Lien is a right of possession of property or goods by a person who is due for payment of any

kind.
It is a right under law instead of a contract under the Indian Contract Act. A key component for
holding the possession of property or goods is that the bailee or the holder must be of the same
skill or labour that the goods are being held for.
There are two types of lien:
1. Particular Lien: When the holder holds the property which is in connection with the due
payment and then releases the property once the due amount is received.
2. General Lien: When the holder holds a property that might not have a connection to the
payment due they can hold off to anything that is of similar value as to the amount due
even if the item is not connected to the payment due.
In particular lien in the case of Hatton V. Car Maintenance Company, Ltd. it was stated by the
court that the lien can only be exercised on the goods on which the payment is due when the
work on the item is done for its improvement or to make it better. Unlike in this case where the
item was supposed to be maintained not improved the right of lien for the repairer never existed
in the first place.
Therefore, it was concluded that a lien does not exist for each and every case.
Banker's Lien
Bank's power to practice lien
A banker's lien, when it is not excluded by special contract, express or implied, extends to all
bills, cheques, and money entrusted or paid to him, and all securities deposited with him, in his
character as a banker. Strictly, it is confined to securities and properties in the custody of the
banker; and in respect of things that belong to the customer, and are held by the bank as security;
whether they are in the same or different branches. If a thing is in possession of the bank but
owned by the customer, has no right of lien over it. A deposit of valuables with a banker is
subject to the banker's lien for the customer's general debts to him unless can prove an agreement
to give up his general lien. Thus, if a certain sum is due to a bank in one account, it may retain as
security or other movable that came into its hand in another account; including repayment of
subsequent advances. A banker's lien would also apply to negotiable instruments remitted by the
customer for collection. Unless otherwise directed, the proceeds of such collection may be used
by the bank for reducing the customer's debit balance.

The Banker's lien, apart from any specific security, the banker can look to his general lien as a
protection against loss on loan or overdraft or another credit facility. The general lien of bankers
is part of law merchant and judicially recognised as such.1
When is Lien not permissible
Lien is not permissible in the following cases:
1. Where there is an express contract like by way of counter-guarantee, providing
reimbursement. (Krishna Kishore Kar v. United Commercial Bank) 2
2. Where there is no mutual demand existing between the banker and the customer firm.
(Jaikishan Dass Jinda Ram v. Central Bank of India)3
3. Where the valuables are received for safe custody. (Cuthbert v. Roberts4 and Bank of
Africa and Cohen)5
4. Where the entrustment of goods (documents of title) is for a specific purpose stated to the
banker. (Greenhalgh v. Union Bank of Manchester)6
5. When the deposit with the banker is for a specific purpose if the banker has implied or
expressed notice of such purpose.
6. Where the valuables or documents of title are left in the banker's hands, inadvertently.
7. 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.
8. Where the account is in respect of a trust.
Banker's Lien is not available against Term Deposit Receipt in Joint Names when the debt is due
only from one of the depositors.
In the matter of Jaikishen Dass Jinda Ram v. Central Bank of India Ltd.,7 two partnership firms
with the same set of 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.
The relation of banker and customer arises as a result of a contract, express or implied, according
to which the customer delivers to the bank money, funds or credits constituting the deposit and
the bank assumes obligation to pay out on his demand or order a sum equal to the amount
deposited. This arrangement is to the advantage of both the parties, for the customer receives the
benefit of banking facilities and the bank the benefit of the use of the customer's money with or
without interest. The moment the money is deposited in the bank, the relation of debtor and
creditor comes into existence, the bank being the debtor of the customer. The deposit becomes a
loan which merges in the general fund of the bank and becomes the property of the bank. Two
rights flow out of the relationship of debtor and creditor, namely (1) the right of the customer to
demand repayment of the amounts due to him if and when he so desires and (2) the right of the
bank to appropriate the monies, funds and securities of the customer coming into its possession
in the course of their dealings for repayment of the customer's indebtedness. This latter right is
known as banker's lien and it rests on the principle of the law-merchant that any credit given by a
bank to a customer is given on the faith that sufficient monies and securities belonging to the
customer will come into the possession of the bank in the due course of further transactions. This
right is akin to the right of set-off which obtains between persons occupying the relation of
debtor and creditor and between whom there exist mutual demands. As mutuality is essential to
the validity of a set-off, it is necessary that before one demand can be set-off against another both
must mutually exist between the same parties and between them in the same capacity. The
mutual nature of the debt and not the mutual nature of the parties should be considered. Debts
accruing in different rights cannot be set-off against each other. A bank can enforce its lien if
mutual demands exist between itself and the customer, that is when they mutually exist between
the same parties and between them in the same capacity. 8

