Banking · Right of Set-off
A bank is considering exercising the Right of Set-off for a borrower, M/s Dynamic Traders, a sole proprietorship firm owned by Mr. Rahul, which has a defaulted overdraft account with an outstanding balance of Rs. 12,00,000. The bank identifies three other accounts: Mr. Rahul's personal savings account with Rs. 4,00,000, a joint savings account of Mr. Rahul and his sister with Rs. 3,00,000, and a fixed deposit of Rs. 6,00,000 in the name of M/s Dynamic Traders. Which of the following conditions must be met for the bank to legally exercise the Right of Set-off in this scenario?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank must provide a 30-day prior notice to the customer and can only combine accounts that are in the same branch of the bank.
- 2The accounts must be in the same name and the same capacity, and the debt must be certain, due, and not barred by the Limitation Act.✓
- 3The Right of Set-off can be exercised against any account where Mr. Rahul is a signatory, including the joint account and any trust accounts he manages.
- 4Set-off is only possible if the bank has obtained a specific 'Letter of Set-off' signed by the customer at the time of opening the overdraft account.
Correct answer
The accounts must be in the same name and the same capacity, and the debt must be certain, due, and not barred by the Limitation Act.
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