The banker’s right to combine different accounts of a person against the debt it holds against the same person is called the right to set off. The right of set-off is available to the bank only when the money owed to the bank is a certain sum, which should be due at the time of set-off and there shall not be an agreement, express or implied to the contrary.

The contract between the banker and the borrower is a contract between the debtor and the creditor. The contract implies that the borrower promised to repay the money borrowed by him. Right of set-off is the right of the bank to combine the two accounts of the same person where one account is in credit balance and the other account is in a debit balance in order to cover a loan default. For example, a customer’s current account shows an overdraft of Rs.10000, and his SB account has a credit balance of Rs.5000/-. In case the customer didn’t regularise the overdraft account within the promised date, the bank may use the right of set-off and transfer the credit balance to the current account and demand the customer to adjust the remaining outstanding in the current account. Do note that the banker can exercise the right of set-off only when the money owed to him is a sum certain, which is due, and where there is no agreement, express or implied to the contrary.

Some important requirements to initiate set-off are;

All the funds must prima facie belong to the customer.

When debt amounts are certain.

When the debts are in the same rights.

There is no contract expressed or implied in contrast.

Conclusion:

The customer may authorise the bank to operate his account by a certain named person by way of mandate and power of attorney. Similarly, the Banks are conferred with the right to retention of goods or security (such as cheques, bills of exchange, deposits, etc.)  By way of general lien until some claim attaching to it, is satisfied or discharged. The lien extends to all such documents under which money will or may be payable to the customer. Further, the banker has the right of appropriation and right of set-off when the money owed to the bank is a certain sum, which should be due at the time of set-off and there shall not be an agreement, express or implied to the contrary.

To know them in detail read the following articles.