As according to Dr. Herbert L. Hart, an author on Law of Banking who based on several legal
decisions, defined the term "banker" as "A banker is one who in the ordinary course of his
business, honors cheques drawn upon him by persons from and for whom he receives money on
current accounts". A banker and a customer share multiple relationships, including that of Bailor
and Bailee.

The Indian Contract Act, 1872 governing Contracts of Bailment bestows upon the Bailor a
particular kind of right, that of lien. Indian Law governs two kinds of lien, that of general lien
and of particular lien. A particular lien is exercised over a particular good bailed to the Bailor for
a specific purpose, and such right exists over these goods alone. In general lien, the Bailor's right
extends over any general god bailed to them. Such right, however, is limited to bankers, factors,
wharfingers, attorneys and policy brokers unless there is a contract to the contrary.

Bankers have the right of general lien over all securities and properties placed with them in their
capacity as banker-custodian. Much speculation has been made regarding the true nature of a
banker's right to lien, but such has come to an end following the decision rendered in Syndicate
Bank v. Vijay Kumar. Multiple questions have also arisen regarding the nature of the goods
bailed but the Indian Courts have laid such to rest by numerous decisions.

Meaning, Nature, and Scope of Lien

A creditor in possession of goods, securities or other assets belonging to the debtor possesses a
right to retain such until the debt owed to them is fulfilled, and such is the right to lien. In
Halsbury's Laws of England, it is stated: "Lien is, in its primary sense, a right in one man to
retain that which is in his possession belonging to another until certain demands of the person in
possession are satisfied. In its primary sense, it is given by law and not by contract." It is
exclusively a legal claim and thus not one that need be defined in the contract.
The Indian Contract Act, 1872 classifies right of lien into two, General Lien and Particular Lien.
Section 170 defines particular lien, which states that the Bailee is free to hold control of a precise
property with position to the charge which is due. For Example, A gives a piece of cloth to B, a
tailor, to stitch it into a pant as soon as it is over and to give a three months' credit for the price.
Therefore, according to this instance, B is not entitled to return the pants until he is paid.
This right is available to the Bailee subject to certain conditions, among which the most
important is the exercise of skill and labor upon the good bailed. Furthermore, it has been very
often highlighted that the skill or labor exercised by the Bailee must be of such a nature that the
act will improve the quality of the goods. Banker's Right to Lien In Chalmers on Bills of
Exchange, the meaning of the Banker's Lien is stated:
"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." In 'Peget's Laws of Banking', the learned
author has stated that "apart from any specific security, the banker can look to his general lien as
a protection against loss on loan or overdraft or other credit facility. The general lien of bankers
is part of law merchant and judicially recognized as such".
In 'Chitty on Contracts', it is explained that:
"The lien is applicable to negotiable instruments which are remitted to the banker from the
customer for collection. When the collection has been made, the proceeds may be used by the
banker in reduction of the customer's debit balance, unless otherwise earmarked." Therefore,
where the customer is indebted to the banker, the right to lien arises immediately by virtue of
implication of law.
However, if the banker agrees impliedly or under a course of action that the customer may draw
against uncleared effects, the banker's right to lien arises out of such contract. There is no legal
requirement that there be some contract for the right of lien to exist since it is an implied right as
per Section 171 of the Indian Contract Act, so long as such has not been exclusively excluded.
For the right to lien to arise, the following conditions must be satiated:
1. The property must come into the hands of the banker in his capacity as a banker in the
ordinary course of business;
2. There should be no entrustment for a special purpose inconsistent with the lien;
3. The possession of the property must be lawfully obtained in his capacity as a banker; and
4. There should be no agreement inconsistent with the lien.

