Bankers are facing various day to day problems while performing banking activities. We discuss below some of the problems followed by possible solution based on the law relating to banking transactions or the practices.  

PROBLEM 1:  A customer approaches the bank to accept deposit of cash meant to be utilised for a payment of a cheques issued by him in favour of Income tax Dept. His account with bank is a NPA and bank manager insists on appropriation of the same for regularisation of his account. What advice  you should give?

SOLUTION:-  It is not mandatory for the bank to accept conditional deposits of cash or other instruments. However, if the bank accepts the same, it is duty bound to appropriate the same as per the direction of the customer. In the instant case, if the money is accepted, it cannot be utilised for regularisation of the account.

PROBLEM 2: - Mr. Rajiv and Mr. Sanjiv (Joint borrower) raise a loan of Rs. 10 lac which they fail to pay despite follow up by the bank. Mr Rajiv’s SB account shows as credit balance of 50000/- and bank wants to appropriate the same towards the NPA joint loan of Mr. Rajiv and Mr Sanjiv. What advice e you should give?

SOLUTION:-   The bank has the option to use its right off set-off which fits in this case appropriately, since the funds lying in Rajiv’s account can be appropriated as he is jointly and severally liable for that , provided the funds in the SB account are of Mr. Rajiv’s.

PROBLEM 3:-  In the above problem, instead of the SB account belonging to Mr Rajiv alone, it is in the name of Mr Rajiv and his wife. Will it make any difference?

SOLUTION:-  In that situation bank cannot exercise its right of set-off , since the balance lying in the joint account is not in the same right as in the loan account.

PROBLEM 4:-  In the same problem, if the  SB account belonging to Mr. Rajiv is not in the same branch, but it  is in another branch of the bank in a different city.  Will your reply be different?

SOLUTION:-  For the purpose of exercising right of set-off, the bank is considered one unit, rather than the branch. Hence when the funds are available in the same right ( i.e. same  name) , the bank can exercise its right. Similarly, if the funds were not in the SB funds account of Mr. Rajiv, rather in a term deposit maturing after 6 months, the bank shall be required to wait till maturity for appropriation as premature payment will attract loss of interest.

PROBLEM 5:- A branch manger granted a loan within his power for purchase of a car to M/s ABC Pvt limited through its MD which he used in his personal capacity. The manager was not aware and did not obtain a resolution passed by the board of directors authorising MD to raise the loan. Subsequently the company refuses to pay the loan stating that the MD had no power to raise loan without Board resolution. What is the legal position of the bank?

SOLUTION:-  Since the MD in this case was not carrying the authority to raise the loan for purchase of a car for his personal use , company shall not be liable to make payment of the loan.

PROBLEM 6:- In the above problem, if the car was for use of company and its officials for company purpose, will be position be different.

SOLUTION:-  In that case , the company would not have been permitted to repudiate its liability merely because a resolution was not obtained. The bonafide creditor’s claim would succeed if no circumstances indicating to the contrary exist. However, the bank shall face lot of difficulty to get the claim admitted.

PROBLEM 7:- Bank granted a loan to a limited company against mortgage of company’s building as collateral security but the company did not register the charge with ROC. Subsequently the company went into liquidation. The liquidator disposed of the property to Mr Ashok .  What is the legal position?

SOLUTION:-  Bank is in this case became unsecured creditor because its charge has not been registered with ROC. But its charge against the company is valid and liquidator cannot sell the same and the buyer gets the assets subject to prior charges if any.

PROBLEM 8:- In the above case, if the charge would have been filed and not registered, will the position of the bank be different?

SOLUTION:-   if the charge was filed within the stipulated period of 30 days and not registered by the ROC and no deficiency would have been pointed out , the bank would have been a secured creditor.

PROBLEM 9:- A term loan has been rescheduled but the consent of the guarantor for this re-schedulement has not been obtained. In your view what risk has been undertaken?

SOLUTION:-   The consent of the guarantor shall be needed in case his guarantee is to be kept alive, for any modification in the original terms of the loan . By undertaking modification, in the terms of loan, the guarantor may repudiate his liability.

PROBLEM 10:- A borrower creates equitable mortgage to secure his loan. But before the equitable mortgage was created, he had entered into an agreement with another person for sale of the said property. What is the effect on mortgage?

SOLUTION:-  In this case, if the bank has notice of the agreement to sale , its rights are affected. But in case there is nothing to show that the bank had notice of this transaction, the bank’s right are not affected.

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