Total Commander

Image: http://i.imgur.com/oTUvcSi.png
If we use right mouse button - then Rubber band selection is inactive.

It would be great to use Middle button for Rubber band in this mode as native TC function (like it realized in TwinKey plugin). Or use Left button with some modifiers (for example - press Alt key and select with Left button).

This is intentional. If you use the right button, you can use the right click+drag method to selected.

Can you please suggest where in the setting menu can this setting be located? I tried but am not able to find the same....

The rubber band option is in Configuration - Options - Operation. But it can only be enabled when using left mouse button selection mode.