Facts of the Case
- Mr. Gopal maintains a credit balance in his individual bank account.
- There is an outstanding overdraft in a joint account held in the name of Gopal and Kamat.
- The bank intends to apply the credit balance from Gopal’s individual account to offset the overdraft liability of the joint account.
- The credit and debit accounts are not in the same name and capacity, creating a legal complication.
Issues in the Case
- Can a bank exercise the right of set-off between an individual account and a joint liability account?
- Does the difference in legal capacity of the account holders affect the bank’s right?
- Is it legally permissible for the bank to appropriate an individual’s funds for a joint account liability?
Principles Associated with It
- The right of set-off can only be exercised when both the credit and debit accounts are held in the same name and capacity.
- A banker cannot set off an individual’s funds against a joint debt, unless the joint account holders have given clear and written authorization.
- The principle is supported by judgments in various cases including Halesowen Presswork & Assemblies Ltd. v. Westminster Bank Ltd., which affirms that mutuality of accounts is essential.
- In India, this principle has been upheld in Syndicate Bank v. Vijay Kumar, where the court restricted banks from using individual accounts for joint liabilities.
Judgement
- The bank cannot exercise the right of set-off in this situation because the credit balance is in Mr. Gopal’s individual capacity, while the overdraft is in a joint account.
- There is no mutuality between the two accounts.
- The bank would need express consent from Mr. Gopal to use his individual funds to satisfy the joint liability.
- Therefore, the bank’s attempt to set off the credit balance against the joint overdraft would be legally invalid without such consent.