UNIVERSITY INSTITUTE OF LEGAL STUDIES

SUBJECT : LAW OF EQUITY, TRUST & SPECIFIC

RELIEF ACT (LLT-462)
By-Ms. Manpreet Kaur (E13358)
Assistant Professor, UILS, CU
(manpreet.e13358@cumail.in)

DISCOVER . LEARN . EMPOWER

LAW OF EQUITY, LIMITATION & SPECIFIC
RELIEF ACT (21LCT-265)

Course Outcome

CO Title
Number
CO1 The students will better appreciate the
concept of equity, justice and good con-
science

Will be covered in this

lecture
 LAW OF EQUITY, LIMITATION & SPECIFIC RELIEF
ACT (21LCT-265)

TOPIC: LIEN AND SET OFF

3
 LIEN AND SET OFF
• MEANING OF LIEN
• As per Merriam- Webster Dictionary, “Lien” is defined as “a charge/
penalty upon real or personal property towards the satisfaction of
some debt or duty derived by the use of law”. In legal terms, lien
means rights of bailee to retain the goods & securities (held by bailee)
owned by the bailor until the total debt due to him is paid off. It
allows the bailee/ creditor the right to retain the security and not the
right to sell it. In simple terms, a lien means the right to keep
somebody’s property until a debt is paid and not the right to sell it to
someone else.

4
• A Bailee always has the right to lien against Bailor. This article will
provide a quick understanding of Lien and their types, various aspects
of Banker’s Right to Lien and the procedure adopted by Banks while
set-off of a particular lien.

5
• TYPES OF LIEN
A lien may be categorised into Particular/ Specific Lien and General Lien.
• Particular/Specific Lien:
This is a lien wherein a person, who has made expenses either by rendering any
services in the form of labour or skills on a particular item, has a right to retain
such goods until the due remuneration is paid to him against the rendered
services. This is mentioned under Section 170 of the Indian Contract Act, 1872.
For example, A gives his car to a mechanic for servicing against consideration of
Rs. 4500. The mechanic after rendering the due scope of service will be right to
keep A’s car in his custody until he is remunerated for his services. A bailee can
exercise his right to a particular lien in scenarios, wherein:
There is an involvement of any labour or skills
There is a performance of services as per the agreed scope of services.
The payment is due to be made by the bailor.

6
• General Lien:
This is a lien wherein any goods bailed can be retained as security (in the absence
of a contract) if any amount is due to Bailee. Such rights are assigned and limited
to the following category of people.:
Bankers
Factors,
Wharfingers (owner of dockyards used for parking ships).
Attorneys of High Court
Policy Brokers.
The general lien is discussed under SECTION 171 of the Indian Contract Act, 1872.
It is important to note that persons other than those mentioned above can have
the right to a general lien only in case any contract is explicitly made to the effect.
The goods excluded are the documents related to litigation, Contracts, and legal
documents. This also includes lockers as the lockers are taken for the safe
custody of ornaments and important documents.
7
 MEANING OF SET-OFF
• It is the legal right of the bank to set off or adjust the debit amount
against the credit amount in the balance of the same borrower. The
right of set-off is also known as the right to balance debit with credit
or a combination of accounts. For example, X buys a mobile from Y,
for Rs.10,000. Later, A sells to B Bluetooth headphones worth
Rs.5000. B is perfectly entitled to set off the cost of headphones
against his liability for mobile and needs to pay only Rs.5000 as a
settlement towards the net debt.

8
• DIFFERENCE BETWEEN BANKER’S LIEN & SET-OFF
• A banker’s lien differs from the right to set off. A lien is confined to
only the securities and property upon which banks have custody. A
set-off relates to money and may arise from a contract or mercantile
usage, or by using the law.

9
• BANKER’S RIGHT TO LIEN
• It is a condition that entitles bankers to recover their due amount by
selling the goods of debtors, which are in their possession. The
recovery can only be made once a reasonable time and notice are
provided to the debtor. In other words, a bank has the right to retain
the Goods and securities of a customer until the customer pays the
bank’s dues. The bank can sell these goods after giving due notice to
the customer as per the law. These goods are the ones that Banker has
possessed during the ordinary course. Lien is not permissible in the
following scenarios:
• When there is an express Contract e.g., Counter Guarantee.
• When there is no mutual demand b/w Banker and customer.
• When the valuables are put in with banks under safe custody e.g.,
lockers.
10
• The banker has no lien on the bill of exchange or other documents
entrusted to him for some special purpose. The right of the lien
provided to the banker is not barred by law of limitation. The effect of
limitation is only limited to bar the remedies available under law and
not the discharging of the debts.
• Credit and liability must be the same rights. For example, if a person
has a current account or a deposit account and there is a debt due
from a firm, then the right to lien is not applicable since the credit and
liability do not exist in the same rights.

11
• CONDITIONS WHEN BANKER CAN CHOOSE THE RIGHT OF SET-OFF
• The banker’s power to combine different accounts of a person against
the debt it holds against the same person is called the right to set off.
Some important requirements to initiate set-off are:
• All the funds must prima facie belong to the customer.
• When debt amounts are certain.
• When the debts are in the same rights.
• There is no contract expressed or implied in contrast.

12
• CASE LAWS
Chettinad Mercantile Bank Ltd. v/s PL.A. Pichammai Achi AIR 1945
It was held that the right of a banker to keep possession of items
delivered to him if and so long as the customer to whom the things
belonged or who acquires the power of disposing of them, when so
delivered, is indebted to the banker on the balance of the account
between them, provided the banker has obtained possession in such
circumstances which do not imply that he has agreed to eliminate this
right.

13
• City Union Bank Ltd v/s Thangarajan (2003)
It was observed that the bank gets the right of a general lien w.r.t. all
securities of a customer including negotiable instruments and Fixed
Deposits, but only to the extent to which that customer is liable. In the
event that the bank fails to return the balance amount to the customer,
and the latter suffers a loss thereby, the bank will be liable to pay
associated damages to the customer. In the above case, the Court has
relied its decision on the principle which states that for invoking a lien
by a bank, there should exist interdependency between the bank and
the customer. Detaining the customer’s properties beyond the total
liability is unauthorised and would attract damages as a liability on
banks.

14
• CONCLUSION
• The Right to Lien is an instrument that can be used by a banker in the
event of any default from the borrower. However, a bank needs to
decide the reasoning for enforcement of this right given to them by
Law. They need to ensure that only the legitimate amount is retrieved
from the borrower’s asset (only when allowed by law) and in line with
Sections 170 & 171 of the Indian Contract Act, 1872. A banker should
not execute a right of lien when there is an express Contract.

15
THANK YOU