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Index
S.No.
TOPIC
1.
What is garnishment
2.
3.
4.
Obligations of Bank
5.
Case Analysis
6.
Conclusion
What is Garnishment?
The power of the court enshrined under Rule 46A to issue court notice, is
discretionary and the court may refuse to pass such Order if it is Inequitable
and the court apprehends that it can cause prejudice to the garnishee, or that
1 Shivanand Singh, A Glance On Provision Of "Garnishee Order", Singh &
Associates
the grounds of the application seeking that remedy is not sufficient or if the
affidavit is filed by decree holder is frivolous or ambiguous, etc. The discretion,
however, must be exercised judicially. Where the court finds that there is
bonafide dispute against the claim and the dispute is not false or frivolous, it
should not take action under this rule.
The executing Court has been given power to recover any of the amounts of the
judgment debtor, which is in the hands of other. The rule of 46 A requires a
notice to be issued to a garnishee before a garnishee order is passed against
him. If such notice is not issued and an opportunity of hearing is not provided
by the court, the order would be null and void.
In the eyes of law, there is no existence of such an order and any step taken
pursuant to or an in enforcement of such an order would also be void. The
object of this rule is to render debt due by the debtor of the judgment debtor
available in execution to the decree holder and not to drive him to a suit. It
applies to a debt, other than a debt secured by a mortgage or a Charge, which
has been attached under rule 46.
Prior to this amendment in 1976, there was no provision relating to garnishee
order in the code of civil procedure, 1908. After insertion of this amendment, a
direct provision was added to the code of civil Procedure, which empowers the
court to issue such an order on the application duly filed. It is the discretionary
power of the court to issue a garnishee order and not a mandatory provision.
We need to note the following points as rules in respect of bank accounts that
would be attached by a garnishee order2:
I.
II.
III.
received.
The unutilised amount of an overdraft limit is attached.
The bank is entitled to exercise its right of set-off, if any. In this case,
IV.
loan already due for repayment and demanded for may be deducted.
As regards future credits, the principle is that any credit which has not
been cleared to the customers account at the time when the order is
V.
VI.
partnership account.
If the garnishee order names two judgement debtors who are joint
account holders, it will however attach the joint account and individual
accounts of the joint parties. In partnership, the order attaches the
partnership account. It also attaches personal accounts of the partners.
It attaches the account of anyone of the partners for the whole sum of
VII.
VIII.
IX.
X.
attached.
Deposit account will be attached regardless of the maturity condition,
submission of deposit receipt issued to the customer or any other notice
such receipt.
The order must correctly identify the judgement creditor; if not, the bank
will be entitled to ignore it as this can lead to a wrongful dishonour of a
cheque drawn on an account that was not intended to be attached. The
bank may also ignore corrections made on the order by a party other
XII.
XIII.
Vs Tester (1937).
If a bank confirmed a cheque good for payment if presented, but before
the actual physical presentation of the cheque, a garnishee order is
served, the paying bank cannot debit the cheque to the account.
XIV.
XV.
XVI.
XVII.
contingent liability.
Money which has been conclusively or irrevocably paid from the account
will not be attached provided the payment/or transfer of such money has
been completed as at the time of serving the order. It was decided in
Rekstin v. Sevro Sibirsko (1933) that a garnishee order revokes an
instruction by a customer to transfer fund despite the completion of book
entries as much as the transfer has not been informed.
the account is a Trust account and in the meanwhile stop payments from
the account and instruct the Trustee.
e) Accounts impressed with Trust: cannot be used to settle personal
liabilities and the banker is not bound by garnishee order.
Banks like that a garnishment spares the bank from getting thrust into
the middle of a squabble between two parties claiming the same funds in
a bank account.
Banks hate that a garnishment almost always ends with the bank
4. The creditor files a court action to take the specific amount of funds that
are owed from the creditors bank account (or accounts), i.e., garnish the
account(s), at a specific bank. (Note that the creditor must know where
the debtor has a bank account.)
5. The court sends to the bank a document that goes by different names
but may be called a summons of garnishment, notice of garnishment, or
something similar.
6. In compliance with the summons or notice of garnishment, the bank is
ordered to take action to prevent the creditor, i.e., the banks customer,
from removing funds from the account, or accounts that are being
garnished. The bank may freeze the account to any further activity and
access by the owner of the account, move the amount of garnished funds
to a suspense account, or simply place a hold on the funds. (Note that a
hold is generally used on time savings deposits such as certificates of
deposit since moving them to a suspense account would make it difficult
for the banks computer to keep accruing interest on the account.)
7. In order to cover the amount stated in the summons of garnishment, the
bank may be required to freeze or hold more than one account.
8. Due to the additional manpower and individual handling that are
required for a bank to handle garnishments, state laws as well as
industry standard practice allow banks to charge a fee for this work. The
unacceptable alternative would be for the bank to increase the service
charges for everyone with an account at the bank in order to reimburse
the bank for the cost of processing the garnishments for the account
holders that were being garnished.
9. Banks place the account freezes or holds and then notify the account
holder, the same day or within a couple of days, that they should contact
the creditor, an attorney, or the court if they plan to contest the
garnishment. This usually involves filing what lawyers call a traverse.
Part of this process includes the account holders responsibility for
notifying the court if any of the funds in the accounts are exempt from
garnishment.
10.
The summons of garnishment will state a date range during which
the bank will have to forward the garnished funds to the court, usually
thirty to forty-five days or so from receipt of the summons. By the end of
this summons period, the bank must transmit the amount of garnished
funds to the court, or else the bank gets into trouble with the court for
failing to follow its order.
