“Bank” is derived from the Italian word “banca”
which means bench. A bank is a financial institution that provides banking and
other financial services such as accepts deposits from the public and creates
credit. In other words, bank is an institutions that holds a banking license
and carries on a banking business.
Based on common law there is no exhaustive definition of bank. In the case
of Chettinad v Commissioner of Income Tax
the Privy Council stated that the words ‘banking’ and ‘bank’ has different
meaning and those meaning may not be uniform in countries of different habits
of life and different degree of civilization. In short, banking and bank has
different meaning because banking means the characteristic or services that
provided by the bank whereas bank means financial institution that provides
banking services. In Commonwealth v Bank
of New South Wales2,
it was stated that business of banking consists of the creation and transfer of
credit, the making of loans, the purchase and disposal of investment and other
in one of the landmark case, United
Dominions Trust Ltd v Kirkwood3
it stated about the characteristic of the business of banking. The three
characteristics are the bank conduct the current accounts, paid the drawn
cheques and collect cheques from customers. In this case, Diplock LJ held that
it is essential to the business banking that a banker should accept money from
its customers upon a running account into which sums of money are from time to
time paid by the customer and from time to time withdrawn by him.4
In the court of appeal in United Dominions Trust v Kirkwood5,
HL Hart defines a banker or bank as a person or company carrying on the
business of receiving moneys and collection drafts for customers that subjects
to the obligation of honouring cheques drawn upon them from time to time by the
customers to the extent of the amounts that available on their current account.
Nevertheless, there were also some cases that have rejected the view in of Lord
Diplock LJ which is in the case of R v
Industrial Disputes Tribunal, ex parte East Angelian Trustee Savings Bank.6
Whereby in this case, the Lord Goddard stated that the East Angelian Trustee
Savings Bank was still carrying on a banking business even when it did issued
cheque books to its customer. Based from all the common law cases that we had
discussed above, we can say that the definition for bank was not clear due to
not exhaustive definition of bank.
Malaysia, the definition of bank is stated under Section 2 of the Financial
Services Act 2013. It defined bank as ‘Bank’ means Bank Negara Malaysia or in
English the Central Bank of Malaysia.7
This definition is similar in the Central Bank of Malaysia Act 2009.8
Besides that, Section 2 of the FSA 2013 stated the definition of ‘banking
business’. Banking business means the
business of accepting deposits on current account, deposit account, savings
account or other similar account or paying and collecting cheques drawn by or
paid in by customers and provision of finance and such other business that
prescribed under section 3.9
Bank of China v Lee Kee Pin,10
in this case the bank had been operating in Malaysia and was subsequently
refused a licence to transact banking business. It sought to recover debts dues
to it. The defence alleged that amounted to carrying on banking business that
contrary to section 3 of the Banking Ordinance 1958 since it no longer had a
licence to transact banking business. It was held that a bank operating in
Malaysia but which was subsequently refused a licence could still recover debts
due to it as proceeding to recover debts dis not amount to carrying on banking
business contrary to section 3 of the Banking Ordinance 1958. In short, this
case stated that proceeding to recover debts does not amount to carrying on
banking business that is contrary to section 3 of the Banking Ordinance 1958.
The Banking Ordinace 1958 defines banking business as the business of receiving
money on current account or deposit account, paying and collecting cheques
drawn by or paid in by customers, and making advances to the customer.11
However this, definition has been replaced under section 2 of the Banking Act
1973 that stated bank as to any person who carries on banking business. In my
opinion, we can see that the definition of bank in Malaysia is very wide and
may include individual, partnership, association, society, company and other
is an organisations that carried out banking business that per stated in
section 2 of the FSA 2013, so any finance institution is not a bank as per
stated in the case of Sabah Development
Bank Bhd v SKBS (Sabah) Sdn Bhd & Ors.12
In this case, it was held that any development finance institution are not
banks. No one or nobody, corporate or otherwise, can be a banker who does not
have current accounts, cheques drawn on himself and collect cheques for
The definition of customer has not
been statutorily defined. In United states, section 4 -104 (1)(e) defines
customers as any person that have and account with a bank or whom a bank has
agreed to collect items and includes a bank carrying on an account with another
In the case of Great Western Railway Co.
v London & County Banking Co Ltd, it defined customer is who has an
account with a bank. In Malaysia, Section 2 of the FSA defined depositor is a
person who entitled to the repayment of a deposit, whether the deposit was made
by him or any other person. However the definition of customers in Malaysia is
depends on the judicial interpretation as account can be opened in different
circumstances. The circumstances are the account opened by intention to
contract, account opened by a thief or fraudster, account opened under an
assumed name, the duration of account opent is immaterial, account opened by
casual services and a bank can be another customers of another bank.
