Rights of Banker
·
Right to set-off:
o
A debtor can recover any debt due from a
creditor before settlement of debt with the creditor. This is called “Right of
set-off”. If the customer approaches the bank for closing his deposit account,
the bank will allow the customer to close the account only after recovering the
loan taken by the customer, from his deposit money.
o
Three conditions are to be fulfilled to exercise
right of set-off:
§
The same customer should have the deposit
account and loan account
§
The loan must be outstanding and overdue when
the loan amount is not overdue, the right of set-off cannot be exercised.
§
There should not be any agreement between the
banker and customer, by which the banker is prevented from exercising right of
set-off.
o
Right of set-off can be exercised when a
partner’s individual account has a credit balance and the firm’s account has a
debit balance, due to loan taken from bank. But vice-versa cannot be done.
·
Right of lien:
o
Lien is a right of a banker, by which he can
retain any security coming to his possession for the purpose of any loan due by
customer.
o
It may either be general or particular.
o
Bankers most undoubtedly have a general lien on
all securities deposited with them as bankers unless there is an express or
implied contract inconsistent with lien.
o
In India, sec 171 of the Indian Contract Act
confers general lien upon bankers as follows - Bankers may in absence of a
contract to the contrary, retain as security for a general balance of account,
any goods bailed to them.
o
Circumstances for exercising general lien
§
No agreement inconsistent with the right of
lien.
§
Property must be possessed in his capacity as a
banker.
§
Possession should be lawfully obtained.
§
Property should not be entrusted to the banker
for a specific purpose.
o
Exceptions: Banker has no general lien on safe
custody deposits, On securities or bills of exchange entrusted for specific
purpose, On articles left by mistake or negligence, On deposit account, On
stolen bond, Until due date of the loan, On trust account, On title deeds of
immovable properties.
· Right
to close the account of undesirable customer:
o
Undesirable customer is one who has been
frequently issuing cheques which are bouncing, or which are getting dishonored.
Due to this, the reputation of the banker is affected. In such situation, the
banker after giving due notice to the customer, can close the account.
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