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    Banker S Right of Set Off - Explained - BankExamsToday

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    Himanshu Panchpal
    The banker's right of set off allows a bank to use funds in a customer's deposit account to repay a loan from the same bank that is due and payable. There are certain conditions for this right: 1) the relationship must be one of debtor/creditor; 2) prior notice must be given; and 3) the loan must be certain, determined, and due rather than a future debt. All branches of a bank are treated as a single unit for exercising this right. The funds in one branch can be used to offset a loan from another branch.

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    Banker S Right of Set Off - Explained - BankExamsToday

    Uploaded by

    Himanshu Panchpal
    909 views4 pages
    The banker's right of set off allows a bank to use funds in a customer's deposit account to repay a loan from the same bank that is due and payable. There are certain conditions for this right: 1) the relationship must be one of debtor/creditor; 2) prior notice must be given; and 3) the loan must be certain, determined, and due rather than a future debt. All branches of a bank are treated as a single unit for exercising this right. The funds in one branch can be used to offset a loan from another branch.

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    Banker ‘s Right of Set Off_ Explained _ BankExamsToday

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    The banker's right of set off allows a bank to use funds in a customer's deposit account to repay a loan from the same bank that is due and payable. There are certain conditions for this right: 1) the relationship must be one of debtor/creditor; 2) prior notice must be given; and 3) the loan must be certain, determined, and due rather than a future debt. All branches of a bank are treated as a single unit for exercising this right. The funds in one branch can be used to offset a loan from another branch.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    909 views4 pages

    Banker S Right of Set Off - Explained - BankExamsToday

    Uploaded by

    Himanshu Panchpal
    The banker's right of set off allows a bank to use funds in a customer's deposit account to repay a loan from the same bank that is due and payable. There are certain conditions for this right: 1) the relationship must be one of debtor/creditor; 2) prior notice must be given; and 3) the loan must be certain, determined, and due rather than a future debt. All branches of a bank are treated as a single unit for exercising this right. The funds in one branch can be used to offset a loan from another branch.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Banker ‘s Right of Set Off: Explained


    Published on Saturday, February 04, 2017
    By Admin

    Introduction

    The set-off refers to “combining of two or more account for final settlement of
    accounts”
    In other words set off is a process where the bank recovers its due loan, to the
    debit of deposit account of the burrower
    The essential condition is that one of such accounts must show a debit balance
    and the other, a credit balance

    Different Branches are one unit


    For exercising the right to set off all branches of a bank are treated as a single
    unit, which means a loan from branch-A can be adjusted by the funds in branch-B
    under following conditions.

    CONDITIONS
    There are certain conditions to be followed before using right to set off.

    RELATIONSHIP

    The right can be exercised when the relationship is that of debtor/creditor on one
    hand and creditor/debtor on the other and exist simultaneously.

    NOTICE

    The right can be exercised only after sending a prior notice to the depositor,
    expressing the intention to exercise the right. The notice will be of a reasonable
    period.

    TYPE OF LOAN

    The loan should be certain, determined, due and not a future debts and where no
    agreement to the contrary exists. In other words, the right can be used, for those
    loans, which have become due for payment and customer has defaulted. Where
    the customers has been paying the loan as per agreed terms, the right is not
    available.

    TIME BARRED LOANS

    Time barred loans can be recovered by use of right of set-off, since such loans
    continue to be lawful.

    SAME NAME AND CAPACITY

    It is essential that the account must be in the same name and in the same
    capacity. The money belonging to someone else cannot be made available to
    satisfy personal debts of some other person.

    PARTNERS/PARTNERSHIP

    Where a partner’s account shows credit balance, the right can be exercised for
    the dues of the partnership firm. But where the firm’s account shows credit
    balance, the bank cannot set off the credit balance against the debts due from
    the individual partner.

    GUARDIAN

    Where account is opened in the name of minor child in the capacity of a


    guardian, the account with the bank. Hence, bank cannot exercise right of set-off
    on such accounts.

    TRUST

    The funds held by a person in a trust account are to be treated in a different right
    from his own liability as an individual. Theses cannot be used by the bank for set-
    off.

    JOINT ACCOUNTS

    If the account of a person shows debit balance, such dues cannot be recovered
    from his joint account with others. To settle the loan in the joint names, the funds
    lying in the individual account of one or more of them, can be used to settle the
    joint liability.

    GUARANTOR'S ACCOUNT

    The right can be exercised against the lying in the account of a guarantor but
    only when demand is made on the guarantor which determines his liability.

    TERM DEPOSITS WHICH ARE NOT DUE

    Though the right is available, but the right can be used only after the term deposit
    becomes due.

    LIEN AND SET-OFF - DISTINCTION


    Must Read Banker's Right of Lien

    TRANSACTIONS LIEN SET-OFF

    SUBJECT MATTER Goods and Securities Bank Deposit


    Creditor/debtor and
    RELATIONSHIP Creditor and Debtor Creditor/debtor
    simultaneously

    If available for time Yes, If otherwise lawful Yes, If otherwise lawful


    barred loans and due and due

    Receipt of garnishee or Right can be exercised


    Not applicable
    attachment order for lawful and due debts

    Possession of deposit
    POSSESSION With the bank is must receipt or pass book not
    necessary with bank

    It is available by treating It is available by treating


    Account with different
    the branches as one the branches as one
    branches
    bank bank

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