Right of Set Off

Right of Set Off

1. Set off is the right to combine two or more accounts having debit and credit balance.
2. It is not defined in any Act.
3. This right arises when two parties are debtor as well as creditor to each other i.e. one account should be in debit and another account should be in credit.
4. In the case of banks, this right arises when wants to combine its loan due from a borrower with his deposit accounts.
5. For exercising right of set off following conditions should be satisfied (i) Both accounts should be in same right and same capacity (ii) The debt should be due and not accruing due (iii) Reasonable notice should be sent to the depositor before exercising set off.
6. Right of set off can be exercised even in case of loans which are time barred.
7. It cannot be applied on fixed deposit which is not due as yet. Similarly it cannot be applied for adjusting term loan or CC or overdraft which are regular and not overdue.
8. If a loan is in the name of an individual, set off can be exercised on credit balance in his individual account and sole proprietorship account. Set off cannot be exercised on deposit accounts which are held jointly with other individuals, or partnership in which the borrower is partner, or client account maintained by a solicitor or account of minor under guardianship where borrower is the guardian or on the credit balance of a trust in which borrower is trustee.
9. If loan is in joint names, set off can be exercised on credit balance in joint account as well as credit balance in individual accounts of joint borrowers.
10. If loan is in the name of a partnership firm then set off can be exercised on credit balance in the name of firm, partners and any other partnership firm which has just same partners as are in the borrowing firm.

11 .For exercising right of set off. All branches of a bank are considered as one.