As for first circumstances, the account
opened by intention to enter the contract can be said that a person can be a
customer when there is an intention by him in entering the contractual
relationship with the bank. In the case of Robinson
v Midland Bank Ltd,14
it stated that the relationship of banker and customer does not come into
existence unless both parties intend to enter into it. Besides that, in Great Western Railway Co v London and County
Banking Co Ltd,15
it was held that it is impossible to define customer with exactness but if there
is an existing of an account with a bank, that person can be known as
customers. In other words, a person can be a customers when he has an account
with a bank and intends to have a contractual relationship with the bank.
Secondly, a person can be a customer
when that account is opened by a thief or fraudster. In Oriental Bank of Malaya v Rubber Industry (Replanting Board),16
the Rubber industry issued an account payee cheque favouring to Kok Ann Rubber
Estated and sent it by post. Somehow the cheques fell into the hands of Lee Man
Choi. Lee took the cheque to the bank and requested that an account be opened
to him in the name of Kok Ann Rubber Estate. The bank did so upon duplicate
registration certificate which was later discovered to be a forgery. He then
deposited the cheque to the account, withdrew the money and disappeared. The
issue that arose in this case is whether Lee Man Choi is a customer of the
bank. The court then held that he is the customers of the bank even though he
had opened the account under fraud.
The third circumstances is the
account opened under an assumed name. this means that the person is a customer
of the bank even though he or she had opened the account under an assumed name.
The fourth circumstances is the duration of account opened is immaterial. It
means that even a single transaction made by a person can already established
him as a customer of the bank. In Commissioner
of Taxation v English, Scottish and Australian Bank Ltd, it stated that a
person may be a customer even though his only connection with the bank was
opened and account for the purpose of a single cheques for collection. So the
court held that the duration of the relationship with the bank is not the
essence, but the first payment is constituted the person as the customer of the
Next, a person is not a customer if
the bank only performs a casual service. In
Barclays Bank Ltd v Okernahe,17
the bank cashed a cheques for a person who had no account at the bank and he
was introduced by a customer. The issue arose in this case is whether he is a
customer of the bank. The court then held that a person is not a customer if
the bank performs a casual service. Lastly, a bank also can be a customer of
another bank. In the case of Importer Co.
Ltd v Westminster Bank Ltd, it stated that a bank can be the customer of
another bank either if it has a drawing account with other bank or if it is a
non-clearing bank which was regularly used as in clearing cheques.
In conclusion, the definition of
bank is very wide and there were limitations as per stated in the FSA 2013.
From this we can say that bank is an institution who carried out banking
business such as handling current account, paid cheques drawn and collect the
cheques of customers. As for customers, the definition is also wide in
determining whether the person is a customer of the bank or not. This
definition are differ and may be based on the judicial interpretation.
1 1948 AC 378 at 383, Privy Council.
2 1950 AC 235 at 303; (1949) 79 CLR 497.
3 1966 1 All ER 968, 1966 2QB 431, CA.
4 Lee Mei Pheng and Detta Samen, Banking Law (3rd Ed, p 153, LexisNexis, 2006)
5 Ibid at 3
6 1954 1 WLR 1093; 1954 2 All ER rep 622, HL.
7 The Financial Services Act 2013, s 2
8 The Central Bank of Malaysia Act 2009, s 2
9 The Financial Services Act 2013, s 2(a) (i)(ii)(iii)
10 1961 MLJ 40, HC
11 The Banking Ordinance 1958, s 3
12 1992 1 MLJ 454, HC.
13 The Uniform Commercial Code, s 4-104 (1)(e)
14 (1952) 41 TKR 402, COA.
15 1901 AC 414, HOL.
16 1957 1 MLJ 153
17 1966 2 Llyods Rep 87