Garnishee Orders and Their Implications

Questions and Answers

What is the maximum number of withdrawals permitted in a month for a Basic Savings Bank Deposit Account (BSBDA)?

Six withdrawals

Unlimited withdrawals

Two withdrawals

Four withdrawals (correct)

What is required from the customer before opening a BSBDA at a bank?

Proof of income

A declaration of not holding another BSBDA in any other bank (correct)

A letter of recommendation

A minimum balance deposit

What is the minimum period for a Term Deposit to earn interest?

1 day

7 days (correct)

30 days

14 days

Which of the following is true about Bulk Deposits?

They may earn a differential rate of interest. Signup and view all the answers

What happens if a customer has an existing savings account when opening a BSBDA?

They must close the existing account within 30 days. Signup and view all the answers

What is the maximum tenor for a regular Term Deposit?

10 years Signup and view all the answers

What is the value threshold for a single Rupee term deposit to be classified as a Bulk Deposit for scheduled commercial banks?

Rs. 3 crores Signup and view all the answers

What is a requirement for banks when offering additional services related to BSBDA accounts?

They must be disclosed and may be priced in a non-discriminatory manner. Signup and view all the answers

Who is considered the garnishee in a garnishee order situation?

The third person holding the judgment debtor's debt Signup and view all the answers

What is the purpose of the order NISI issued by the court?

To require the garnishee to explain why funds should not be utilized Signup and view all the answers

Which of the following scenarios will NOT make a garnishee order applicable?

Funds deposited after the garnishee order receipt Signup and view all the answers

A garnishee order can be applied to which of the following types of accounts?

Accounts with credit balances Signup and view all the answers

In the relationship between the bank and the judgment debtor, how is the bank classified?

As a principal debtor Signup and view all the answers

Which statement correctly describes the application of garnishee orders?

They do not apply to unutilized overdraft amounts. Signup and view all the answers

What happens to the funds in the account of a judgment debtor upon the issuance of an absolute order?

The account is completely frozen based on the order. Signup and view all the answers

Which of the following best describes the funds in an account that are subject to a garnishee order?

The funds must exist prior to the garnishee order. Signup and view all the answers

What is a primary limitation placed on debits in collection accounts?

Debits may only be made for remitting proceeds to the escrow account. Signup and view all the answers

What must a borrower do if their credit facilities reach ₹5 crore or more?

Informed the bank that they have reached this threshold. Signup and view all the answers

Which type of bank is not allowed to open current accounts for borrowers?

Non-lending banks. Signup and view all the answers

What is the requirement for banks opening current accounts for prospective customers who haven't availed credit facilities?

Due diligence as per Board approved policies. Signup and view all the answers

What are banks allowed to debit from collection accounts before transferring funds to the escrow account?

Fees and charges. Signup and view all the answers

For borrowers with aggregate exposure of ₹5 crore or more but less than ₹50 crore, what restriction exists regarding current accounts?

No restrictions on opening current accounts. Signup and view all the answers

Which types of institutions may borrowers with only non-bank credit facilities freely open current accounts with?

Any financial institution without restrictions. Signup and view all the answers

What characterizes the opening of collection accounts by lending banks?

Restrictions on the use of funds in repayment of facilities. Signup and view all the answers

What is the minimum period for which CCTV recordings should be preserved in the locker area?

180 days Signup and view all the answers

What primary security measure must banks implement for the locker area?

Single defined point of entry and exit Signup and view all the answers

Which organization prescribes the basic safety and security standards for new mechanical lockers?

Bureau of Indian Standards (BIS) Signup and view all the answers

Which of the following is a measure banks should take to prevent unauthorized access to electronically accessed lockers?

Harden the electronic system against hacking Signup and view all the answers

Who is permitted to operate a bank locker according to the guidelines?

Locker hirer and authorized persons only Signup and view all the answers

How should the identification code for locker keys be presented to facilitate ownership tracking?

Embossed on each key Signup and view all the answers

What security measure is suggested for areas of operation near the strong room?

