Banker’s right of set- off

When a customer keeps two or more accounts at the bank, some of which are over drawn and some in credit, the bank has the right to combine such accounts and pay the resultant balance. When certain securities e.g. shares, debentures etc. are in the hands of a banker, he has a right of lien and not set-off.

A banker can exercise right of set-off provided the following conditions are satisfied:

•The amount of the debt must be certain

•The debt must be due and payable

•The accounts must be between the same parties and in the same right

•The debt due must be immediate and not a future debt

•Liability should not be contingent

•There should be no agreement to the contrary

•The banker may exercise this right at his discretion

•The banker has right to exercise this right before a garnishee order is made effective

The right to set-off all accounts arises immediately in the following instances:

•On the death, mental incapacity or insolvency of a customer

•On the insolvency of a firm, or on the liquidation of the company

•On receiving a garnishee order

•On receiving notice if assignment of a customer’s credit balance

•On receiving notice of a second mortgage over security charged to the bank