Automatic Right of Set-Off

Under the following cases, the right of set-off arises automatically. And, therefore, no notice of set-off is necessary:

Automatic right of set-off

  1. On the death, insanity, or insolvency of the customer.
  2. On the insolvency of a partner of a firm.
  3. On the winding-up of a company.
  4. On receipt of a garnishee order.
  5. On receipt of a notice of assignment of the credit balance of the customer.
  6. On receipt of information of a second mortgage over the security which is charged to the bank. The second mortgage gets preference on the security in the banker’s hand after the first mortgage has been paid off.
Automatic Right of Set-Off
Automatic Right of Set-Off

From the decision and judgment in different cases, it has been found that the banker can exercise his right of set-off in the following cases:

  1. He can combine two or more accounts of the same customer in the same branch of a bank.
  2. He can combine two or more accounts of a customer maintained in different branches of the bank.
  3. He can adjust the surplus account of the sale proceeds or realization of the securities held as cover for one particular debt for liquidation of any other debt after realization of that particular debt.

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