General Studies · Legal Aspects of Banking
A bank receives a court garnishee order attaching a customer's accounts. Simultaneously, the bank notes that the same customer has a defaulted personal loan account for which a recovery notice has been issued. According to the Indian Contract Act 1872 and banking laws, which legal sequence must the bank follow?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank must freeze all accounts and seek clarification from the court before executing either a set-off or the garnishee order.
- 2The garnishee order attaches to the savings account immediately, but the fixed deposit is entirely exempt until it matures.
- 3The bank can exercise its right of set-off for the defaulted loan first, and the garnishee order attaches only to the remaining surplus.✓
- 4The bank must prioritize the garnishee order for all accounts and cannot exercise the right of set-off.
Correct answer
The bank can exercise its right of set-off for the defaulted loan first, and the garnishee order attaches only to the remaining surplus.
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