Lien :

Section 171 of the Indian Contract Act,1872 gives to the banker an absolute right of general lien on all goods and securities received by the banker. The banker has general lien on all deposits. If the deposit receipt is given as a security for raising a loan or discharging an obligation then the lien on such deposit receipt, is a particular lien, and it would exist till the debt is cleared or the obligation is fulfilled.

Lien – Important aspects:

General lien covers the entire amount due to the bank from the borrower/ debtor.

Banker’s General Lien:

This is applicable in the following situations:

– when a banker receives goods and securities for a purpose

– lien is applicable for the goods and/or securities which are belonging to a person who has delivered them to the banker

– there is no contract to the contrary and the debt is not barred by limitation

A banker’s lien is also called as an implied pledge. A banker has the right to retain and if necessary can also sell the goods and/or securities charged in his favour. As pledgee, a banker can sell the goods/securities pledged to him.

A banker cannot exercise his right of lien in following situations:

1. In case when goods and securities are not obtained by him in the ordinary course of business:

2. In case of Safe Custody, when a banker accepts goods/securities of a customer to be kept in safe custody. In this case the relationship of banker and customer is that of the bailee and bailer. Here the banker acts as a trustee and not as a lender/creditor.

3. When the goods or security are left inadvertently or through oversight in the bank premises, the banker cannot exercise his right of lien on them.

4. When money is deposited by a customer with a request to transfer to another branch, the banker cannot exercise the right of lien. This is applicable even the applicant for the transfer of funds is a borrower as well.

5. The banker cannot have the right of lien and right of set off at the same time.