Rights of bailee are provided in the Indian Contract Act 1872. Bailee has some rights against the bailor in a bailment.
The bailee of the goods has the following rights under the Act:
1. Right to recover necessary expenses incurred on bailment. (Section 158).
2. Right to recover compensation from the bailor. (Section 164).
3. Right to have a lien on the goods bailed. (Secs. 170-171).
4. Right of suit against a wrongdoer. (Section 180).
1. Right to recover necessary expenses incurred on bailment (Section 158)
When under a contract of bailment, some remuneration is to be paid to the bailee for services he renders in respect of them, he has a right to recover the same, or to exercise the right of lien in respect of such goods until he receives the necessary payment.
Even when the bailment is gratuitous, i.e., the bailee is to receive no remuneration for the service rendered by him, he is nonetheless entitled to recover from the bailor necessary expenses incurred by him for the purpose of the bailment. Section 158 makes the following provision in this regard :
“Where, by the conditions of the bailment, the goods are to be kept or to be carried, or to have work done upon them by the bailee for the bailor and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.”
For instance, A leaves his horse with his neighbour, B, for safe custody for one week. B is entitled to recover the expenses incurred by him in feeding the horse.
Also Read Five (5) Duties of Bailee
2. Right to recover compensation from the bailor (Section 164)
Sometimes the bailor may not be entitled to make the bailment, or to receive back the goods. This may result in some loss to the bailee. The bailee is entitled to recover from the bailor such loss as may be caused due to the above stated reason. The provision in this regard is contained in Section 164, which reads as under:
“164. Bailor’s responsibility to bailee.-The bailor is responsible to the bailee for any loss which the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to receive back the goods, or to give directions respecting them.”
Duties of Bailor under the Indian Contract Act 1872
3. Right of lien on the goods bailed (Secs. 170 and 171)
Lien is the right of the bailee under which the bailee can retain the goods of the bailor, and refuse to deliver them to the bailor, until his due remuneration for services in respect of the goods bailed, or the amount due is paid.
The Act recognizes two kinds of lien :
(1) Particular lien; and
(2) General lien.
The right of ‘particular lien’ entitles the bailee to retain those very goods for the services regarding which the remuneration is due. The ‘general lien’ entitles the bailee to retain the goods of the bailor for a general balance of account.
When the bailee incurs some expenses for preserving the goods from deterioration during lien, he can recover the same from the owner of the goods.
When the bailee loses his possession of the goods, his right of lien is lost thereby.
Also Read Rights of Surety
(1) Particular lien (Section 170)
Section 170 contains the following provision with regard to the bailee’s right of particular lien :
“170. Bailee’s particular lien.-Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.”
As noted above, particular lien means the right of the bailee to retain those goods which have been bailed and in respect of which some service involving the exercise of labour or skill has been rendered but the remuneration for the same has not been paid. This right can be exercised so long as the remuneration in respect of those goods has not been paid.
For example, A delivers a rough diamond to B, a jeweller, to be cut and polished, which is accordingly done. B is entitled to retain the stone till he is paid for the services he has rendered.
If the bailee has agreed not to exercise the right of lien, or has waived his right, he cannot exercise the same. For example, A gives cloth to B, a tailor, to make into a coat. B promises A to deliver the coat as soon as it is finished, and to give a three months credit for the price. B is not entitled to retain the coat until he is paid.
The right of lien is a right to retain possession of the goods, and, therefore, this right can be exercised so long as the bailee continues in possession. Once the bailee parts with the possession, his right of lien comes to an end. If the bailee’s right of lien has ended by parting with the possession, it is not revived if he happens to get the possession again. This may be explained by the case of Eduljee v. Cafe John Bros. A.I.R. 1943 Nag. 249 relating to the contract of sale of goods.
In Eduljee v. Cafe John Bros. case, the seller sold a second-hand refrigerator, and also delivered the same to the buyer. After sometime there was some trouble in the refrigerator and two parts of the same were taken out and sent to the seller for repair. The seller, to whom the price had not been paid, wanted to exercise the right of lien over these parts. It was held that the seller’s right of lien had come to an end when he had delivered the refrigerator to the buyer, and this right was not revived by his getting the possession of some parts of it again.
2. General lien (Section 171)
Section 171 confers a right of general lien in favour of certain kinds of bailees. The provision is as under :
“171. General lien of Bankers, Factors, Wharfingers, Attorneys and Policy Brokers.-Bankers, 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.”
It has been noted above that a particular lien is a right to retain those very goods in respect of which some services, etc. are rendered by the bailee. On the other hand, general lien entitles the bailee to retain goods of the bailor “for a general balance of account”.According to this right, the bailee may retain not only those goods of the bailor in respect of which some particular services are rendered, but also other goods in the possession of the bailee belonging to the bailor.
