Right of lien on the goods bailed

Right of 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.

(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 this 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.

The right of lien contained in Section 170 is available “in the absence of a contract to the contrary.” The parties by an agreement may exclude this right. It means that the bailee may, if he so likes, waive his right of lien(See Section 49, Sale of Goods Act, 1930).

The right of particular lien has been recognized not only in favour of a bailee (under Section 170) but in some other cases also, which are as under :

(i) Lien of finder of goods. (Section 168).

(ii) Pawnee’s or pledgee’s lien. (Secs. 173-174).

(iii) Agent’s lien. (Section 221).

(iv) Unpaid seller’s lien. (Section 47, Sale of Goods Act, 1930).

(v) Partner’s lien. (Section 52, Indian Partnership Act, 1932).

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.

(i) General lien of Bankers

According to Section 171, bankers can exercise general lien, i.e., they can retain as a security, goods bailed to them, for a general balance of account. This right is available in the absence of a contract to the contrary.

When a banker has advanced money to another, he has a lien on all securities which come into his hands for the amount of his general balance, unless there is an express contract or circumstances to the contrary(Punjab National Bank v. Satyapal, A.I.R. 1956 Punjab 118, at 120).

Therefore, if cheques or other securities have been deposited with a bank, he can exercise lien over them. A banker can exercise lien over bills, cheques, and moneys entrusted or paid to him in his character as a banker, and this right is “not prejudiced by any defect in the title of the customer of equities of third parties, provided the banker acts honestly and without notice of any defect in title”( Jai Kishan Dass v. Central Bank of India, A.I.R. 1955 Pb. 250, at 251).

The banker’s lien is a general lien and he can retain the goods for the satisfaction of a debt other than the one for which the goods are pledged (State Bank of India v. Deepak Malviya, A.I.R. 1996 All. 165).

In K. Sita v. Corporation Bank A.I.R. 1999 A.P. 367, the question for decision in the writ petition was, whether the respondent bank can exercise general lien over gold ornaments pledged by the petitioner to raise a particular loan, even after repayment of the loan, for the purpose of recovery of another loan subsequently advanced to the petitioner by the respondent bank.

It was held that the banker’s lien contemplated by Section 171 has an overriding effect on the general provisions of Section 174 which provides for relationship between the pawnor and the pawnee in respect of the goods pledged.

The bank, therefore, can retain the pledged ornaments if the debtor had not cleared another loan advanced to the petitioner.

A banker can exercise lien over the Fixed Deposit Receipts which have been given to it by a customer to avail of an overdraft facility.

In Shivam Construction Co. v. Vijaya Bank, Ahmedabad A.I.R. 1997 Guj. 24, the  bank had given overdraft facility to a partnership firm and its partners for granting overdraft facility. The partners and the firm made a default in repayment of loan in spite of notices given by the bank. It was held that in such a situation, under the terms of the loan, as well as in exercise of the right of “set off” and also by way of banker’s “general lien”, the bank was entitled to liquidate the Fixed Deposit Receipts and appropriate that amount towards overdraft account.

In Smt. K.S. Nagalambika v. Corporation Bank, Virajpet A.I.R. 2000 Kant. 201, it has been held that a bank has a general lien over the Fixed Deposit Receipts of the customer. The bank is entitled to adjust the amount of the F.D.Rs. towards the loan account.

If, however, the bank knows that the securities belong to a third person and not its customer, he cannot exercise the right of lien in respect of them(Cuthbert v. Robarts, Lubock & Co., (1909) 2 Ch. 226).

If a customer has different accounts with a bank, the bank has a right to combine the two accounts for the purpose of general lien. For instance, if money is due from the customer on loan account and there is a balance in the customer’s favour on the current account, the banker may treat the two accounts as one.

In Mohammad Maqbool Kunash v. Jammu and Kashmir Bank Ltd. A.I.R. 2013 J & K 14, the appellant had opened account under A/c No. 0048040100013984 and deposited Rs. 7,00,000/- in the said account for promoting his business. He being a defaulter, was not, allowed by the Bank to operate the account.

