What is the difference between Garnishee order & I.T. Attachment order

(This article explains how  the garnishee order and IT attachment orders are different and explains the method of disposal by the Bank branches when they receive such orders from the authorities.)

Garnishee order & I.T. Attachments are two different types of attachment orders. The Garnishee order is an order issued by the Court to Garnishee (Bank) whereas the IT attachment is the attachment on the assessee’s credit balance in the bank by the Income tax department. The meaning of garnishee order and IT attachment order and how they are different from each other is explained below.

 Garnishee Order: Garnishee order is an order issued by the Court, attaching the funds of the judgment debtor, in the hands of a third party, to pay the money to the judgment creditor. When the Garnishee order is received by the bank, the bank’s obligation to honour the customer’s cheque to the extent of the attached amount is automatically extinguished. On receipt of the Court order, the customer should be immediately informed about the attachment of the balance available in his account. The Court order involves two stages. The first step is the court instructs the bank to stop the payment in the customer’s account and asks the bank to show cause why funds in the customer’s account cannot be paid to the judgment creditor. Such order is called “Order nisi’. If the banker disputes his liability to the judgment debtor (Customer of the Bank) or has any lawful objection to pay, he must appear in court and show cause for why funds available in the customer’s account cannot be paid. On hearing the representation if any from the bank against ‘order nisi’ the court issues the final order called “order absolute” directing the bank to pay the entire or part of the balance amount to the  ‘judgment creditor’ or the Court. The bank is discharged from its liability to its customer, only after payment is made as per  ‘order absolute’ received from the Court. The Garnishee order does not apply to the bank if the bank does not owe money to the customer; viz, if the account is in joint names of the judgment debtor(customer) and other persons whereas the order is in the single name of the customer; or when the bank is entitled to set-off the balance available in the customer’s account to debt due to it; or when a bank is aware that the funds available in the account is held by the customer as a trustee or is impressed with trust, or the name or description of the customer as appearing on the garnishee order is wrong or inaccurate; or uncleared balance in the account. (even if the cheques are subsequently realised, they would not be treated as debts due or accruing due on the date of receipt of order and hence out of the purview of attachment; or if the account is overdrawn. If the term deposit of the customer is matured at the time of receipt of the garnishee order, it is a debt due to the customer. If the maturity date falls after the date of the garnishee order it is debt accruing due. In either case, it is attached. The banker has the right of set-off against the customer’s actual indebtedness to the bank, therefore before making payment to the judgment creditor or the court as the case may be, the banker would exercise his right of set-off first to any debt due to the bank from the customer at the time of receipt of a court order. The surplus balance available if any should be paid towards the amount attached under the garnishee order. However,  the banker can not exercise the right of set-off for the installments that fall due for repayment at a future date. In such cases,  the bank may inform the court that it claims a lien on the amount attached, to the debit balance in the loan account.

Income Tax Department’s Attachment order: Income tax authorities have the authority to attach the assessee’s credit balance in the bank under section 226(3) of Income Tax Act 196. Unlike garnishee order which is issued in two stages viz, order nisi and order absolute, the attachment order issued by the Income Tax Department is direct. The bank can object to the attachment order on two counts. (a) the money demanded or part thereof is not due to the customer, or (b) the bank does not hold any money for the assessee. The bank has to inform the Income tax department by a statement of the oath. If the customer is a joint account holder with other persons, his shares in the account are presumed unless the contrary is proved to be equal. The bank cannot exercise the right of set off on credit balance held in the account unless it is under lien to it or some act before the receipt of the notice indicating that it has exercised the right to separate the loan account. The income Tax Officer can recover the dues from the bank, treating the arrears of the assessee as due from the bank, if the bank fails to comply with his order.

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