CCTV coverage Signup and view all the answers

What is emphasized regarding natural calamities in the context of bank operations?

Swift communication with customers is necessary Signup and view all the answers

What is the responsibility of banks when a minor is nominated for a locker?

To ensure that articles are given to a legally competent person Signup and view all the answers

What occurs upon the death of an individual account holder?

The operation of the account should be stopped Signup and view all the answers

In the absence of a nomination but with a will in place, what must the named person do?

Provide Probate from a competent court Signup and view all the answers

What is necessary before the removal of contents from a jointly hired locker after a death?

An inventory taken in the prescribed manner Signup and view all the answers

What discharge does a valid nominee receive from the bank regarding an account with a survivorship clause?

A valid discharge from the bank’s liability Signup and view all the answers

Which phrase best describes the conditions under which payments to survivors of deceased account holders are permitted?

Only if there is a valid nomination or survivorship clause Signup and view all the answers

What happens to the contents of a jointly hired locker after one hirer's death?

They can only be removed jointly after an inventory Signup and view all the answers

What indication signifies the need to halt an account's activity?

The death of the individual account holder Signup and view all the answers

Who has the authority to confirm alterations made to a cheque in a jointly operated account?

All account holders must jointly confirm Signup and view all the answers

In the context of stopping payment on a cheque, who can initiate this action in an either-or survivor account?

Any one of the account holders Signup and view all the answers

Which function can be undertaken by any joint account holder without requiring all signatures?

Altering nomination details Signup and view all the answers

What happens to the funds in a joint account when one account holder becomes insane?

Balancing is paid to the other account holders and the guardian Signup and view all the answers

In a joint account, which type of order is only applicable when issued in joint names?

Garnishee orders Signup and view all the answers

What is a bank required to do if a customer declines to fill in nomination for their deposit account?

Explain the advantages of making a nomination. Signup and view all the answers

What term describes the process through which one account holder authorizes another to act on their behalf?

Mandate Signup and view all the answers

At what point does a nominee's right to the funds in a joint deposit account actually arise?

After the death of the last surviving depositor. Signup and view all the answers

What is required from all joint account holders for functions like account closure unless a mandate specifies otherwise?

Signature of all account holders Signup and view all the answers

What should a bank do upon receiving the duly completed form of nomination?

Acknowledge receipt of the form to the customer. Signup and view all the answers

Which of the following statements is true about the alteration and revocation of stop payment instructions in a jointly operated account?

All joint holders must agree to revoke the stop payment instruction Signup and view all the answers

Which of the following best describes the status of term deposits with respect to nominations at the time of renewal?

Nominations remain valid and do not require renewal. Signup and view all the answers

What is indicated on a passbook if the nomination facility has been availed?

Nomination Registered. Signup and view all the answers

How should a bank respond if a customer declines to provide a letter stating their refusal to make a nomination?

Document the refusal on the account opening form. Signup and view all the answers

What administrative step should banks take after receiving cancellation or variation of a nomination?

Acknowledge the receipt of the changes to the customer. Signup and view all the answers

Which of the following options best demonstrates how to legally discharge a bank's obligation regarding a nomination?

Making the payment directly to the nominee. Signup and view all the answers

What is the primary limitation placed on debits in collection accounts?

Debits are restricted to transferring funds to the escrow account. Signup and view all the answers

Which type of accounts may non-lending banks open for borrowers with aggregate exposure below ₹5 crore?

Collection accounts only. Signup and view all the answers

What must borrowers do if their credit facilities from banks become ₹5 crore or more?

Notify the lenders about the credit facility increase. Signup and view all the answers

Under what condition can lending banks open current accounts for borrowers with an aggregate exposure between ₹5 crore and ₹50 crore?

There are no restrictions on opening current accounts. Signup and view all the answers

Which of the following is true regarding collection accounts held by lending banks?

Fees and charges can be debited from collection accounts. Signup and view all the answers

Which of these borrowers are permitted to open current accounts without restrictions from banks?

Prospective customers without any availed credit facilities. Signup and view all the answers

What is permitted regarding the number or amount of credits in collection accounts?

