Bankers right to set off

Querist : Anonymous (Querist) 02 June 2011 This query is : Resolved
A Bank has granted loan to a local authority. Bank has defaulted in repayment and ac has truned NPA. Some amount is payable by the Bank to that authority by way of a Tax. whether the Bank can exercise its right of set off and appropriate that amount payable as Tax against amount due from that Authority?

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PALNITKAR V.V. (Expert) 02 June 2011
The bank may not have general lien on the tax so as to set off. But if the loan agreement provides for adjustment of any due to the local authority, then the Bank would be entitled to set off.

Guest (Expert) 02 June 2011
Agree with Mr. Palnitkar.

Querist : Anonymous (Querist) 03 June 2011
Thanks for quick response. In case such authority has deposited sums in some FD, then whether such general lien on the tax so as to set off can be exercised?

DEFENSE ADVOCATE.-firmaction@g (Expert) 03 June 2011
There can not be general lien on tax obligations . It such adventure is attempted it may invite criminal action.

PALNITKAR V.V. (Expert) 04 June 2011
There can not be general lien on FDs also unless the agreement provides so.

Querist : Anonymous (Querist) 04 June 2011
There are quite a few judicial pronouncements which has upheld general lien of Banks on FDs unless the Agreement negates that. So in case even if the Agreement is slent o9n this aspect, the right of General Lien and Set off can be exercised.

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