RESEARCH WORK

INDIAN CONTRACT ACT 1872

(BANKERS LIEN)

Q1.WHAT IS BANKER LIEN AND SETOFF?

Ans-to know what banker lien is we first need to know what lien basically means.

Lien-it means right to retain the lawful possession of another person’s piece of
property until and unless the owner fulfilled the legal obligation that he has with the
person holding the property. In other words if a person acts as a creditor for another
person who as guarantee keep his property as lien to the creditor for the loan he take
from the creditor then if the underlying obligation is not fulfilled then the creditor has
the right to retain that property or also known as right to lien.

There are two types of lien

The indian contract act defines two kinds of lien namely particular lien and general
lien:

Section 170 of Indian contract act- where the bailee has, in accordance with the
purpose of 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.
AND
Section 171 of Indian contract act-bankers, factors, wharfingers, attorneys of a high
court and policy brokers may in the absence of a contract to the contrary, retain as
security for a general balance of account, any goods bailed to them; but no other
person have right retain, as a security for which balance, goods, bailed to them, unless
is an express contract to that effect 1
the banker lien comes under the category of general lien

Therefore Banker lien means that no special arrangement or agreement is required to

create a right of lien it arises as course of dealing between the parties in other words a
banker who grants advances to a customer may by virtue of his right to lien may

1 INDIAN CONTRACT ACT,1872

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obtain legal claims to securities of a customer which pass through his hand in the
ordinary course of his business as banker.

Davis v Bowsher is an important judicial recognition of banker’s

general lien. Lord Kenyon CJ in this case said "wherever a banker has
advanced money to another, he has a lien on all the paper securities which
come into his hands for the amount of his general balance".2

Setoff
A set-off is generally in form of cross claim for the liquidated amount and it can be
pleaded in respect for a liquidated claim which means when money is held by the
bank in one account and the payer in respect of these money owes to the bank on
another account the banker lien and the right of the banker to set off the money by
way of adjustment of the account gives the bank a charge on all the moneys of the
payer in its hand so they may be transferred to whatever account the bank may choose
to set off the debt

Right to set off

The right to set-off the account of the customer when required arises from the fact that
banker and the customer have purely a contractual relationship and this contractual
relationship actually involves the implied right to set off .There is no need for any
express or written contractual term that is authorizing the bank to exercise its right to
set off.

Case law
In the matter of the firm jaikishen dass jinda ram v central bank of India ltd air 1960
Punjab
Two separate partnership firm with the same set off partner had two separate accounts
with the banks.
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.

2 (1794) 5 Term Rep 488, Court of King’s Bench

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Q2. WHETHER BANK IS REQUIRED TO GIVE NOTICE BEFORE IT EXERCISE

ITS RIGHT TO LIEN

JUDGEMENT
Pawan Kumar Agarwal

v.

Jammu & Kashmir Bank Ltd. & Anr.

November 17, 2017

HIGH COURT OF CALCUTTA,HONOURABLE JUDGE- DEBANGSU BASAK.J

CITATION-2017 SCC OnLine Cal 17923

FACTS:-
In the present case the petitioner is a director of a company and also the guarantor in
respect of the credit facility enjoyed by the company and such loan account is yet to
be repaid to the bank and as the liability of the guarantor is co-extensive as to the
principal debtor. The petitioner cannot claim that as a guarantor the bank must first
exhaust its remedies against the principal debtor and then proceed against the
guarantor and the bank exercised banker lien on the personal account of the guarantor.

JUDGEMNT
A banker must come in possession of the property of the borrower in its usual course
of business to exercise such right of lien to exercise the right of banker's lien. In the
present case, nothing has been shown to the Court to say that there is any contract
negating the right of exercise of a banker's lien between the petitioner and its banker.
these two cases where referred by the guarantor side for the judgement in this case
6.Aruna Mal Durgadas (supra) is a case where in a suit an adjustment was sought to
be made by the bank. The adjustment so made by the bank was sought to be justified
on the ground of banker's lien. On facts, it was found that the bank was not entitled to

3 1959 SCC OnLine P&H 148 : ILR (1960) 1 P&H 99 : PLR (1959) 61 P&H 842 : AIR 1960 P&H 1
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adjust such sum. Therefore, the question of exercise of banker's lien would not arise.
The fact situation obtaining in the present case is different.
7.In Javed Akhtar Hussain (supra), a term deposit amount and a recurring deposit
amount were opened subsequent to a decree passed in a suit. Apparently, the person
there acted as a surety. In the factual matrix of that case, it was found that, the bank
ought not to have exercised lien in those two accounts inasmuch as the bank had other
recourse to take and that, the bank did not exhaust such remedies before exercising
the banker's lien.
10. Essentially, when the petitioner is claiming that the bank cannot exercise banker's
lien over the current account of the petitioner till the bank exhausts its remedies
against the principal borrower, the petitioner is seeking a relief which is not available
to itself as a guarantor. It is not within the purview of the court to direct a creditor to
choose amongst the debtor and guarantors to proceed against for realisation of its
claim.

11. In the present case, it is alleged that the bank did not issue a prior notice before
exercising banker's lien. With respect, I do not find such a requirement ingrained in
section 171 of the Indian Contract Act, 1872 which recognises the right of the banker
to exercise banker's lien.

12. Nothing has been placed on record to suggest that the current account maintained
by the petitioner with the bank was not in the usual course of business of the bank
concerned.

13. In such circumstances, I am not minded to interfere in the present writ petition.

14. W.P. No. 1054 of 2014 is dismissed. No order as to costs.