There are no prohibitions on the number or amount of credits. Signup and view all the answers

What stipulation must borrowers comply with when utilizing banks for up to ₹50 crore exposure?

Compliance with an undertaking about credit facility limits. Signup and view all the answers

What must borrowers with an aggregate exposure of less than ₹5 crore provide to their bank when opening current accounts?

An undertaking to inform the bank of any changes Signup and view all the answers

Which condition applies to the opening of current accounts for borrowers with an aggregate exposure of ₹5 crore or more?

They can open accounts only with banks having at least 10% exposure Signup and view all the answers

What happens to the funds deposited in collection accounts held by banks for borrowers with ₹5 crore or more exposure?

They must be remitted to the CC/OD account within two working days Signup and view all the answers

For borrowers with an aggregate exposure of ₹50 crore or more, which requirement must banks implement?

An escrow mechanism Signup and view all the answers

What documentation may banks require to settle claims for missing persons within the threshold limit?

FIR and non-traceable report issued by police authorities Signup and view all the answers

What is true about the current accounts of borrowers who only have non-bank credit facilities?

They can open accounts with any bank without restrictions Signup and view all the answers

Which of the following scenarios allows a bank to insist on legal representation for asset release?

When there are disputes among legal heirs Signup and view all the answers

What is the role of the bank having the highest exposure among CC/OD providing banks when the exposure is ₹5 crore or more?

To open current accounts if no bank meets the 10% exposure Signup and view all the answers

What is a key requirement for customers hiring a safe deposit locker according to revised guidelines?

KYC compliance and ongoing compliance Signup and view all the answers

Why are non-lending banks restricted from opening current accounts?

They are not directly involved in the borrower’s credit facilities Signup and view all the answers

What action can a bank take if it suspects the deposit of illegal substances in a safe deposit locker?

Take appropriate action against the customer Signup and view all the answers

What is a key condition for all lending banks to be part of when borrowers have an escrow mechanism?

They should be part of the escrow agreement Signup and view all the answers

Which of the following features is highlighted in the revised guidelines for safe deposit lockers effective from January 1, 2022?

Prohibition on storing illegal or hazardous substances Signup and view all the answers

What type of waiver may banks provide for the release of assets of deceased customers?

Waiver from requiring a legal representative Signup and view all the answers

In which situation may banks request succession certificates from legal heirs?

When disputes arise among legal heirs Signup and view all the answers

What is the main purpose of incorporating a clause in the locker agreement concerning illegal substances?

To establish a basis for potential legal action Signup and view all the answers

What is the primary responsibility of a banker if they fail to comply with an Attachment Order?

They are liable for the amount of the order. Signup and view all the answers

Which order takes precedence when a Garnishee Order and an Attachment Order are received simultaneously?

Attachment Order takes precedence. Signup and view all the answers

What is an important characteristic of an Attachment Order as opposed to a Garnishee Order regarding joint accounts?

It applies on a prorate basis to joint accounts. Signup and view all the answers

According to the Indian Majority Act of 1875, what defines a minor?

A person who has not yet turned 18. Signup and view all the answers

Under what condition can a survivor access funds from a joint term deposit before maturity?

With the signature of all depositors Signup and view all the answers

What is the validity of contracts made by minors according to the Indian Contract Act of 1872?

They are completely void and cannot be ratified. Signup and view all the answers

What type of contracts are considered valid when involving minors?

Contracts for the supply of necessities. Signup and view all the answers

What must occur for a mandate allowing joint account operation to be effective?

All joint account holders must sign the mandate Signup and view all the answers

What is required for a joint account holder to revoke a previously granted mandate?

Revocation can be done by any single joint account holder Signup and view all the answers

In the context of Attachment Orders, what is the primary authority responsible for issuing them?

Revenue authorities. Signup and view all the answers

When an Attachment Order is issued in a single name, how does it apply to joint accounts?

It applies on a prorate basis to joint accounts. Signup and view all the answers

In the case of the former depositor passing away before the maturity of the term deposit, what is true about the payment to the survivor?

