Banking

Banking :garnishee order, rights of banker,general

lien,setoff,law of limitation

Abila Antony

Garnishee order (order of the court)

Is an order of the court obtained by a judgment creditors attaching fund belonging to judgment debtors in the hands of his debtors;

A bank who is called Garnishee

Advising not to release the money until directed by court to do so.

Cont..

A garnishee order is issued by a court

Ex: Mr X borrows money from Mr Y and fails to repay.

Mr Y files a suit against Mr X, under the Civil Procedure Code and the Court issues a decree(judgment) and attaches the funds in Mr. X’s bank account with bank A.

Cont..

The order issued by the Court on bank A is known as “Garnishee Order”

Mr Y is the judgement creditor

Mr.X is the Judgement debtor. Bank A is Judgement debtor’s debtor

Review of Current Garnishment Rules

Creditor obtains judgment Creditor requests a writ of

garnishment (Rules 2-645 & 3-645) Court Issues a Writ of Garnishment

to “Garnishee” (usually a bank) Notice mailed “promptly” to

judgment debtor by creditor Bank must freeze account until

further order of court ·

Cont..

Court issues judgment, usually against the bank, ordering it to attach the funds in account to the creditor

Creditor has 30 days to respond to answer

Bank must answer the court regarding writ petition within 30 days and send copy to debtor

Features of Garnishee order

First banker will intimate to the customer regarding issue of the garnishee order and block the funds in the account

The order can attach either the entire amount or a part of it

Banker has right to set off any debt before attachment if it is due

Cont…

First banker will intimate to the customer regarding issue of the garnishee order and block the funds in the account

The order can attach either the entire amount or a part of it

Banker has right to set off any debt before attachment if it is due

Cont..

If A/c is overdrawn banker owes no money to the customer(Hence no effect of the order)

The order is not applicable on payments made by the bank

Security held in safe custody is not affected

RIGHTS OF BANKER

Right of general lien- Lien is the right of the creditor to retain the goods and securities owned by the debtor until the debt due from him is paid.

It confers upon the creditor to retain the securities of the debtor.

It does not confer the right to sell.

There are two types of liens – General lien and particular lien.

Cont.. Section 171 of Indian contract Act 1872

confers general lien on bankers.

Bankers lien is tantamount to implied pledge. The reason being the banker is bestowed with a right even to sell securities without the intervention of the court.

Pledge – Section 172 of Indian contract Act 1872- bailment of goods as security for payment of a debt or performance.

Cont..

No lien on documents entrusted for specific purpose.

No lien on articles left by mistake.Lien on securities taken back after

repayment of the loan.Lien on Bonds & CouponsNo lien until the due date of a loan.No lien on deposits.

Where Banker’s general lien is not applicable:-

1. Safe custody articles2. Documents/money deposited for

specific purpose3. Securities/valuable left

negligently at the Bank’s premises

4. Immature debts5. Stolen goods6. Where set off is possible

Right of set off

Right to combine the two accounts and to transfer assets and liabilities from one account to another without the consent of the customer

Obtaining letter of set off: --It gives right of set off to the

banker --There is no need to give notice to

the customer by the banker of his intention

Cont..

Important points governing the application of set off:-

--The same name and the same right --Sole proprietor account and individual

account can be combined --Partner’s individual account and firm’s

account. Cannot set off debit balance in individual account from firm’s account. However vice versa can be done

-- debts due but not future or contingent debts

Cont..

debts due must be certain

--No agreement to the contrary --Banker’s discretion: --Right of set off and garnishee order

Set off without notice in certain cases

1. On the death of the customer and closing the account

2. When a customer becomes insolvent/lunatic

3. When a garnishee order is served on the customer’s account

4. Notice of assignment of credit balance to someone else has been given by customer

Right of Appropriation:

It is the right of the customers to direct his banker against which debt

the bank can exercise its right of appropriation and apply it in payment of any debt.

Law of Limitation Limitations act of 1963 fixes the

limitation period of debts and obligations including bank loans and advances

Definition: “Law of Limitation” prescribes the time

limit for different suits within, which an aggrieved person can approach the court for redress or justice.

OBJECT OF THE LAW OF LIMITATION

To make sure that there should be an end of Litigation.

To provide a statute of Repose, Peace and Justice.

To make sure it is a Sound Policy and it is followed by everyone.

To make sure that the parties do not follow Dilatory Tactics but seek their remedy promptly

FEATURES OF LAW OF LIMITATION

Suits, Appeals and Applications made after the limitation period are liable to be dismissed.

Exclusion of Time in Certain Cases like : When court is closed on last day of limitation. Any suit or petition filed for the first time in

court. If the person is a minor or under legal disability.

But if there is no time limit fixed for repayment, no subsequent disability or inability can stop it.

REQUIREMENTS FOR LAW OF LIMITATIONS

EVERY AGREEMENT/PROMISE IS SUBJECT TO LAW OF LIMITATION-BEYOND THAT IT IS TIME-BARRED

IN BANK THE ACT HAS RELEVANCE TO VARIOUS TRANSACTIONS.

IN CASE OF BILLS OF EXCHANGE OR PROMISSORY NOTE WHICH ARE PAYABLE AT SIGHT-IT IS 3 YEARS FROM THE DATE OF PRESENTATION.

Cont..

IN CASE OF BILLS/PROMISSORY NOTE PAYABLE ON A FIXED DATE IT IS 3 YEARS FROM THE DUE DATE.

LOANS PAYABLE IN INSTALMENTS – 3 YEARS FROM THE DATE ON WHICH RELATIVE INSTALMENT FALLS DUE.

MONEY REPAYABLE BY A MORTGAGOR ON DEMAND-12 YEARS FROM THE DATE OF MORTGAGE

Cont.. The Limitation Act, 1963, prescribed

limitation with a view to see that a litigant does not drag on the litigation

Section 5 gives an opportunity to a litigant to file applications beyond the prescribed period of limitation provided

to establish that he was prevented by sufficient cause from approaching the Court within the said period.

Cont..

the litigant has to nevertheless furnish the satisfactory explanation for filing the application beyond the prescribed period of limitation.

Effect of Acknowledgment in Writing An Acknowledgment letter is the one which is been written by the party before the limitation period ends, from where the period of limitation is been renewed further.

Cont..

Effect of payment on account of Debt

Instead payment is been done before the limitation period is expired, the period of limitation is been renewed, but should be acknowledged in Hand written or signature of that particular party

PART I - Suits Relating to Accounts

SL.NO.

DESCRIPTION OF SUIT PERIOD OF LIMITATION

1. For the balance due on a mutual, open and current account where there have been reciprocal demands between the parties.

3 years

2. Against a factor for an account 3years

3. By a principal against his agent for movable property received by the latter and not accounted for.

3 years .

4. Other suits by principals against agents for

3 years

PART II - Suits Relating to Contracts

SL.NO.

DESCRIPTION OF SUIT PERIOD OF LIMITATION

1. For a seaman's wages 3 years

2. For wages in the case of any other person.

3years

3. For the price of food or drink sold by the keeper of a hotel, tavern or lodging house.

3 years

4. For the price of lodging. 3 years