Rights of A Banker

In Halsbury’s Laws of England, it is stated: “Lien is, in its primary sense, a right in one man to retain that which is in his possession belonging to another until certain demands of the person in possession are satisfied. In its primary sense, it is given by law and not by contract. ” In Chalmers on Bills of Exchange, the meaning of the Banker’s Lien is stated: “A bankers’ lien on negotiable securities has been judicially defined as ‘an implied pledge’.

A banker has, in the absence of agreement to the contrary ,a lien on all bills received from a customer in the ordinary course of banking business in respect of any balance that may be due from such customer. ” it should be noted that the lien extends only to negotiable instruments which are remitted to the banker from the customer for the purpose of collection . When collection has been made the process may be used by the banker in reduction of the customer’s debit balance unless otherwise earmarked.

We can also refer to Peget’s Laws of Banking, where speaking about the Banker’s lien the learned author has stated that apart from any specific security, the banker can look to his general lien as a protection against loss on loan or overdraft or other credit facility. The general lien of bankers is part of law merchant and judicially recognized as such. * TYPES OF LIEN; There are two types of lien such as: i. PARTICULAR LIEN Particular lien is one, in that the craftsman can retain those goods on which he has spent time, effort and money until he is paid.

In Particular lien the creditor doesn’t have the right to retain all the properties of the debtor. Under Section 170 of the Indian Contacts Act, 1872 the provision relating to specific lien has been laid down. General lien gives the banker the right to retain goods and securities delegated to him in his capacity as a banker, in the absence of a contract contradictory to the right of lien. It extends to all goods/properties placed with him as a banker by his customer which are not particularly identified for another purpose.

In India, the right of general lien is specially conferred on bank by Section 171 of the Indian Contacts Act, 1872 which reads as; “Bankers, factor, wharfingers, attorneys of a High Court and policy brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other person have a right retain, as a security for which balance, goods, bailed to them, unless is an express contract to that effect”.

So far as the legal requirements are concerned there is no need of any special agreement, written or oral to create the right of lien, but it arises only by operation of law for, under the Indian Law, such an agreement is implied by the terms of Section 171 of the Indian Contract Act, 1872 so long as the same is not expressly excluded .

In order that the lien should arise the following requirements are to be fulfilled: 1. the property must come into the hands of the banker in his capacity as a banker in the ordinary course of business; 2. there should be no entrustment for a special purpose inconsistent with the lien 3. he possession of the property must be lawfully obtained in his capacity as a banker; and 4. there should be no agreement inconsistent with the lien.

A general lien arises out of a series of transactions in the general course of business rather than a single specific transaction such as the repair of a piece of jewellery or a computer. Attorneys, bankers, and Factors usually have general liens to ensure that his client will pay him for services already performed; an attorney may retain possession of the papers and personal property of his client that fall into his hands in his professional apacity. He also has a charging lien on any judgment he has obtained for his client for the value of his services.

A banker may retain stocks, bonds, or other papers that come into his hands from his customer for any general balance owed by the customer. A factor or commission merchant may hold onto all goods entrusted to him for sale by the owner of the goods for any balance due. The merchant may sell the goods to satisfy his lien, but he must account to the owner for any excess realized from the sale.

The general lien on the banker is regarded as something more than an ordinary lien; it is an implied pledge. This right coupled with rights u/s 43 of the Negotiable Instruments Act, 1881 permits bills, notes and cheques, of the banker, being regarded as a holder for value to the extent of the sum in respect of which the lien exists can realize them when due; but in the case of the other negotiable instruments e. g.

Earer bonds, coupons, and share warrants to bearer, coming into the banker’s hands and thus becoming liable to the lien, the character of a pledge enables the banker to sell them on default, if a time is fixed for the payment of the advance ,or, where no time is fixed ,after request for repayment and reasonable notice of intention to sell and apply the proceeds in liquidation of the amount due to him . The right of sale extends to all properties and securities belonging to a customer in the hands of a banker ,except title deeds of immovable property which obviously cannot be sold.

The law gives inter alia, a general lien to the bankers To claim a lien, the banker must be functioning qua banker under Section 6 of the Banking Regulation Act- It is now well settled that the Banker lien confers upon a banker the right to retain the security, in respect of general balance account. The term general balance refers to all sums presently due and payable by the customer, whether on loan or overdraft or other credit facility. (Re European Bank (1872) 8 Ch App 41) In other words ,the lien extends to all forms of securities deposited ,which are not specifically entrusted or to be appropriated.

In the matter of Firm Jaikishen Dass Jinda Ram v. Central Bank of India Ltd. , Two partnership firms with the same set off partners had two separate accounts with the Bank. 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. The court can interfere in the exercise of the Bank’s Lien. In the matter of Purewal & Associates and another v/s Punjab National Bank and others  Where the debtor failed to pay dues of the bank which resulted in denial of bank’s services to him, the Supreme Court of India ordered that the bank shall allow the operation of one current account which will be free from the incidence of the Banker’s lien claimed by the bank so as to enable the debtor to carry on its day to day business transactions etc. nd the liberty was given to bank to institute other proceedings for the recovery of its dues.