The right of general lien has been conferred on the following kinds of bailees :
(i) Bankers;
(ii) Factors;
(iii) Wharfingers;
(iv) Attorneys of a High Court; and
(v) Policy-brokers.
The right is available to the above categories of bailees only and none else, “unless there is an express contract to that effect”. It means that the parties may, by an express contract between themselves, confer the right of general lien on a bailee, who has otherwise got only a right of particular lien.
Relying on Section 171 and following the dictum in Syndicate Bank v. Vijay Kumar A.I.R. 1992 SC 1066, the Kerala High Court in Nakulan v. Dy. G.M., Canara Bank A.I.R. 2014 Ker. 64, held that the Bank could retain gold ornaments offered as security on premise that the petitioner had not discharged liability in respect of another personal loan availed by him, especially when the said personal loan was without any security.
Lien over money
It has been noted above that the right of lien is in respect of goods bailed. Strictly speaking, money is not goods and the deposit of money with the bank is not bailment,but following the rules of English law, various High Courts in India have decided that a banker can exercise lien over money deposited with it.
In Punjab National Bank v. Satyapal A.I.R. 1956 Punjab 118, at 119-120,the position was thus explained: “According to the law merchant, the banker can look to his general lien as a protection against loss on account, or loss on loan or overdraft. And money has been held to be a species of goods over which lien may be exercised.”
Similarly, citing English decisions of Misa v. Currie(1876) 1 A.C. 554, and Union Bank of Australia v. Murray (1898) A.C. 698, it has been observed by the Sind High Court in Mercantile Bank v. Rochaldas A.I.R. 1926 Sind 225, at 229 that “money is a species of goods over which lien may be exercised.” The Nagpur High Court in Devendra Kumar v. Gulabsingh A.I.R. 1946 Nag. 114, at 116 mentioned with approval the following position of English law:
“When monies are held in one account and the payer in respect of these monies owes the bank on another account, the banker’s lien gives the bank a charge on all the monies of the payer in its hands, so that they may be transferred to whatever account the bank chooses, to set off or liquidate the debt.”
It may be noted that the interpretation leading to exercise of lien over money as in case of goods does not appear to be logical.
In State Bank of India v. M.P. Iron & Steel Works A.I.R. 1998 M.P. 93, it has been held that the deposit of money in a bank does not create relationship of bailor and bailee between the parties. The items of money deposited with a bank do not retain their identity unless they are set apart and earmarked under special terms of the contract.
The money once deposited belongs to the bank and the bank is its owner. The bank is the debtor of the money deposited, which has to be repaid. The bank cannot exercise lien over money under Section 171. Section 171 is confined to lien on papers, securities and other goods deposited with the bank.
No lien over goods given for a special purpose
If there is an express contract between the parties contrary to the statutory right of general lien, the right is thereby excluded. When the goods are given for a special purpose inconsistent with the right of general lien, the goods can be used only for such special purpose rather than for the general lien.
In Vijay Kumar v. Jullundur Body Builders A.I.R. 1981 Delhi 126, the customer of a bank, who was a judgment-debtor, was required to furnish a bank guarantee to the Court. In order to procure the bank guarantee from the bank, its customer deposited some Fixed Deposit Receipts with the bank, and the bank, then gave a bank guarantee on behalf of the customer in favour of the Registrar of the Court. Subsequently, the bank sought to utilize the amount of the Fixed Deposit Receipts to satisfy its claim on the draft account, in which the amount was due from the customer to the bank.
It was held that these Fixed Deposit Receipts were given in connection with the bank guarantee only, which was contrary to the right of the bank to the general balance of account, and, therefore, the Court, in whose favour the guarantee was given, could attach the Fixed Deposit Receipts in the hands of the bank.
4. Right of suit against a wrongdoer (Section 180)
When the goods have been bailed, if a third person wrongfully deprives the bailee of their use or possession, or causes an injury to the goods, the bailee can sue such third person for wrong to the goods. It may be noted that not only the bailee but the bailor also can bring an action against such third party. The provision in this regard is contained in Section 180, which is as follows:
“180. Suit by a bailor or bailee against wrongdoer.-If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made, and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury.”
If a person fraudulently or forcibly takes away the goods from the bailee, the bailee has a right to recover the same. In Purushottam Das Banarasi Das v. Union of India A.I.R. 1967 All. 549 A obtained delivery of certain goods from the railway on a forged railway receipt. A pledged the goods to B. It was held that the railway authorities had a right to recover those goods from B.
According to Section 181, whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and the bailee, be dealt with according to their respective interests.