Can a Bank Debit Money from Another Account to Recover Loan Dues?
If you have a loan with a bank and maintain another account with the same bank, you may wonder whether the bank can adjust money lying in that account against your outstanding loan.
The answer is not an unconditional yes. The bank's ability to exercise a right of lien or set-off can depend on the contractual terms, the nature of the accounts, the capacity in which the accounts are held and the circumstances of the particular debt.
What is banker's lien or set-off?
A bank may, in appropriate circumstances, have rights to retain or adjust funds standing to the customer's credit against amounts legally due to the bank.
The RBI has recognised that banks can have a right of lien under Section 171 of the Indian Contract Act, 1872. However, RBI material also records that a bank cannot simply exercise lien over a customer's personal account for dues in another account where the customer is acting in a different capacity, if there is no agreement supporting such action.
This distinction can become important where, for example, one account is held individually while another liability involves a partnership, company, trust or another separate capacity.
Can the bank take money from a savings account?
It may be possible where the legal and contractual requirements for set-off are satisfied. However, the bank's rights should be examined rather than assuming that every balance in every account can automatically be appropriated.
The loan agreement, account terms, security documents and any specific set-off clause should therefore be reviewed.
RBI's lending guidance also contemplates exercise of a legitimate right of set-off and states that, where such a right is exercised, the borrower should be given notice with particulars of the remaining claims and the documents under which the lender is entitled to retain the relevant security.
What if the money belongs to someone else?
This can materially change the position.
For example, if money belonging to a third party is credited to a customer's account by mistake, the bank's ability to treat that amount as available for its customer's separate dues can be restricted. The RBI has discussed the Supreme Court's decision in Jammu & Kashmir Bank Ltd. v. Attar-Ul-Nissa, noting that a bank could not simply reverse a mistaken credit and pay the money back without the customer's consent in the circumstances considered.
Therefore, the source and ownership of the money can matter.
What should you do if money has already been debited?
Ask the bank in writing for:
- The exact amount adjusted
- The loan account against which it was adjusted
- The contractual clause relied upon
- The legal basis for the set-off
- The date and details of the adjustment
- A statement showing the remaining loan dues
Then compare the bank's action with the relevant loan agreement and account documents.
If the account is jointly held, belongs to a different legal entity, or is maintained in a different capacity, those circumstances should receive particular attention.
Can the debit be challenged?
Potentially, depending on the facts. If the bank has acted contrary to the contractual terms, without a valid basis for set-off, or against funds over which it does not have the relevant right, appropriate remedies may need to be considered.
The remedy could involve a representation to the bank, grievance proceedings, or appropriate legal proceedings depending upon the nature and amount of the dispute.
Adv. Anupam Kumar Mishra can assist in examining the loan agreement, account statements, bank correspondence and the basis on which the bank has adjusted the funds.
Adv. Anupam Kumar Mishra can also assist in assessing whether the bank's claimed right of lien or set-off is supported by the applicable contractual and legal framework.
For general legal information or to discuss whether professional legal assistance may be relevant to your circumstances, you may contact :
WhatsApp: +91-9051112233
Legal outcomes depend on the account structure, contractual documents, source of funds, applicable banking law and facts of the matter. This content is intended for general legal information and does not by itself constitute legal advice for a specific dispute.
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