Obligations of Bank
Generally it is the banks primary obligation to take care of its customers and
provide services which are fundamental to the contractual relationship of the
banker and the customer. Further provisions stated in the Banking Code state
what services will the bank provide to its customers as a part of general
contractual obligations which are owed to the customer. E.g. the bank will help
you to choose products or services which meet your needs and will also give
you clear information with regards to services which the bank will provide to
you e.g. joint account customers rights and responsibilities and many more.
The Bank will also provide its customers with regular account statements and
all information with respect to running the customers account e. g how direct
debit works, or cheque payments work etc. If the customer has a passbook the
bank will not be required to send bank statements to the customer. The
Banking Code also contains provisions regarding the means of notification of
the change to the terms and conditions; there should also be a notice period of
30 days which must be given to the customer11.
If the change in terms and conditions is advantageous to the customer such
change can be carried out immediately without the need for notice to be
submitted to the customer. The notice period stated in the Banking Code is 30
days however under common law such notice only needs to be reasonable.
What is reasonable is determined by the case law.
The banker must not disclose the condition of his customers account and the
obligation to observe secrecy does not end even with the closing of customers
account.
disclosure is justified
8. Under section 131 of Income Tax Act, 1961; Section 37 of the Wealth Tax
Act, 1957; Section 36 of the Wealth Tax Act, 1958; Section 94 of the
Cr.P.C
Case Analysis
In Global trust bank Ltd. v. Fargo Frieght ltd. & ors 14, the Honble court held that
it applies not only to a debt other than a debt secured by a mortgage or a
charge, which has been attached under Rule 46 of Order 21 but also to a debt
under a negotiable instrument. The foundation of a garnishee proceeding is an
attachment under rule 46(1) of Order 21 of the Code. At the most it can be said
that orders, which were passed, are akin to attachment proceedings under
which by operation of various interim orders the appellant had been directed to
keep the letter of credit alive. But the question in this instant case is that
whether mere attachment would entitle and enable the Court to otherwise
make a direction for the payment of the amount, without adjudicating upon the
case set up by appellant that for various reasons it is not liable to pay the
amount. It has also been noticed above that the appellant is seriously
disputing its liability under the letter of credit to pay. Rule 46B of Order 21 of
the Code says that when the garnishee does not forthwith pay into Court the
amount due form him and fails to appear and show cause in answer to the
notice, the Court may order the garnishee to comply with the terms of such
notice. Rule 46C of Order 21 lays down the procedure when the garnishee
disputes indebtedness to the judgment debtor or alleges that the debt is not an
attachable debt. The Court must order an issue to be raised and tried. Even if
there is a reasonable doubt the matter should be tried. The garnishee is
required to make out a prima facie case before an issue as to his liability may
be ordered to be raised; In other words he would disclose facts from which a
reasonable inference may be drawn that there is a valid dispute as to his
alleged liability.
In Syndicate Bank v. Vijay Kumar15, while furnishing bank guarantee in favor of
high Court customer furnished two fixed deposit receipts duly discharged to
the bank and authorized the bank the custody of the receipts and renewals
14 AIR 2002 Delhi 13
15 1992 2 SCC 330
thereof. The Honble Supreme Court held that it becomes a general lien. Bank
can set off liability of the party against the receipts. If the fixed deposits are
attached to bank garnishee has to go to the court. The balance after
adjustments of banks claim shall be available to satisfy the decree.
Conclusion
The Code of Civil Procedure empowers the court to issue the garnishee order.
Prior to the amendment in 1976, there was no provision relating to garnishee
order in the code of civil procedure, 1908. After the insertion of Amendment by
the way of Code of civil procedure Amendment Act, 1976, a direct provision was
added to the Code of Civil Procedure, 1908. It empowers the court to issue
such an order on the application duly filed. But it is not mandatory on the
courts to issue the order every time as and when the application for its
issuance is filed. It is the discretionary power of the court to issue a garnishee
order and not the mandatory provision. The word may in the rule means that
the rule is discretionary and the court may refuse to act under this rule if it
inequitable or if it is likely to cause prejudice to garnishee.
The garnishee is required to make out a prima facie case before an issue as to
his liability may be ordered to be raised. Even if the garnishee disputes the
indebtedness to the judgment debtor, the court shall carry on the proceedings.
If there is even little doubt about the indebtedness of the judgment-debtor, the
court shall continue with the proceedings. The Court must order an issue to be
raised and tried. Even if there is a reasonable doubt the matter should be tried.
The court has no power to issue order or direction to anybody, may it be usual
financier of the judgment-debtor, who is not holding any money of the
judgment-debtor to pay to satisfy the debt or decretal amount for the
judgment-debtor, may it under assumption the garnishee is able and can
recover the amount from the judgment-debtor or the judgment-debtor will pay
to the garnishee16.
The court may reject the application or refuse to issue such order if suitable
grounds are not found i.e. if the affidavit filed by the decree holder is vague,
insufficient and ambiguous; the proceedings would not sustain and would
come at stake. The court may, in exercise of sound discretion, control the use of
writs of garnishment to the extent of preventing it from being abused or
becoming oppressive. If the assets are belonging to the defaulted member it
16 Varsha Rajora, Power of Indian courts to issue Garnishee Order
Bibliography
Websites:
http://updatedindianbanking.com/td.asp?id=126
http://www.sbank.in/2013/10/legal-aspects-of-banking-garnishee-
order.html
http://www.tfguru.com/categories/faqs/banking-general/206-what-is-
a-garnishee-order
http://thelawcentre.ca/self_help/small_claims_factsheets/fact_19
http://elearning.nokomis.in/uploaddocuments/Banking
%20Fundamentals/Chp.16%20Bankers
%20Obligation/Summary/chapter%2016.pdf
Books: