TABLE OF CONTENTS:

INTRODUCTION AND ORIGIN……………………………………………………..…1

TYPES OF LIEN…………………………………………………………………………….…2

EXCEPTIONS……………………………………………………………………………....…3

CASES…………………………………………………………………………………..……….4

CONCLUSION…………………………………………………………………………………5
 REFERENCES:

1. http://www.bankingschool.co.in/knowledge-capsule/important-banking-laws/what-
is-the-meaning-of-lien/
2. The Indian contract act,1860
3. http://hanumant.com/Banking%20law%20-%20Meenakshi%20Natesan.html
4. http://shodhganga.inflibnet.ac.in/bitstreaM
 INTRODUCTION AND ORIGIN:

The Indian contract act 1, 1872   defines General lien of bankers under
section 171,172 of the ICA, factors, wharfingers, attorneys and policy-brokers.—Bankers, factors,
wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the
contrary, retain as a security for a general balance of account, any goods bailed to them; but no other
persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an
express contract to that effect.1 —Bankers, factors, wharfingers, attorneys of a High Court and policy-
brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of
account, any goods bailed to them; but no other persons have a right to retain, as a security for such
balance, goods bailed to them, unless there is an express contract to that effect. A lien is the right of
a creditor in possession of goods, securities or any other assets belonging to the debtor to
retain them until the debt is repaid, provided that there is no contract express or implied, to
the contrary. It is a right to retain possession of specific goods or securities or other movables
of which the ownership vests in some other person and the possession can be retained till the
owner discharges the debt or obligation to the possessor.

"A bankers’ lien on negotiable securities has been judicially defined as

‘an implied pledge’. A banker has, in the absence of agreement to the contrary ,a lien on all bills
received from a customer in the ordinary course of banking business in respect of any balance
that may be due from such customer." it should be noted that the lien extends only to
negotiable instruments which are remitted to the banker from the customer for the purpose of
collection .When collection has been made the process may be used by the banker in reduction
of the customer’s debit balance unless otherwise earmarked.

1
ICA- Indian contract act,1860
TYPES OF LIEN:

1:Particular Lien

 In case of a particular lien the creditor gets the right to retain possessions only of
goods or securities for which the dues have arisen and not for other dues 
 Example: A laptop-repairer can withhold the delivery of laptop until his charges of
repairing the watch are paid to him.

2:General Lien

 A general Lien gives the right to the creditor to retain the possession till all amounts
due from debtor are paid or discharged 
 This is available to bankers, factors, and attorneys of High Court and Policy Brokers
only Features of general lien – Banker’s
 Implied pledge and right of sale
 To create general lien, no special contract is required. The right to sell the property is
also available under bank’s right of lien because a banker’s general lien tantamount to
an implied pledge
 Limitation
 The right is not restricted by law of limitation. The act only restricts the remedy
through court and not discharges the debt. Hence, bank can recover debts even when
time have exceeded also.
 Ownership/possession
 The possession is with the bank but the ownership remains the same
 Conversion to particular lien
 If it is indicated that a particular security was obtained for one particular debt only,
then the general lien gets converted into a particular lien.
 Criminal Action
 When the banker exercises his right of general lien, no criminal action is available
because there is no criminal act behind it.


3:Banker’s Lien

 Banker has right of general lien 

 To exercise the right of lien the bank must lawfully take over its possession 
 A banker should sell the securities only after a giving a notice to the debtor 
1.Lien - An Implied Pledge:

Banker’s lien is a general lien recognized by law.The general lien on the banker is regarded as
something more than an ordinary lien; it is an implied pledge. This right coupled with rights u/s
43 of the Negotiable Instruments Act, 1881 permits bills, notes and cheques, of the banker,
being regarded as a holder for value to the extent of the sum in respect of which the lien exists
can realize them when due; but in the case of the other negotiable instruments e.g. bearer
bonds, coupons, and share warrants to bearer, coming into the banker’s hands and thus
becoming liable to the lien, the character of a pledge enables the banker to sell them on
default, if a time is fixed for the payment of the advance ,or, where no time is fixed ,after
request for repayment and reasonable notice of intention to sell and apply the proceeds in
liquidation of the amount due to him .The right of sale extends to all properties and securities
belonging to a customer in the hands of a banker ,except title deeds of immovable property
which obviously cannot be sold.

2.The Right of Set-off

Right of set-off is the right of a debtor to adjust the amount due to him from a creditor against
the amount payable by him to the creditor to determine the net balance payable by one to
another, Like any other debtor, a bank also has a right of set- off. When a customer has two or
more accounts in the same name and capacity in a bank, the bank has the right to adjust the
amount standing to the credit of the customer against the debit balance in the other account.
The bank has a right to combine the two accounts.