The banker's right to general lien is judicially recognized and it deals with the goods and
securities deposited by the customers in the bank accounts of the customers, provided by a
condition that there is no contract which is implied, inconsistent with such type of lien. In the
matter of Lloyds Bank v. Administrator General of Burma, Gold ornaments were pledged with a
particular Bank as a Bailee, and later the borrower paid back the loan amount. However, the bank
retained some of the pledged gold as security for another loan which had been taken by the same
borrower. Here, the Court held that the bank reserves a right to be held entitled to do so that they
are having satisfaction for the other loan also. The law gives inter alia, a general lien to the
bankers. In the matter of State Bank of Travencore v. Bhargavan 3, the court held that to avail the
right of lien, a banker must be functioning as a banker under Section 6 of the Banking Regulation
Act, 1949.

Effect of Lien
In all cases of Lien, two parties are involved, the banker lending the money and the customer
who borrows such money in furtherance of which security shall be put forth, and thus both
parties are entitled to certain rights in relation to the securities provided. The customer is the
legal owner of the securities but once the commodities are transferred to the bank, its possession
is also transferred.
The owners are not physically in possession of but remain the true proprietors and so have the
obligation to pay off the debt and the right to retrieve their property. At the same time, the banker
has the custody of the securities, whereby they are to act as the custodians of its. They have the
right to retain the goods only for so long as the debt is not paid in full. Once paid off, the
banker's right to lien ends.
Principles of Banker's Right to Lien
The banker's lien is subject to any contract to the contrary and one alleging it must prove the
existence of such a contract.
A bank may not be able to exercise any right of lien over the money deposited by the customer
inasmuch as by itself becomes the owner of the money deposited, but still, it has the right to
adjust such amounts against any debts due to from the customer. The purpose of lien in such
cases is attained by the application of the principle of set off.
It is necessary that the ownership of a thing, which is in possession of the bank, must be with the
customer and held by the bank as security; otherwise, the bank can exercise no right of lien, as
was recognized in PNB Ltd. Arura Mal Durga Dass4.
It has been held in Chettinad Mercantile Bank Ltd. v/s PL.A.Pichammai Achi, that banker's lien is
the right of retaining things delivered into his possession as a banker if and so long as the
customer to whom they belonged or who had the power of disposing of them when so delivered
is indebted to the banker on the balance of the account between them provided the circumstances
in which the banker obtained possession do not imply that he has agreed that this right shall be
excluded. Banker's lien can properly be said to arise only in respect of any of the securities held
by the bank; the bank has a lien over these securities alone and it could hold them against the
amount due by the customer.
Legislative Framework Regarding Banker's Right to Lien
The legislative framework governing banker's right to lien is encompassed within the Indian
Contract Act. 1872.
The provisions are as follows:
Section 148 - defines bailment and the parties involved, i.e., the Bailor and the Bailee. This was
applied to understand the relationship between the banker and the customer
Section 170 - particular lien. It defines the Bailee's right to particular lien over the goods so
bailed to them.
Section 171 - defines general lien.
This allowed us to comprehend the banker's right to general lien. Along with a banker, factors,
wharfingers, policy brokers and attorneys of high court are vested with the right to general lien.

Syndicate Bank v. Vijay Kumar & Ors 5 ; An analysis

FACTS: At the judgement debtor's request, the bank in this case consented to provide a bank
guarantee in favour of the High Court of Delhi on the premise that the judgement debtor would
deposit the whole amount of Rs. 90,000 in favour of the High Court of Delhi Registrar. The
partner of the judgement debtor firm duly discharged them by signing on the reverse of each
FDR before depositing two FDRS for Rs. 65,000 and Rs. 25,000, respectively.

