IMPORTANT POINT
Bank has a general lien over all forms of security including gold ornaments deposited by or on behalf of borrower in the ordinary course of banking business for the general balance of account due from him.

V. Chitambaresh, J.—Can the Bank retain the gold ornaments offered as security while availing a loan even after the same is cleared on the premise that the borrower has not discharged his liability in respect of another loan ?

2. The petitioner availed a personal loan of Rs. 25,000/- from the Canara Bank (‘the Bank’ for short) on 31.1.2012 agreeing to repay the same with interest in equated monthly instalments in a span of three years. The personal loan was availed on the basis of a demand promissory note executed by the petitioner in favour of the Bank and no security of any sort was obtained at the time of the transaction. The petitioner also availed a gold loan of `.85,000/- from the Bank on 11.5.2012 on pledging 46.700 grams of gold and agreeing to clear the same with interest on or before 10.5.2013. The petitioner asserts that he is willing to clear the gold loan in its entirety and that the Bank is bound to release the gold ornaments pledged without retaining it as security for the personal loan. The Writ Petition has been filed seeking the issue of a writ of mandamus directing the Bank to release the gold ornaments pledged on the petitioner clearing only the gold loan.

3. The Bank contends that the amounts due in the personal loan and the gold loan are Rs. 31,147/- and Rs.95,086/- respectively and that the gold ornaments cannot be released without the petitioner discharging the entire liability. The Bank relies on Section 171 of the Indian Contract Act, 1872 [‘the Act’ for short] to exercise its right of lien and retain as security the gold ornaments pledged for amounts due from the petitioner. The Bank also urges that a writ should not be issued which tends to interfere with its banking operations especially when the motions made by the petitioner to the Banking Ombudsman and Taluk Legal Services Committee are pending.

4. I heard Mr. Sasith Panicker, Advocate on behalf of the petitioner and Mr. Hari Narayan. V.B., Advocate on behalf of the Bank.

5. Section 171 of the Act is as follows:-

171. General lien of bankers, factors, wharfingers, attorneys and policy brokers—Bankers, factors, 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 persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect. (emphasis supplied)

The following excerpt from Syndicate Bank v. Vijay Kumar and others [(1992) 2 SCC 330] which is the oft quoted decision of the Supreme Court on this point is apposite and sets at rest the controversy:

In Halsbury’s Law of England, 2nd Edn., Vol.20, p.552, para 695, lien is defined as follows:-

“Lien in its primary sense is 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 this primary sense it is given by law and not by contract.”

In Chalmers on Bills of Exchange, 13th Edn., p.91 the meaning of “Banker’s lien” is given as follows:

“A banker’s lien on negotiable securities has been judicially defined as ‘an implied pledge’. A banker has, in the absence of agreement to the contract, 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.”

In Chitty on Contract, 26th Edn., p.389, para 3032 the Banker’s lien is explained as under:

“Extent of lien - By mercantile custom the banker has a general lien over all forms of commercial paper deposited by or on behalf of a customer in the ordinary course of banking business. The custom does not extent to valuables lodged for the purpose of safe custody and may in any event be displaced by either an express contract or circumstances which show an implied agreement inconsistent with the lien....

...... The lien is applicable to negotiable instruments