In suit by the appellant for the grant of injunction, it was held that in view of Section 171 of the Indian Contract Act, 1872, the Bank was entitled to exercise its right of general lien. Besides, there was an express provision in the agreement of loan between the parties to the following effect :

That the bank shall have a general lien and the right of set off for all or any balance/s due to the bank in respect of all or any account/s upon or over all or any security/ies for the time being held by the bank…

The J & K High Court referred to and relied on Karnataka High Court decision in K.S. Nagalambika v. Corporation Bank Virajpet A.I.R. 2000 Kar. 201, wherein the Hon’ble High Court observed:

“Section 171 of the Contract Act is clear and categoric that unless a contract to the contrary is established by the plaintiffs, the bank’s right of lien will have to be accepted.”

The Court referred to the decision of the Kerala High Court in Union Bank of India v. Venugopalan A.I.R. 1990 Ker. 223, wherein it was ruled that where a customer had two accounts, a deposit account and a loan account, the banker might in the exercise of its lien transfer the money in the deposit account to the loan account without any specific instructions of the depositor to that effect. The Kerala High Court had quoted therein the Punjab High Court decision in Kishan Das v. Central Bank of India A.I.R. 1956 Punjab 118, and the decision of Nagpur High Court in Devendra Kumar v. Chandhary Gulab Singh A.I.R. 1946 Nag. 114, to the same effect.

Scope of provision regarding general lien of bankers, etc.

Section 171 is recognition of right of general lien of bankers under English Mercantile Law. Decision of Court in England as to in which cases such lien could and could not be exercised equally apply to Section 171 of the Contract Act. Bank has no right either under its by-laws or under Section 171 of the Contract Act to retain gold ornaments of petitioner after petitioner cleared outstanding balance in two gold accounts for which gold ornaments were pledged as security. Retention of gold ornaments of petitioner by Bank would be without any authority of law and arbitrary (Alekha Sahoo v. Puri Urban Co-operative Bank Ltd., (2005) (1) BC 58 (Ori.)(DB)).

Bank should claim compensation for loss or damage caused by breach of contract. Bank has no right to exercise lien over FDRS by deducting commission from FDRS when Bank had waived commission on Bank guarantee. Where the Bank as per terms and conditions of contract had agreed to issue Bank guarantee without any commission, withholding of FDRS and thereafter releasing FDRS realizing Bank commission would not be justified(Allahabad Bank v. MECON, Doranda, Ranchi, 2005 (2) BC 387 (Jhar.)).

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.

In Brandao v. Barnet (1846) 12 C. & F. 787; 136 E.R. 207, one of the customers of the defendant bank deposited a box with the defendant. The customer had locked this box and kept the key with him. The box contained securities belonging to the plaintiff. Subsequently, the customer took out some securities from the box, handed them over the defendant bank requesting the bank to get the securities (Exchequer Bills) renewed. The bank was requested to return the renewed securities to the customer, so that he could again keep them locked in the box. He, however, requested the bank to credit the interest on the securities to his account. It was held that the bank could not have any right of lien over the securities lying in the box, as the possession of the same was not given to the bank. The bank was also not entitled to exercise this right in respect of the renewed securities in its possession, because they had been given to it only for the special purpose, and with the instructions that they are to be given back after the needful is done. Delivering the securities for a special purpose in this case was inconsistent with the right of lien. The bank was, however, entitled to the right of lien over the interest received from the securities.

Similar was also the decision in Mercantile Bank v. Rochaldas A.I.R. 1926 Sind 225. In this case, the plaintiff gave some money to their bankers, the defendants, at Colombo for transmission by telegraphic transfer to their own firm at Karachi. The bank wanted to exercise the right of lien over this money. It was held that in this case since the money was given for a special purpose, and not for the purpose of being deposited in the account, the purpose was inconsistent with the right of lien, and, therefore, the bank was not entitled to exercise the right of lien in respect of the money. It was also observed that the facts that the remitter and the payee are the same person does not change the position.

(ii) General lien of Factors

A factor is a mercantile agent within the meaning of Section 2 (9) of the Sale of Goods Act. A factor is an agent entrusted with the possession of goods of his principal for selling them. He has a right of general lien over the goods belonging to his principal, which are in his possession, for the general balance of account. As already noted, the right of general lien can be exercised unless there is an express contract between the parties which negatives this right. According to this right, the principal’s goods can be retained by the factor until the balance of account due to the factor from the principal has been paid.