Let’s take an example: Mr Ram has overdrawn his current account to the extent of Rs. 1,00,000
and he has a credit balance of Rs.80,000 in his savings account. The bank can combine these
two accounts and claim the balance of Rs.20,000 after adjusting the credit balance of savings
account against the debit balance of current account.
3. Right of Appropriation:

A customer may owe several distinct debts to the bank. When the customer deposits some
money in the bank without specific instructions and the amount is not sufficient to discharge all
debts, then the problem arises as towards which debt this amount should be adjusted. In the
absence of any specific instructions, the bank has the right to appropriate the deposited
amount to any loan, even to a time barred debt. But the banker must inform the customer
about the appropriation.

4. Right to Charge Interest and Commission

The bank has the implied right to charge interest on loans and advances, and also to charge
commission for services rendered by the bank, such as SMS notification service, retail banking,
multi city cheque service etc. The bank can debit such charges to the customer’s account.

5. Right to Close the Account

If the bank is of the opinion that an account is not being operated properly, it may close the
account by sending a written intimation to the customer. But the notice is mandatory, without
sending such notice a banker can not close any customer’s account.

(A)When Is Lien Not Permissible:

However Lien is not permissible in the following cases, viz.

(i) Where there is an express contract like by way of counter-guarantee ,providing

reimbursement2.

(ii) Where there is no mutual demand existing between the banker and the customer-firm- 3.

2
Krishna Kishore Kar v. United Commercial Bank, AIR 1982 Cal .62
3
Jaikishan Dass Jinda Ram v. Central Bank of India,AIR 1960 Punj.1
(iii) Where the valuables are received for safe -custody- 4

(iv) Where the entrustment of goods (documents of title) is for a specific purpose stated to
banker

(v) When the deposit with the banker is for a specific purpose, if the banker has implied or
express notice of such purpose.

(vi) Where the valuables or documents of title are left in the bankers hands ,inadvertently.

(vii) Where the banker has only a contingent debt .A contingent debt is that "no amount would
be due on the date when he wants to exercise lien" Tannans banking Law .

4
Cuthbert v. Roberts ,(1909)2 Ch.226 (CA) and Bank of Africa and Cohen,(1902)2 Ch.129.
(Paget’s law of Banking (11th Edition)
Exception to the Right of lien :

1.The banker cannot exercise the right of lien lien on valuables entrusted to the banker as a
bailee or trustee.

2. Right of lien is not applicable on documents deposited for a special purpose or with specific
instruction that the earnings are to be utilized for a specific purpose.

3. The banker‘s general lien is displaced by circumstances that show an implied agreement
contradictory to the right of general lien.

4.The banker has no right of lien on securities left with the banker negligently or
unintentionally.

5.The banker doesn‘t have the right of lien on securities deposited as a trustee in respect of his
personal loan.

6. The banker‘s right of lien extends over goods and securities handed over to him. Money
deposited in the bank and credit balance in his/her account does not fall in the category of
goods and securities. Therefore the banker can use his right of setoff as opposed to lien with
regard to money deposited with him.

7. The right can be exercised only on the customer‘s property and not on joint accounts the
customer.

8. The banker cannot have the right to exercise the lien when the debt has not matured.

9.The banker cannot exercise the lien when he can exercise set off. .
 PRINCIPLES GOVERNING BANKER’S LIEN:

Section 171 of the Contract Act does not lay down any specific conditions in the matter of banker’s lien.
Several disputes have however arisen requiring interpretation of ambit and scope of banker’s lien.
Money can be the subject of banker’s lien but if the money is held under a special contract, it can not
come under purview of lien. Over a period of time, the decided court cases have settled the position of
banker's lien on following points

1. The banker’s lien is a right of retaining things delivered into his possession as a banker if and so long
as customer to whom they belonged is indebted to the bank and the right was not expressly excluded 5

2. The banker’s lien can extend only over things which belong to the customer 6

3. The Courts and jurists have distinguished between banker’s right of lien and setoff. Lord Halsbury has
expressed a view that money is usually not subject of lien unless there is specific earmarking and bank
ordinarily has no lien on the funds in account of individuals with them 7

4. In case of money deposited the bank itself becomes the owner of the money. The purpose of lien in
such cases is attained only by exercise of right of setoff.

5. The lien is subject to a contract to the contrary. The onus of proving that such contract exists is on
the party who alleges it. The Delhi High Court held that when a Fixed Deposit was given as specific
security for bank guarantee, the bank can not hold it for other liabilities 8.

