Special Features of a Banker’s Right of General Lien :
(i) The banker possesses the right of general lien on all goods and securities entrusted to him in his capacity as a banker and in the absence of a contract inconsistent with the right of lien. Thus, he cannot exercise his right of general lien if –
(a) the goods and securities have been entrusted to the banker as a trustee or an agent of the customer; and
(b) a contract – express or implied – exists between the customer and the banker which is inconsistent with the banker’s right of general lien. In other words, if the goods or securities are entrusted for some specific purpose, the banker cannot have a lien over them. These exceptional cases are discussed later on.
(ii) A banker’s lien is tantamount to an implied pledge: As noted above the right of lien does not confer on the creditor the right of sale but only the right to retain the goods till the loan is repaid. In case of pledge the creditor enjoys the right of sale. A banker’s right of lien is more than a general lien. It confers upon him the power to sell the goods and securities in case of default by the customer. Such right of lien thus resembles a pledge and is usually called an ‘implied pledge’. The banker thus enjoys the privileges of a pledge and can dispose of the securities after giving proper notice to the customer.
(iii) The right of lien is conferred upon the banker by the Indian Contract Act: No separate agreement or contract is, therefore, necessary for this purpose. However, to be on the safe side, the banker takes a letter of lien from the customer mentioning that the goods are entrusted to the banker as security for a loan(existing or future)taken from the banker and that the latter can exercise his right of lien over them. The banker is also authorized to sell the goods in case of default on the part of the customer. The latter thus spells out the object of entrusting the goods to the banker so that the same may not be denied by the customer later on.
(iv) The right of lien can be exercised on goods or other securities standing in the name of the borrower and not jointly with others. For example, in case the securities are held in the joint names of two or more persons the banker cannot exercise his right of general lien in respect of a debt due from a single person.
(v) The banker can exercise his right of lien on the securities remaining in his possession after the loan, for which they are lodged, is repaid by the customer, if no contract to contrary exists. In such cases it is an implied presumption that the customer has re-offered the same securities as a cover for any other advance outstanding on that date or taken subsequently. The banker is also entitled to exercise the right of general lien in respect of a customer’s obligation as a surety and to retain the security offered by him for a loan obtained by him for his personal use and which has been repaid. In Stephen Manager North Malabar Gramin Bank vs. ChandraMohan and State of Kerala, the loan agreement authorized the bank to treat the ornaments not only as a security for that loan transaction, but also for any other transaction or liability existing or to be incurred in future. As the liability of the surety is joint and several with that of the principal debtor, such liability also came within the ambit of the above provision of the agreement.
Section 171 of the Contract Act entitles a banker to retain the goods bailed to him for any other debt due to him, i.e., any debt taken prior to the debt for which the goods were entrusted as security.
But in a lien there should be a right of possession because, lien is a right of one man to retain that which is in his possession belonging to another. Possession of the goods by the person claiming right of lien, is anterior to the exercise of that right and for which possession whether actual or conductive is a must. (Syndicate Bank Vs. Davander Karkare (A.I.R. 1994 Karnataka 1)