In E.H. Parakh v. King Emperor A.I.R. 1926 Oudh 202, the applicant E.H. Parakh was the proprietor of a firm of Motor Engineers and Coach builders at Lucknow. This firm was entrusted with the possession of an American car “Moon” for sale, by Raja Amarpal Singh, a taluqdar of the Partabgarh district. While the car was still with the applicant’s firm and had not yet been sold, the management of the Raja’s estate was taken over by the Court of Wards. The manager of the Court of Wards directed the applicant’s firm to hand over the car belonging to Raja to Court of Wards. The applicant’s firm did not deliver the  car in an attempt to exercise the right of general lien over it, in respect of its claims against the Raja. The Deputy Commissioner, Partabgarh, thereupon issued a notice to the applicant to show cause as to why he should not be prosecuted for refusal to hand over the car in obedience to the orders of the lawful authority. It was held that the applicant’s firm had a right of general lien over this car, and its refusal to deliver the car in exercise of this right could not make him liable for the alleged offence.

In case of general lien, a factor can retain the principal’s goods with him until the general balance of account due to him has been paid. This lien, however, can be exercised by him only in respect of such goods which came to him in his capacity as a factor. In Dixon v. Stansfeld(1905) 10 C.B. 398 84 R.R. 631, the plaintiffs used to have various kinds of dealings with the defendants, who carried on business as merchants, factors, ship and insurance brokers and general merchants. The plaintiffs requested the defendants to get a policy on the insurance of a ship for a certain voyage. The plaintiffs also remitted the premiums for the purpose. The defendants took necessary insurance policy but then refused to hand the same over to the plaintiffs, claiming general lien over the same. It was held that the defendants could not exercise the right of general lien over the policy because the same had not come to their hands in their capacity as factors.

(iii) General lien of Wharfingers

Wharf means a loading stage alongside a sea or a river for loading and unloading vessels. Wharfinger means a person who owns, or has the care of, a wharf. A wharfinger has a lien over the goods of his customer, until his wharfage, i.e., the charges for the use of the wharf, are paid to him. His claim of general lien is valid only in respect of those goods which he received in his capacity as a wharfinger.

(iv) General lien of Attorneys

According to Section 171, the attorneys of the High Court also have got a right of general lien. This right is presumed to be available to the Advocates and other legal practitioners.

The right can be exercised in respect of the documents, etc. belonging to the client which are with him. He can retain them until his fees for the professional services and other costs and expenses incurred by him for a client are paid to him. If a solicitor is discharged by the client, the client cannot take back his documents until the costs incurred by the solicitor and his other charges are paid to him(Balkesserbai v. Naranji, I.L.R. (1880) 4 Bom. 352).

If he has not been discharged by the client, but he otherwise refuses to act for the client or is unable to work for him, e.g., he stops his practice, the right of lien does not exist.

The exercise of the right of general lien in this case also is subject to any contract, express or implied, to the contrary. In Lalchand Ramchand v. Pyare Dasrath Chamar A.I.R. 1971 M.P. 245, it has been held that if some document, like a pronote, which is the foundation of the suit, is given to an Advocate for being filed along with the plaint or at the first hearing of the suit, the necessary implication in such a case is that the Advocate shall file the document as needed, and his right of general lien as regards such a document is excluded by an implied contract.

The Supreme Court has held in R.D. Saxena v. Balaram Prasad Sharma A.I.R. 2000 S.C. 2912, that an Advocate has no lien over files and papers and documents entrusted by his client in connection with the litigation.

Section 171 permits general lien to an Advocate in respect of the “goods bailed”. It has been held that the files and documents entrusted by a client to his Advocate are not “goods bailed” or “saleable goods” as defined in the Sale of Goods Act, 1930. There is no contract of bailment, which could entitle an Advocate to exercise a lien over them, because there is neither delivery of goods nor a contract that those files, etc. should be returned or otherwise disposed of, etc. as stated in Section 148 of the Indian Contract Act.

(v) General lien of Policy-brokers

A policy-broker means a person who acts as an insurance agent to effect marine insurance. He is one of the persons mentioned in Section 171, having a right of general lien. He can exercise such a right until the balance of account due to him from a client has been paid.

Distinguish between Particular Lien and General Lien

Particular and General Lien can be distinguished as follows:-