alternative arrangements. Where
any customer becomes a nuisance through overdrawing without arrangement or issuing
post-dated cheques etc., it is advisable to close his account. But reasonable time has to be
given to enable him to make alternative arrangements if he so desires. If a bank abruptly
closes the customers account, it might affect his credit, giving cause for an action against
the bank for damages.

Obligations of Customers
Customers are under the obligations to fulfills certain duties while dealing with banks. Such
obligations are as under:

(a) Not to draw cheques without sufficient balance.

(b) To draw cheques in such a manner so as to avoid any change of alternation.

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Lecturer in Finance; DBA; IIUC; Web: www.mahiiuc.weebly.com
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M A H Sazzad Shikder
(c) To pay reasonable charges for services rendered.
(d) To make a demand on the banker for repayment of deposit.

So far we have discussed the primary and special relationship between the banker and the
customer. This relationship starts right from the moment an account is opened and it comes to an
end immediately on closure of the account. The relationship stands established as soon as the
agreement or contract is entered into. This relationship is shown in the following chart.

Conclusion
To conclude, it is rightly said that the relationship between a banker and its customer is that of a
bailee and bailor. As a bailee, the banker is bound to take as much care of the goods bailed to
him as a man of ordinary prudence would, under similar circumstances, take of his own goods of
the same bulk, quality and value as the goods bailed. However, in the absence of any special
contract, the bailee gets protection and is not held responsible for the loss, distruction or
deterioration of the thing bailed, if he has taken the amount of care of it.

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Lecturer in Finance; DBA; IIUC; Web: www.mahiiuc.weebly.com