Mr. Rajesh holds a Current Account (balance ₹2,50,000), Savings Account (balance ₹6,00,000), and an irregular Cash Credit account (debit balance ₹12,00,000) at a bank. An Income Tax Attachment Order under Section 226(3) attaching ₹5,00,000 is served on his Savings Account. Simultaneously, a cheque of ₹2,00,000 is presented against the Current Account. The bank manager freezes all accounts to exercise the Right of Set-off for the full CC debt, refusing both the IT order and the cheque. What is the legal standing of the manager's action?

Question

Accepted Answer

The manager's decision is incorrect; a valid Income Tax attachment order takes priority over the set-off if the bank had not already exercised set-off prior to service of the order.

Answer

The manager's decision is incorrect solely because set-off can only be applied when an account is officially classified as an NPA.

Answer

The manager's decision is partially correct; set-off applies to the Current Account but the IT order must be honored from the Savings Account.

Answer

The manager's decision is correct; the bank's Right of Set-off always supersedes tax attachment orders and cheques.

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