Law · Banking Law
A manufacturing company named Zenith Infra Private Limited has a massive project financing arrangement with a lead bank in a consortium. The company maintains its primary current account with the lead bank. The loan agreement contains a clause stating, 'The bank shall have the right to set off any credit balances in the company's accounts against any dues under this project loan, with or without notice.' In June 2025, the company fails to pay a quarterly interest installment of fifty lakh rupees. The bank, without informing the company, freezes twenty lakh rupees from the current account and thirty lakh rupees from a separate 'Employee Gratuity Fund' account maintained by the company with the same bank. The company sues the bank, arguing that: 1. The set-off was illegal because it was done without notice. 2. The Gratuity Fund belongs to the employees and is held in a fiduciary capacity, thus cannot be set off for corporate debt. 3. The current account had cheques pending for essential raw materials, and the freeze led to a project delay worth crores in damages. How would a court likely rule in this scenario regarding the special relationship between banker and customer?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
- 1The bank is liable for the raw material delay damages because it should have prioritized the company's operational needs over interest recovery.
- 2The entire set-off is void because 'Set-off without notice' is considered an unconscionable contract clause under the Indian Contract Act.
- 3The bank's set-off of the current account is valid, but the set-off of the Gratuity Fund is illegal as it lacks mutuality and is held in a fiduciary capacity.✓
- 4The bank is fully protected by the set-off clause in the agreement and can adjust both accounts.
Correct answer
The bank's set-off of the current account is valid, but the set-off of the Gratuity Fund is illegal as it lacks mutuality and is held in a fiduciary capacity.
Download Single Question PDF
Save this question and verified answer as a clean study sheet with live clickable link.
👥
Share with Friends & Study Groups
Challenge your peer aspirants on WhatsApp or Telegram to solve this question!
Online Test Series
Start Free Mock Test →Preparing for Law?
Practice full-length mock tests with real exam timers, instant score analysis, and all-India ranking.
Chapter Practice
Practice Banking Law MCQs →Want more practice questions on Banking Law?
Solve complete topic-wise tests with detailed solutions on GkGet.
Related Practice Questions
Recommended practice questions in Law · Banking Law