Payment is made to the survivor only after maturity Signup and view all the answers

What happens if a cheque is signed by a depositor who is not authorized to operate the joint account?

The cheque will be returned unpaid Signup and view all the answers

When can the survivor access the payment of a term deposit if the former accountholder dies before maturity?

After maturity only with legal heirs' consent Signup and view all the answers

What is a required step for granting a loan against a joint account?

Signatures from all depositors Signup and view all the answers

What action can any joint account holder take without requiring consent from others?

Making a deposit Signup and view all the answers

What must banks do when obtaining consent from an illiterate person?

Get the contract witnessed to confirm understanding. Signup and view all the answers

What action may a bank take if a person opening an account declines to make a nomination?

Record the refusal on the account opening form. Signup and view all the answers

What is the attestation requirement for the signature of a pardanashin lady who is married?

Signature must be attested by her husband. Signup and view all the answers

Under what circumstance does a nominee's right to the funds in a joint deposit account arise?

After the death of all depositors in the account. Signup and view all the answers

Under what condition can an illiterate person be issued a cheque book?

When making statutory payments only. Signup and view all the answers

What is an important procedure banks must follow for nominations?

Acknowledge the receipt of nomination forms in writing. Signup and view all the answers

What is a common condition for cheque issuance to an illiterate depositor?

The thumb impression must be verified at issuance. Signup and view all the answers

What should a bank do if a customer refuses to provide a letter declining the nomination?

Record the refusal on the account opening form and open the account. Signup and view all the answers

Which challenge does a pardanashin lady face when entering into a contract?

The bank must prove any undue influence claims against her. Signup and view all the answers

What practice should banks establish regarding nominations in deposit accounts?

Indicate the nomination status on the passbook. Signup and view all the answers

What should banks verify when issuing a cheque book to an illiterate person?

That they have received a verbal explanation of the terms. Signup and view all the answers

What might happen if a bank fails to acknowledge a nomination form from a customer?

The customer can complain to higher authorities. Signup and view all the answers

Why is it necessary to have witnesses present when an illiterate person signs a bank document?

To validate that misrepresentation did not occur. Signup and view all the answers

If a deposit is renewed, what is the requirement regarding nominations?

Existing nominations remain valid and do not need renewal. Signup and view all the answers

What ensures the protection of a pardanashin lady when signing a contract?

Her signature must be attested by her guardian or husband. Signup and view all the answers

What action does a bank take if a joint account has the operating instruction 'either or survivor'?

Funds are available to the survivor upon demand. Signup and view all the answers

What happens to the amount withdrawn from the Capital Gain account if it is not utilized within sixty days?

It must be re-deposited in Account-A immediately. Signup and view all the answers

Which of the following statements about current accounts is true?

Interest on deceased account holders' current accounts is paid at the prevailing savings rate. Signup and view all the answers

What is the maximum amount that can be withdrawn in cash directly from Account-A?

Rs.25,000 only. Signup and view all the answers

Which form is required for the complete closure of all Capital Gain accounts held by a customer?

Form-G Signup and view all the answers

Under which condition can current accounts be opened for illiterate persons?

It is not allowed except under exceptional circumstances. Signup and view all the answers

What is the purpose of the RBI's consolidated guidelines issued on 19th April 2022?

To standardize the process of opening Current Accounts and CC/OD Accounts. Signup and view all the answers

What is the primary restriction for cash withdrawals exceeding Rs.25,000 from Account-A?

A crossed DD must be issued in favor of the intended payee. Signup and view all the answers

How is the balance in current accounts typically treated regarding interest?

