Banking · Garnishee Order and Right of Set-off
Upon receiving a Garnishee Order (GO) for a customer's accounts, what is the immediate and most accurate legal action a bank must take regarding the customer's savings account (balance INR 5,50,000) and an outstanding Cash Credit (CC) loan of INR 1,80,000, considering both the GO and the bank's inherent Right of Set-off?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank must first freeze the entire savings account balance of INR 5,50,000 as per the GO (since it is a Prohibitory Order), and then inform the court that the GO amount exceeds the balance, while the bank's Right of Set-off on the savings account is not automatically superior as the accounts are of different types.
- 2The bank must first exercise the Right of Set-off by transferring the total funds in the savings account (INR 5,50,000) to the CC account, which will result in a credit balance, and then await the final court order.
- 3The bank must immediately debit the CC outstanding of INR 1,80,000 from the savings account under the Right of Set-off, and then attach the remaining savings balance of INR 3,70,000 to satisfy the GO.✓
- 4The bank must immediately freeze the entire savings account balance of INR 5,50,000 and, since the GO amount exceeds the balance, call in the full outstanding CC loan of INR 1,80,000 using the Right of Set-off before freezing.
Correct answer
The bank must immediately debit the CC outstanding of INR 1,80,000 from the savings account under the Right of Set-off, and then attach the remaining savings balance of INR 3,70,000 to satisfy the GO.
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