In this post we shall discuss about the bankers rights like lien, setoffs and appropriation. The right of bankers that the banker can enjoy are as follows:
- Right of Lien
- Right of Set Ofs
- Right of Appropriation
Right of Lien:
Lien is the right of creditor(bank) to retain possession of goods and securities belonging to the
debtor(customer) till the debts due to creditor are paid. This right is available only on goods and securities and not on balances in the accounts.
For exercising right of lien,
- The goods or securities and debt should be in the same right and same capacity
- Loan should be due or overdue and lawful
- Reasonable notice is given
Negative lien: Negative lien is a declaration from the borrower to the effect that securities/goods offered as security are not encumbered(restricted) 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 clean advance.
Right of Set Off:
Set off is the right to combine two or more accounts having debit and credit balance. For 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
- Both accounts should be in same right and same capacity
- The debt should be due and not accruing due
- Reasonable notice should be sent to the depositor before exercising set off.
It cannot be applied on fixed deposit which is not due as yet but can be exercised when FDR matures. Similarly it cannot be applied for adjusting term loan or CC or overdraft which are regular and not overdue.
Right of Appropriation:
If a customer maintains more than one account with a bank and he deposits some amount then he has the first right to indicate to which account the amount should be credited. If he does not exercise this right, then bank can credit the amount to any of his accounts including an account which is time barred by limitation.
When the customer deposits money to meet he payment of a particular bill payable by him, bank cannot utilise this money against any other loan/advance account.
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