6. The terms on which securities are deposited may create merely a particular lien and not a general
lien. In such case the banker is not entitled for general lien.

7. Where securities have been charged for an advance which is repaid and securities are left with
banker, the banker will have a lien on them for any advance subsequently or existing unless it is
expressly excluded by original memorandum of charge.

8. It is customary practice of the banks to insist for execution of separate letter of lien from customer by
way of abundant caution enabling them to enjoy the security for all the liabilities of the borrower arising
in any manner. It is taken to defend the argument that the securities were given only for specific
purpose.

5
CHETTINAD MERCANTILE BANK LTD. CASE (AIR 1945, MAD.445
6
PUNJAB NATIONAL BANK LTD. V/s. ARURA MAL(AIR I960, PUNJAB.632)
7
HALSBURY’S LAWS OF ENGLAND. 3rd EDITION, VOL.2, PAGE 210. 547
8
VUAYKUMAR V/s. JULLUNDER BODY BUILDERS, AIR 1981, DELHI
1981, PAGE.126)
 9. Unless an agreement not to set off is conclusively established by oral or documentary evidence ,the
bank was entitled to set off the balance in one account against other.

10. A banker does not have lien when the contract by its very nature leads to contrary inference. Thus in
following cases no lien can be claimed.
 CASES REFERED:-

1.Syndicate Bank v/s Vijay Kumar and Others, AIR 1992 SC 1066: The bank has general lien
over all forms of securities or negotiable instruments deposited by or on behalf of the customer
in the ordinary course of banking business and that the general lien is valuable right of the
banker judicially recognised and in the absence of an agreement to the contrary, a Banker has a
general lien over such securities or bills received from a customer in the ordinary course of
banking business and has a right to use the proceeds in respect of any balance that may be due
from the customer by way of a reduction of customer’s debit balance. In case the bank gave a
guarantee on the basis of the two FDRs it cannot be said that a banker had only a limited
particular lien and not a general lien on the two FDRs.It was hence held that what is attached is
the money in deposit amount. The banker as a garnishee, when an attachment notice is served
has to go before the court and obtain suitable directions for safeguarding its interest.

2 .Punjab National Bank v. Arunamal Durgadas AIR 1960:- ,87 where it has been established
that:

(1) Mutuality is essential to the validity of a right of exercising set-off

(2) It must be between the same periods.

3.State Bank of India v/s Javed Akhtar Hussain it was held by the Court that the action of the
bank in keeping lien over the TDR and RD accounts was unilateral and high handed and even it
is not befitting the authorities of the State Bank of India .The court relied on the ruling Union
Bank of India v/s K.V.Venugopalan where it was held by the court that the fixed deposit money
lodged with the bank is strictly a loan to the bank. The banker in connection with the FD is a
debtor .The depositor would accordingly cease to be the owner of the money in fixed deposit
.The said money becomes money of the bank, enabling the bank to do as it likes, that however,
with the obligation to repay the debt on maturity .In the same ruling it was further held that the
bank being a debtor in respect of the money in FD, had no right to pass into service the doctrine
of banker’s lien and the money in Fixed Deposit.

4. In the matter of Firm Jaikishen Dass Jinda Ram v. Central Bank of India Ltd. AIR 1960
Punj.1,two partnership firms with the same set off partners had two separate accounts with the
Bank. The Court held that the bank was entitled to appropriate the monies belonging to a firm
for payment of an overdraft of another firm. Because although two separate firms are involved
they are not two separate legal entities and cannot be ‘distinguished from the members who
compose them. Mutual demands existed between the bank on the one hand and the persons
constituting firm on the other. Nor it could be said that these demands did not exist between
the parties in the same right.
 CONCLUSION:

In case the customer is unable to pay the debt we have seen that the uniqueness of bankers
lien allows the banker to sell the securities to realize the debt. The lien also protects the banker
if these are competing claims with regard the same securities. "However, these aspects have
certain restrictions. Firstly, if the customer deposits securities to which he does not own good
title, then the bankers lien cannot be executed. "However, if the securities are negotiable
instruments, then the bankers lien may apply if the banker can prove that he obtained the
securities in good faith and paid adequate consideration. Secondly, the law that banker can sell
the property without giving the notice to the debtor informing him or her the intension to sell
the secured property. This show that the law protect only one party which is the banker and
the another party the customer is not protected by the law. Thus, in the end it is concluded that
in this project of right of lien by bankers the banker has the full authority to claim his amount
from the securities pledged by the other party in process to recover its money without asking or
taking consent of the other party.