General Lien of Banker
Introduction
Section 171 of the Indian Contract Law stipulates the right of "lien". The ordinary lien
basically refers to the right to own property and securities provided by any balance payable
by the bailor. Even if the principal debt has been repaid, the banker can hold securities for
another account receivable from the customer. For example, “A” is customer in the bank
having two accounts, one current and one savings account. He has an overdraft of Rs.1,000 in
the current account but have a credit balance of Rs.10,000 in the savings accounts. The bank
can exercise the rights of General Lien to hold savings account to get its money due on
current account.
Principles
Some of the basic principles governing the general lien of banker can be seen in the case City
Union Bank Ltd v. Thangarajan
1
.
• The banker can exercise the right of general lien on all collaterals including
negotiable instruments only to the extent of amount due by customer.
• The bank has to repay the balance without any fail and should compensate the
customer in case of loss suffered by him.
In the case of PNB ltd. V. Arura Mal Durga Dass
2
, the court held that the ownership of the
goods must be with the customer and the goods must be put as collateral with the bank to
exercise general lien.
In Chettinad Mercantile Bank Ltd. v. PL.A. Pichammai Achi
3
the court held that the bank
does not have general lien for the amount deposited by customer in the bank. However,
principle of set off is applicable in this scenario.
1
City Union Bank Ltd v. Thangarajan, (2003) 46 SCL 237 (Mad).
2
PNB ltd. v. Arura Mal Durga Dass, AIR 1960 Pun.632.
3
Chettinad Mercantile Bank Ltd. v. PL.A. Pichammai Achi, AIR 1945 MAD.447.
