Banker’s BankRights:hasthree rights namely (i) Right of Lien (ii) Right of Set Off (iii) Right of Appropriation
Right of Lien:Lien is the right of creditor to retain possession of goods and securities belonging to the debtor till the debts due to
him (creditor) are paid. This right is available only on goods and securities and not on balances in the accounts. Lien entitles
retention of possession of goads but the creditor cannot sell the goods. Lien can be Particular lien (Sec 170 of the Indian Contract
Act) or General Lien. Right of General Lien, is available only to bankers, factors, wharfingers, attorneys (Section 171 of the Indian
Contract Act). Banker's Lien is also a general lien but it is an implied pledge because the banker has right to retain as well as sell
goods of the borrower after giving him reasonable notice.
For exercising right of lien, (a) the goods or securities and debt should be in the same right and same capacity (b) Loan should be
due or overdue and lawful (c) Reasonable notice is given. Further, Right of Lien is available on the goods and securities received in
the ordinary course of business. It is not available when the goods or securities have been deposited for a specific purpose; goods
received for safe custody or lying in safe deposit vault or goods left by the debtor negligently.
However, in the case of loans against pledge of jewellery, bank can exercise right of general lien on the ornaments left in the
possession of the bank after adjustment of the jewellery loan in case some other advance is outstanding.
Negative lien is a declaration from the borrower to the effect that securities/goods offered as security are not encumbered and
that the borrower will not create any charge over them without bank's permission. This undertaking does not create any charge in
favour of the bank and therefore advance against negative lien are treated as dean advance.
Right of Set off: Set off is the right to combine two or more accounts having debit and credit balance. It is not defined in any Act.
This right arises when two parties are debtor as well as creditor to each other i.e. one account should be in debit and another
account should be in credit. In the case of banks, this right arises when wants to combine its loan due from a borrower with his
deposit accounts. For exercising right of set off following conditions should be satisfied (i) Both accounts should be in same right
and same capacity (ii) The debt should be due and not accruing due. Reasonable notice should be sent to the depositor before
exercising set off. Right of set off can be exercised even in case of loans which are time barred. It can be applied on fixed deposit
when it matures and not on FD which is not due as yet. Similarly it can’t be applied for adjusting term loan or CC or overdraft
which are regular and not overdue. If a loan is in the name of an individual, set off can be exercised on credit balance in his
individual account and sole proprietorship account. Set off can not be exercised on deposit accounts which are held jointly with
other individuals, or partnership in which the borrower is partner, or client account maintained by a solicitor or account of minor
under guardianship where borrower is the guardian or on the credit balance of a trust in which borrower is trustee. If loan is in
joint names, set off can be exercised on credit balance in joint account as well as credit balance in individual accounts of joint
borrowers. If loan is in the name of a partnership firm then set off can be exercised on credit balance in the name of firm, partners
and any other partnership firm which has just same partners as are in the borrowing firm. For exercising right of set off, all
branches of a bank are considered as one.
POSITION OF AVAILABILITY OF RIGHT OF SET-OFF TO BANK
Single person.. Jointly with others (Available)
Partner in a firm ...Partnership Firm ...Available
Single name ....Same name ...Available
Proprietor ...Proprietorship firm ...Available
Joint Account ...One of joint holder ...Not available
Partnership Firm ...One of partners... Not available
Trust ...Trustee ...Not available
Trustee.... Trust Not available
Dividend a/c of Co. ..................Loan a/c of co. Not available
Minor (u/g,ship a/c) ....Guardian Not available
Single person.... Single person but different
capacity say trustee..Not available
Right of Lien:Lien is the right of creditor to retain possession of goods and securities belonging to the debtor till the debts due to
him (creditor) are paid. This right is available only on goods and securities and not on balances in the accounts. Lien entitles
retention of possession of goads but the creditor cannot sell the goods. Lien can be Particular lien (Sec 170 of the Indian Contract
Act) or General Lien. Right of General Lien, is available only to bankers, factors, wharfingers, attorneys (Section 171 of the Indian
Contract Act). Banker's Lien is also a general lien but it is an implied pledge because the banker has right to retain as well as sell
goods of the borrower after giving him reasonable notice.
For exercising right of lien, (a) the goods or securities and debt should be in the same right and same capacity (b) Loan should be
due or overdue and lawful (c) Reasonable notice is given. Further, Right of Lien is available on the goods and securities received in
the ordinary course of business. It is not available when the goods or securities have been deposited for a specific purpose; goods
received for safe custody or lying in safe deposit vault or goods left by the debtor negligently.
However, in the case of loans against pledge of jewellery, bank can exercise right of general lien on the ornaments left in the
possession of the bank after adjustment of the jewellery loan in case some other advance is outstanding.
Negative lien is a declaration from the borrower to the effect that securities/goods offered as security are not encumbered and
that the borrower will not create any charge over them without bank's permission. This undertaking does not create any charge in
favour of the bank and therefore advance against negative lien are treated as dean advance.
Right of Set off: Set off is the right to combine two or more accounts having debit and credit balance. It is not defined in any Act.
This right arises when two parties are debtor as well as creditor to each other i.e. one account should be in debit and another
account should be in credit. In the case of banks, this right arises when wants to combine its loan due from a borrower with his
deposit accounts. For exercising right of set off following conditions should be satisfied (i) Both accounts should be in same right
and same capacity (ii) The debt should be due and not accruing due. Reasonable notice should be sent to the depositor before
exercising set off. Right of set off can be exercised even in case of loans which are time barred. It can be applied on fixed deposit
when it matures and not on FD which is not due as yet. Similarly it can’t be applied for adjusting term loan or CC or overdraft
which are regular and not overdue. If a loan is in the name of an individual, set off can be exercised on credit balance in his
individual account and sole proprietorship account. Set off can not be exercised on deposit accounts which are held jointly with
other individuals, or partnership in which the borrower is partner, or client account maintained by a solicitor or account of minor
under guardianship where borrower is the guardian or on the credit balance of a trust in which borrower is trustee. If loan is in
joint names, set off can be exercised on credit balance in joint account as well as credit balance in individual accounts of joint
borrowers. If loan is in the name of a partnership firm then set off can be exercised on credit balance in the name of firm, partners
and any other partnership firm which has just same partners as are in the borrowing firm. For exercising right of set off, all
branches of a bank are considered as one.
POSITION OF AVAILABILITY OF RIGHT OF SET-OFF TO BANK
Single person.. Jointly with others (Available)
Partner in a firm ...Partnership Firm ...Available
Single name ....Same name ...Available
Proprietor ...Proprietorship firm ...Available
Joint Account ...One of joint holder ...Not available
Partnership Firm ...One of partners... Not available
Trust ...Trustee ...Not available
Trustee.... Trust Not available
Dividend a/c of Co. ..................Loan a/c of co. Not available
Minor (u/g,ship a/c) ....Guardian Not available
Single person.... Single person but different
capacity say trustee..Not available
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