General Studies · Banker's Right of Set-off
A corporate client maintains three accounts with a commercial bank: a current account with a debit balance of fifteen lakh rupees, a fixed deposit of ten lakh rupees maturing in three months, and a specific term loan account for machinery with an outstanding balance of twenty lakh rupees. The bank receives a notice stating that the client intends to liquidate the fixed deposit upon maturity to pay a supplier. Simultaneously, the bank discovers the client has defaulted on the machinery loan installments for the last four consecutive months. Under the legal principles of the Banker's Right of Set-off, can the bank combine these accounts and adjust the fixed deposit against the machinery loan before the deposit reaches its maturity date?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank must seek a specific court order under the Civil Procedure Code before combining any accounts of a corporate entity even if a default has occurred.
- 2The bank can only adjust the current account debit balance against the fixed deposit but cannot touch the machinery loan because term loans are governed by separate specific charge contracts.
- 3The bank cannot exercise the right of set-off because the fixed deposit has not yet matured and the right of set-off generally applies only to debts that are currently due and payable.✓
- 4The bank can immediately exercise the right of set-off against the fixed deposit because the machinery loan is already in default and the debt is certain.
Correct answer
The bank cannot exercise the right of set-off because the fixed deposit has not yet matured and the right of set-off generally applies only to debts that are currently due and payable.
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