Legal Question in Banking Law in India

26.03.2015

Dear Sir / Madam,

Simply put, the word �assignment� means transfer of rights or obligations held by one party to another party. The Black�s Law Dictionary has defined the word �assignment� to mean �a transfer or making over to another of the whole of any property, real or personal, in possession or in action, or if in estate or in right therein�.

Assignment of rights under a contract is the complete transfer of rights to receive benefits accruing to one party to that contract.

Common law systems have favoured freedom of assignment, such that when there is no express prohibition against assignment in a contract, then assignment should be freely permitted.

Courts in India have taken a different view�in the absence of a specific clause restricting transfer of a contract, the intention of the parties has to be taken into account, which can be gathered from the nature of the agreement and the surrounding circumstances.

Where a contract is silent or incomplete as regards the parties� intention concerning assignment, one will have to rely on the provisions of the Indian Contract Act, 1872, and the principles of assignment enshrined therein.

As per the Negotiable Instruments Act, 1881 only a Cheque, Promissory Note and a Bill of Exchange is defined as a Negotiable Instrument under the Act which can be assigned . A Bank Fixed Deposit Receipt is not defined as a Negotiable Instrument under this Act.

Summing up, since banking is governed by the Indian Contract Act and the Negotiable Instruments Act, in my opinion, a Bank Fixed Deposit Receipt (FDR) can be assigned to a third party, unless the Bank has expressly excluded its permissibility in the terms and conditions of the FDR.

Regards,