Exceptions to the Right of General Lien :

As already noted the right of lien can be exercised by a banker on the commodities entrusted to him in his capacity as a banker and without any contract contrary to such right. Thus the right of lien cannot be exercised in the following circumstances:

(a) Safe custody deposits. When a customer deposits his valuables – securities, ornaments, documents, etc. – with the banker for safe custody, he entrusts them to the banker s a bailee or trustee with the purpose to ensure their safety from theft, fire, etc. A contract inconsistent with the right of lien is presumed to exist. For example, if he directs the banker to collect the proceeds of a bill of exchange on its maturity and utilize the same for honouring a bill of exchange on his behalf, the amount so realized will not be subject to the right of general lien.

Similarly, if a customer hands over to the banker some shares with the instruction to sell them at or above a certain price and the same are lying unsold with the banker, the latter cannot exercise his right of lien on the same, because the shares have been entrusted for a specific purpose and hence a contract inconsistent with the right of lien comes into existence.

But if no specific purpose is mentioned by the customer, the banker can have lien on bills or cheques sent for collection or dividend warrants, etc. If the security comes into the possession of the banker in the ordinary course of business, he can exercise his right of general lien.

(c) Right of General Lien becomes that of Particular Lien. Banker’s right of general lien is displaced by circumstances which show an implied agreement inconsistent with the right of general lien. In Vijay Kumar v. M/s. Jullundur Body Builders, Delhi and Others (A.I.R. 1981, Delhi 126), the Syndicate Bank furnished a bank guarantee for Rs. 90,000 on behalf of its customer. The customer deposited with it as security two fixed deposit receipts, duly discharged, with a covering letter stating that the said deposits would remain with the bank so long on any amount was due to the Bank from the customer. Bank made an entry on the reverse of Receipt as “Lien to BG 11/80.” When the bank guarantee was discharged, the bank claimed its right of general lien on the fixed deposit receipt, which was opposed on the ground that the entry on the reverse of the letter resulted in the right of a particular lien, i.e., only in respect of bank guarantee.

The Delhi High Court rejected the claim of the bank and held that the letter of the customer was on the usual printed form while” the words written by the officer of the bank on the reverse of the deposit receipt were specific and explicit. They are the controlling words, which unambiguously tell us what was in the minds of the parties of the time. Thus the written word which prevail over the printed “word”. The right of the banker was deemed that of particular lien rather than of general lien.

(d) Securities left with the banker negligently. The banker does not possess the right of lien on the documents or valuables left in his possession by the customer by mistake or by negligence.

(e) The banker cannot exercise his right of lien over the securities lodged with him for securing a loan, before such loan is actually granted to him.

(f) Securities held in Trust. The banker cannot exercise his right of general lien over the securities deposited by the customer as a trustee in respect of his personal loan. But if the banker is unaware of the fact that the negotiable securities do not belong to the customer, his right of general lien is not affected.

(g) Banker possesses right of set-off and not lien on money deposited. The banker’s right of lien extends over goods and securities handed over to the banker. Money deposited in the bank and the credit balance in the accounts does not fall in the category of goods and securities. The banker may, therefore, exercise his right of set-off rather the right of lien in respect of the money deposited with him. The Madras High Court expressed this view clearly as follows:

The lien under Section 171 can be exercised only over the property of someone else and not own property. Thus when goods are deposited with or securities are placed in the custody of a bank, it would be correct to speak of right of the bank over the securities or the goods as a lien because the ownership of the goods or securities would continue to remain in the customer. But when moneys are deposited in a bank as a fixed deposit, the ownership of the moneys passes to the bank and the right of the bank over the money lodged with it would not be really lien at all. It would be more correct speak of it as a right to set-off or adjustment.” (Brahammaya v. K.P. Thangavelu Nadar, AIR (1956), Madras 570)