Court says bank’s set-off and lien clause may not extend to life insurance money credited to beneficiary’s account; orders interim refund of Rs. 17.29 lakh.
The Allahabad High Court has prima facie held that a bank cannot recover a deceased borrower’s personal loan dues from life insurance proceeds credited to his widow’s account, especially when she was neither the borrower nor a guarantor to the loan.
A Division Bench of Justice J.J. Munir and Justice Indrajeet Shukla was hearing a writ petition filed by Priti Singh, who challenged the deduction of Rs. 17,29,999 from her savings account maintained with the State Bank of India, Colonelganj Branch, Prayagraj. The amount had been deducted in enforcement of an order dated December 30, 2025.
According to the petitioner, after the death of her husband, Ambesh Kumar Singh, she received Rs. 50 lakh as proceeds of a life insurance policy, which was credited to her account. Her husband had earlier availed a personal loan from SBI while serving as Headmaster of a primary school in Kaushambi. He died in a road accident on June 7, 2025, before repaying the loan. The bank then recovered part of the outstanding dues from the petitioner’s account.
The bank defended its action by relying on Clause 18(iii) of the loan agreement, which gave it a “paramount right of set off” and “general lien” over monies, accounts, securities, goods and other assets belonging to the borrower or standing to his credit.
However, the High Court observed that this clause, though broadly worded, did not appear to authorize recovery from life insurance proceeds payable to the widow upon the death of the insured. The Bench noted that such insurance proceeds do not remain the property of the deceased borrower. Instead, they become the entitlement of the beneficiary or nominee after the insured’s death.
The Court further observed that the insurance amount was not part of the deceased borrower’s estate and could not be treated as his asset for the purpose of bank recovery. On a prima facie view, the Court held that the bank was not justified in deducting the amount from the petitioner’s account.
Taking note of the apparent lack of authority in the bank’s action, the Court admitted the writ petition and issued notice to all respondents. It also granted them two weeks to file counter affidavits.
On the stay application, the Court directed the Senior Manager and Branch Manager of SBI to ensure refund of Rs. 17,29,999 to the petitioner’s account, or to file separate personal affidavits within two weeks explaining why the interim mandamus should not be made absolute.
The Registrar (Compliance) was directed to communicate the order to the concerned bank officials through the Chief Judicial Magistrate, Prayagraj within 24 hours.
Bottom Line :
Banking Law - Bank cannot, prima facie, exercise right of set off or general lien against life insurance proceeds credited to widow's account for recovery of deceased husband's personal loan, where widow was neither borrower nor guarantor and insurance proceeds are beneficiary's entitlement, not assets of deceased borrower.
Statutory provision(s):
Not specified in the judgment
Priti Singh v. Union of India, (Allahabad)(DB) : Law Finder Doc id # 2985233
