Banking law
diganta
(Querist) 31 December 2011
This query is : Resolved
Please provide me any Supreme Court or National Consumer Dispute Redressal Commission judgment regarding 'Bankars right of lien and set off' and any judgment regarding that 'the forum can only adjudicate the deficiency of service not to adjudicate the account details of the complainant.'
ajay sethi
(Expert) 31 December 2011
The dispute that arose was whether the action of the bank in realizing the amount of fixed deposit and crediting that amount in the cash credit account of the complainant exercising its general lien under Section 171 of Contract Act, is legal and binding on the complainant. In the absence of any evidence to show that there was a contract to the contrary to defeat the general right of lien of the bank, it was held that there was no deficiency of service . Since, the recovery suit filed by the bank against the complainant is pending, it was held that questions regarding whether the banks adjustment is right or wrong can be decided by the Civil Court after taking elaborate oral evidence and not in summary proceedings before the Forum. M/s Sanjiv Textiles Pvt. Ltd. Vs.State Bank of India & Ors – 1992 (1) CPR 238 (SCRDC – Guj).
Where even after discharging the loan for which jewels were pledged, the bank did not return the jewels on the ground that the complainants earlier loan is still due, it was held that bank is entitled to retain the jewels as a lien under Section 171 of the Indian Contract Act. The Branch Manager, Canara Bank Vs. P.Moovendan - 1992(2) CPR 455 (SCRDC – Mad) .
The Revision petition arises out of the order dated 6th October,1994 passed by the State Commission, Maharastra.The Revision petitioner was opposite party in the complaint filed by the respondent. The complainant alleged that the had a S/B account with the opposite party bank. He withdrew Rs.20,000/- from the account and deposited the amount with the opposite party bank in two term deposits of Rs.10,000/-each in his and his brother's name. The Bank refused to make the payment to the complainant by saying that there is a loan outstanding against his brother amounting to Rs.20,000/-. It was held that even if any security is not expressly pledged or made a security for a loan a banker can appropriate the amount due from the party to whom the amount under some other account is payable. State Bank of India Vs. Jawaharlal,CPR 1995(3) 632(NC)
The complaint was filed under Sections 12 & 17 of the Consumer Protection Act. It was the case of the complainant that complainants availed credit card service facility and a sum of Rs.1,27,918/- became due under the said credit card . The complainant opened a current account and deposited Rs. one lakh. The complainant issued a cheque for Rs.65,000/- but it was dishonoured as the Rs. one lakh adjusted towards dues in the credit card. It was held that there was no deficiency in service on part of bank in exercising right of set off and adjusting the amount from current account of customer to the amount due in credit card of such a customer complaint dismissed. V. Saraswati & Anr. Vs. ANZ Grindlays Bank, CPR(3) 64 (SCDRC - Karnataka)
ajay sethi
(Expert) 31 December 2011
The bank retained the collateral security of the complainant even after the cash credit account was closed and no amount was due in respect of that account. However, the complainant was a guarantor for another person against whom recovery proceedings were pending. The bank retained the securities as per the terms of the contract of guarantee and also in exercise of its power of general lien under section 171 of the Indian Contract Act, 1872. Therefore, the appeal was allowed and the order passed by the District Forum was set aside. Bank of India v. Pramod P. Dhond 1999 (1) CPR 246 (SCDRC - Goa)
Rajeev Kumar
(Expert) 31 December 2011
Mr. Sethi has replied in details
Raj Kumar Makkad
(Expert) 01 January 2012
What is lien?
A lien is the right of a creditor in possession of goods, securities or any other assets belonging to the debtor to retain them until the debt is repaid, provided that there is no contract express or implied, to the contrary. It is a right to retain possession of specific goods or securities or other movables of which the ownership vests in some other person and the possession can be retained till the owner discharges the debt or obligation to the possessor.
It is a legal claim by one person on the property of another as security for payment of a debt.
A legal claim or attachment against property as security (right) for payment of an obligation.
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 ,8th Edn. at page 498 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 recognised as such.
In Chitty on Contracts, it is explained. "The lien is applicable to negotiable instruments which are remitted to the banker from the customer for collection. When the collection has been made, the proceeds may be used by the banker in reduction of the customer’s debit balance ,unless otherwise earmarked."
Raj Kumar Makkad
(Expert) 01 January 2012
In Byles on Bills of Exchange 26th Edn, by Frank Ryder and Antonio Bueno Sweet & Maxwell
27.- (3) Where the holder of a bill has a lien on it arising either from contract or by implication of law, he is deemed to be a holder for value to the extent of the sum for which he has a lien. A banker has lien on all securities and valuables of his customer, which come into his hands in his capacity as banker in the ordinary course of business. Currie v. Misa (1867) App. Cas.554(H.L.)
Where therefore, the customer is indebted to the banker, the lien arises immediately a cheque is paid in for collection -presumably by implication of law. On the other hand if the banker agrees either impliedly, as the result of a course of action, or expressly, that a customer may draw against uncleared effects, the banker has a lien on those effects –arising from contract.
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) the 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.
Lien - an implied pledge
Banker’s lien is a general lien recognized by law.
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. bearer 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 - Lloyds Bank v. Administrator General of Burma ,AIR 1934 Rangoon 66.
To claim a lien, the banker must be functioning qua banker under Section 6 of the Banking Regulation Act-State Bank of Travencore v. Bhargavan ,1969 Kerela .572.
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.
Raj Kumar Makkad
(Expert) 01 January 2012
Case Laws
In the matter of Firm Jaikishen Dass Jinda Ram v. Central Bank of India Ltd. AIR 1960 Punj.1,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.
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 (AIR 1993 SC 954) 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. and the liberty was given to bank to institute other proceedings for the recovery of its dues.
State Bank of India v/s Javed Akhtar Hussain and others it was held by the Court that the action of the bank in keeping lien over the TDR and RD accounts was unilateral and high handed and even it is not befitting the authorities of the State Bank of India .The court relied on the ruling Union Bank of India v/s K.V.Venugopalan where it was held by the court that the fixed deposit money lodged with the bank is strictly a loan to the bank. The banker in connection with the FD is a debtor .The depositor would accordingly cease to be the owner of the money in fixed deposit .The said money becomes money of the bank, enabling the bank to do as it likes, that however, with the obligation to repay the debt on maturity .In the same ruling it was further held that the bank being a debtor in respect of the money in FD, had no right to pass into service the doctrine of banker’s lien and the money in Fixed Deposit.
In the case State Bank of India Kanpur v/s Deepak Malviya (AIR 1996 All 165) it has been held that section 174 of the Act contemplates that in the absence of a contract to the contrary the Pawnee is under an obligation to return the goods pledged for any debt or compromise for which the goods were pledged. This is a general provision providing for the relationship of a pawnee and a pawner in respect of pledged goods. Section 171 of the Act, providing for banker’s lien, is a specific provision, which has an overriding effect on this general provision, as such, the banker’s lien is also extended to the pledged goods.
prabhakar singh
(Expert) 01 January 2012
I COULD HAVE DONE ONLY WHAT HAS ALREADY BEEN DONE.