Current accounts generally earn no interest. Signup and view all the answers

Study Notes

Garnishee and Garnishee Orders

Garnishee is a third party, such as a bank, that holds funds owed to the judgment debtor.
A Garnishee Order is a court directive preventing the garnishee from paying the judgment debtor due to existing debt obligations to the garnisher.
The court issues an Order NISI to the bank to justify why the funds should not be used to settle the judgment creditor's claim.
Following the Order NISI, an Order Absolute can be issued to freeze the debtor’s account balance partially or completely.
This order is applicable to existing debts, including savings and fixed deposit accounts, that have a credit balance.
Garnishee Orders only relate to accounts where the judgment debtor has a debtor-creditor relationship with the bank.
Funds deposited after the Garnishee Order is received are exempt from being frozen.
Unutilized portions of overdrafts or cash credit accounts are not subject to Garnishee Orders.

Basic Savings Bank Deposit Account (BSBDA)

A BSBDA is a KYC compliant savings account with no minimum balance requirement.
There is no limit on deposits within a month or year or on maximum account balance.
A maximum of four withdrawals are allowed per month, including ATM withdrawals.
Banks may offer additional services like cheque books, which can be fees-charged at their discretion.
Holders of a BSBDA cannot open another savings account at the same bank and must close any existing accounts within 30 days of opening a BSBDA.
Banks must verify that a new BSBDA is not opened at another bank prior to account creation.

Term Deposits

Minimum period for a Term Deposit to earn interest is 7 days; maximum is 10 years.
Term deposits for minors or as court orders can exceed 10 years.
Bulk Deposits are defined as singular term deposits of ₹3 crore and above for scheduled commercial banks, and ₹1 crore and above for Regional Rural Banks (RRBs).
Differential interest rates may be applied to Bulk Deposits, and premature payment can be refused.
Collection accounts may be used under stipulated conditions, ensuring that funds are directed to escrow accounts only.

Settlement of Claims for Deceased Depositors

Upon notice of an individual customer’s death, the bank must halt account operations and deny payment of any cheques issued after the customer’s death.
If the deceased had a valid nomination, the balance can be paid to the nominee, discharging the bank from liability unless court-ordered otherwise.
If no nomination exists, the will's executor may need to obtain Probate to access the funds.
Banks should communicate promptly with customers regarding sudden emergencies affecting account access.

Security of Strong Rooms/Vaults

Banks are responsible for securing locker facilities to prevent criminal activity, ensuring a controlled point of entry.
Surveillance through CCTV is required, retaining recordings for at least 180 days for security monitoring.

Locker Standards

New mechanical lockers must meet safety and security standards outlined by Bureau of Indian Standards or improved industry guidelines.
Banks must safeguard electronically accessed lockers against hacking and enhance security features.
Identification codes should be embossed on locker keys for identification purposes by law enforcement if necessary.

Regular Operations by Customers

Locker hirers or authorized persons must undergo verification before operating lockers to ensure security and proper authorization.

Discharge and Nomination in Bank Accounts

Banks can discharge their obligations by making payments to a nominee after the death of account holders.
Nomination can be varied or cancelled by all surviving depositors collectively, applicable to "either or survivor" and joint accounts.
In single deposit accounts, banks are encouraged to insist on a nomination. If declined, the individual must provide a written statement expressing their refusal.
Banks must acknowledge receipt of nomination forms and keep records irrespective of customer requests.

Cheques and Payment Instructions

Cheque alterations may be authenticated by the signature of the account holder or any authorized person.
In "either or survivor" accounts, any holder can confirm alterations, while all holders must sign for jointly operated accounts.
For stop payment instructions, in "either or survivor" accounts, any account holder can initiate the stop. Revocation differs for jointly operated and "former or survivor" accounts.

Joint Accounts Management

Joint accounts are considered joint property, requiring all holders to agree on major functions like opening, closing, altering nominations, and borrowing against deposits.
If a joint account holder becomes incapacitated, the remaining holders will receive the account balance along with the appointed guardian's share.
Garnishee orders issued in joint names affect joint accounts; those issued in a single name do not.

Mandate and Power of Attorney

A mandate is created when an account holder authorizes someone else through a simple letter.

Current Accounts for Borrowers with Credit Facilities

Current accounts for borrowers with less than ₹5 crore exposure can be opened without restrictions, contingent on notifying banks when exposure exceeds this amount.
For borrowers with ₹5 crore or more exposure, current accounts are permitted only with a bank holding at least 10% of the total exposure; others may only open collection accounts.