This was sent along with a cover letter on the bank's usual form which had the clause, "The Bank
is at liberty to adjust from the proceeds covered the aforesaid Deposit Receipt /Certificate or
from proceeds of other receipts /certificates issued in renewal thereof at any time without any
reference to us, to the said loan/OD account. We agree that the above deposit and renewals shall
remain with the said bank so long as any account is due to the bank from us for the said M/s
Jullundur BodyBuilders singly or jointly with others"

The Issue:
What was the Banker's right to lien?
The Decision:
The court held that, In the absence of a contrary agreement, a banker has a general lien over such
securities or payments obtained from a customer in the ordinary course of banking business and
is entitled to use the proceeds in respect of the general lien and all forms of securities or
negotiable instruments deposited by or on behalf of the customer in the regular course of
business of banking business. This judgment clarified the nature of Banker's lien. Judgments that
followed have adopted the same stance to ascertain the existence of the banker's right to lien.

Where Banker's Right to Lien Fails to Apply

There are numerous circumstances which have been recognized wherein the banker's right to
general lien does not apply. Rooted in Legal precedents, these circumstances have since then
received the status of standard principles.

These are as follows:

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When there is an express contract providing a way of repayment of dues. This was laid down in
State Bank of India v. Jayanthi6, where the court held that the securities were provided for a
specific purpose, i.e., for a specific loan and cannot be retained by the bank under their claim of
general lien.
When the goods bailed to them are for safety deposit. A clear distinction has been recognized
distinguishing between money and goods placed as a deposit and those given to the banker as
bailment. In the case of a safety deposit, the bank is a Bailee and must exercise reasonable duty
of care towards the deposits. They cannot claim to retain such deposits under their right of
general lien for other unfulfilled payments7.
When the title deed is provided as security but only for a specific purpose. Where the customer
has provided a mortgage or security for a particular debt, but the bank exercises their right of lien
by retaining the mortgage for a subsequent debt, such is not valid. In a similar case of Firm
Jaikishen Dass Junda Ram vs. Central Bank of India8, Karnataka High Court held that in such
cases the banker could not exercise their right to lien as the deed was provided for a particular
debt only.
When there a joint party term deposit but only one party's dues are left unpaid. A joint party term
deposit is a deposit under the name of two people. In such cases, if one of the parties in the joint
account has some unpaid dues left then the securities of the other party cannot be retained by the
bank under Section 171 as seen in Lonankutty Antony v. Joint Registrar of Co-Operative
Societies9.
The principle of general lien does not extend to a loan taken by the customer from another
branch of the bank.
When the person is a guarantor for another person's loan.

Perspective on Bankers' Right to lien Firm Jaikishen Dass Junda Ram Vs. Central Bank of
India10
Facts:
There were two partnership firms with same people, who had two different cash credit accounts
in the same bank. The dues were paid off for the 1st firm's account, but there was some amount
due to the bank in the 2nd firm's account. The 1st firm had given the bank Rs.15, 000/- to the
bank to be remitted to a mill. The mill refused the money and returned it to the bank. The bank
adjusted the money towards the amount due in the 2nd firm's account.

Held:
The court held that the bank had the right to appropriate the amount to clear the indebtedness
from the customer's securities. Also, though there were two different firms, they cannot be
considered as separate legal entities as they were constituted of the same people. M/s. Shivam
Construction Co., Ahmedabad vs. Vijaya Bank, Ahmedabad11

Facts:
The bank had sanctioned overdraft account to plaintiff on security of FDR. The bank requested
the plaintiff to pay the dues from the fixed deposit. Their request was not replied to, so they
appropriated the fixed deposit sum towards the unpaid dues. The defendant then filed a suit for
recovery of the remaining amount.

Held:
The plaintiff's plea was dismissed on the basis that the defendant bank had the right to lien over
the goods or securities deposited.