Current Accounts Without Credit Facilities

Borrowers with ₹50 crore or more exposure must establish an escrow mechanism with a designated escrow managing bank.
Current accounts can only be maintained by the escrow managing bank, while other banks may open collection accounts with conditions on debits and remittances.

General Account Opening Provisions

For borrowers with aggregate exposures less than ₹5 crore, banks can open current accounts with an undertaking from the borrower.
Banks can open current accounts for prospective customers without prior credit facilities, barring necessary due diligence.
Thankfully, no restrictions apply for borrowers with credit exclusively from non-banking financial institutions, cooperative banks, etc.

Settlement of Claims in Cases of Missing Persons

Banks may allow settling claims regarding missing persons based on minimal documentation (FIR and police report) to avoid hardship.
Legal representation should not be insisted upon for releasing assets of deceased customers, except under specific circumstances.

Safe Deposit Locker Guidelines

As of January 1, 2022, customers utilizing safe deposit lockers must comply with KYC and ongoing compliance.
Locker agreements must explicitly prohibit storing illegal items or hazardous substances, allowing banks to act accordingly if violations are suspected.

Legal Framework for Garnishee and Attachment Orders

Failure of a banker to comply with an Attachment Order results in liability for the order amount and is deemed an assessee in default.
In simultaneous receipt of both a Garnishee Order and an Attachment Order, priority is given to the Attachment Order.

Key Differences: Garnishee Order vs. Attachment Order

Garnishee Order:
- Issued by a competent court.
- Applies only to the clear balance available at the time of receipt; future credits are not attachable for accounts held solely by the debtor.
Attachment Order:
- Issued by revenue authorities.
- Attaches both current account balances and future credits, applicable to joint accounts on a prorate basis.

Legal Age of Majority in India

Under the Indian Majority Act 1875, a minor is defined as someone under the age of 18.
Reaching 18 years makes one a major, regardless of parental or court-appointed guardianship.

Contractual Capacity of Minors

According to the Indian Contract Act 1872, contracts with minors are void ab initio, and a minor cannot ratify a contract post-majority.
Contracts supplying necessities to a minor are valid if provided by someone legally obligated to do so.

Nomination Facility in Banking

Banks should encourage account holders to make nominations upon account opening, explaining its benefits.
If a customer declines to nominate, a written refusal should be obtained and noted in the account opening form.
Variation or cancellation of a nomination can be done collectively by surviving depositors.

Acknowledgment Systems in Banks

Banks must provide acknowledgment for the receipt of completed nomination forms and changes, regardless of customer requests.

Accounts of Illiterate Persons

Illiteracy does not impede the ability to contract, but consent can be contested due to misrepresentation.
Transactions should be witnessed, ensuring the terms are explained in a language understood by the illiterate customer.

Banking with Pardanashin Ladies

Pardanashin ladies can enter contracts but may contest them based on undue influence, with banks carrying the burden of proof.
Signature attestation is required based on marital status and literacy.

Operation of Joint Accounts

A mandate must be signed by all joint account holders for someone else to operate the account.
Revocation of the mandate can be done by any account holder, regardless of their signing authority.
There are strict rules regarding cheque signing; unauthorized signatures render cheques invalid.

Current Account Characteristics

Current accounts are primarily used for business and generally do not earn interest.
Interest is applicable at the savings rate on deceased account holders' current accounts from the date of death.
Minors cannot open current accounts, and current accounts for illiterate individuals usually are not permitted.

RBI Guidelines for Current Accounts

The RBI issued consolidated guidelines for opening Current Accounts and CC/OD Accounts by banks on April 19, 2022, ensuring compliance across all scheduled commercial banks and payment banks.

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Description

This quiz explores the concept of garnishee orders, including the roles of the garnishee and the implications of court directives such as Order NISI and Order Absolute. Understand how these orders affect bank accounts and the debtor-creditor relationship. Test your knowledge on this critical aspect of debt recovery law.