In this article, Rahul kanoujia, 2^nd Year student at Gujarat National Law University discusses Judicial Interpretation on Right of Lien.

1. Introduction

This section expresses, the ‘common Law principle that if a man has an article delivered to him, on the improvement of which he has to bestow trouble and expenses, he has a right to detain it, until his demand is paid’.[1]

2. What is Lien?

Lien in its primary sense is a right in one man to retain that which is rightfully and continuously in his possession belonging to another until the present and accrued claims of the person in possession are satisfied. In this primary sense is given by law and not by contract.[2] The possession of the goods by the person claiming the right of lien is anterior to its exercise. If the said person is not in possession then the exercise of the right is not possible.[3] The lien never arises unless the bailee has a right to continuing possession of the goods, so that if the bailor has the right to remove the goods from time-to-time,[4] there is no lien, in the absence of an express agreement that the goods shall remain ‘in pawn’ despite temporary removal by the bailor.[5]

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3. Right of lien

The word lien means to “retain the possession of”[6]. According to section 47(1) the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases namely:

1. Where the goods have been sold without any stipulation as to credit
2. Where the goods have been sold on credit but the term of credit has expired
3. Where the buyer becomes insolvent

The right of lien is one of the unpaid sellers right against the goods the property in which is transferred to the buyer. It is the unpaid sellers right to retain the goods until the whole of the price is paid or tendered. Lien can be exercised only for non-payment of the price and not for any other charges due against the buyer.[7]  The right can only be exercised on the fulfillment of two conditions:

1. The unpaid seller must be in actual possession of goods
2. The unpaid seller can retain the goods only for the payment of the price of goods[8]

The right of lien is not linked to the title of the goods but is concerned with the possession of the goods, hence the goods have to be in actual possession of the seller in order to exercise this right, which can even be done if he possesses the goods as a Bailee or an agent and should not necessarily be the owner.[9] Thus the seller where he has transferred the documents to the buyer his lien is not defeated as long as he remains in the possession of the goods.[10] But if the buyer has transferred the documents of title to a bona fide purchaser, the seller’s lien is defeated[11], as the seller is not allowed to exercise right of lien when the goods were in the hands of the carrier.[12] Where the goods are sold on credit the right of lien is suspended during the term of credit. But on expiry of that term, if the goods are still in the possession of the seller his lien revives.[13]

The right of lien exists only for the price of goods as expressly put in Section 46(1) (a) as held in the case of Transport & General Credit Corp. v. Morgan[14], the right wholly depends upon the statutory provisions and not upon any equitable considerations. The seller is thus not entitled to lien for any other charges i.e. charges for storage or the like. In the case of Somes v. British Empire Shipping Co.[15] that where the price has been tendered the seller cannot claim to return the goods further for the expenses incurred by him on storage during the period that he was holding the goods in the exercise of his lien.

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Now, since the right of lien is based only on possession, as soon as the possession of goods is lost the right of lien is also lost. The unpaid seller loses the lien thereon:

1. When he delivers the goods to a carrier or other Bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods:
2. When the buyer or his agent lawfully obtains possession of the goods ;
3. By waiver thereof[16]

The unpaid seller of goods having a lien thereon does not lose his lien by reason only that he has obtained a decree for the price of the goods. Section 47 also provides for the loss of lien by the unpaid seller in the following cases:

1. When he delivers the goods to the carrier or other Bailee for the purpose of transmission to the buyer without reserving right of disposal of the goods;
2. When the buyer or his agent lawfully obtains possession of the goods;
3. By wavier of the lien.

The basis of the right is the non-payment of the price and therefore if the buyer is willing to pay the price there is no question of exercise of the right of lien, if the buyer pays the price the right of lien which might have existed earlier is terminated. It is given under section 47(1) that the unpaid seller is entitled to exercise his right of lien until payment or tender of the price in respect of certain goods, the payment of price thus terminates the sellers right to retain the goods.

The seller also loses the right of lien when he delivers the goods to a carrier other than a Bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods. The right of lien continues so long as the unpaid seller delivers the goods is not made and the seller has the possession of the goods.

According to section 48 if the seller has delivered a part of the goods he can exercise his right of lien on the remaining part of the goods unless and until the part delivery was made under such circumstances as to show the right of lien had been waived because sometimes delivery of part may operate as delivery of whole. Such a waiver may be presumed when the seller allows a period of credit to the buyer or delivers a part of the goods to the buyer or his agent.

4. Banker’s Lien

A banker’s lien, when it is not excluded by special contract, express or implied, extends to all bills, cheques, and money entrusted or paid to him, and all securities deposited with him, in his character as banker.[17] Strictly, it is confined to securities and properties in the custody of the banker;[18] and in respect of things which belongs to customer, and held by the bank as security;[19] whether they are in the same or different branches.[20] If thing is in possession of the bank, but owned by the customer, has no right of lien over it.[21] A deposit of valuables with a banker is subject to the banker’s lien for the customer’s general debts to him, unless can prove agreement to give up his general lien.[22] Thus, if a certain sum is due to a bank in one account, it may retain as security or other movable that came into it hand in another account;[23] including repayment of subsequent advances. A banker’s lien would also apply to negotiable instruments remitted by customer for collection. Unless, otherwise directed, the proceeds of such collection may be used by the bank for reducing the customer’s debit balance.

5. Extent of the Right of Lien

The extent of bailee’s lien is in respect of services involving the exercise of labour or skill rendered by him in respect of the goods bailed. The services rendered for the purpose of lien must be limited to the labour or skill expended by the bailor over the goods bailed; the lien has nothing to do with any other kind of service. Such labour and skill must have been spent, and thirdly, the lien applies only to such goods over which the bailee has bestowed his labour and expenses, and not to other goods.[24] Nor does any lien attach to goods bailed to a person for the purpose of his working with it, and not upon it.[25] Mere making arrangement for storage of goods in a godown for payment would not attract his provisions since no improvement in the goods takes place, nor is any labour or skill exercised in respect of such goods.[26]

6. Loss of Right of Lien

A bailee’s right of lien is lost with the loss possession.[27] It is lost if he surrenders possessions of the goods, even though he subsequently regains possession. Thus, in EC Eduljee v. Café John Bros, [28] E sold a second hand refrigerator to P, and agreed to put it in order for further sum. P took delivery. Later, E agreed to make further repairs as an act of grace, and was given possession. E claimed a lien, as the original fixed for repairs had not been fully paid. It was held that the lien was lost by the original delivery to P.

The lien is also lost if the bailee has sold the goods.[29] The bailee’s assertion of right to retain the chattel otherwise than by way of lie may operate as a waiver of the lien;[30] or by an act or agreement of the bailee amounting to waiver.[31]

Right to recover expenses Survives lienz: Even though the right of lien is lost on loosing possession of goods, the bailee, nevertheless, retains the right to recover the expenses incurred by him for the preservation of the goods form deterioration no provided for in the contract of bailment.[32]

7. 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,[33] 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 Kerala.[34] 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 facilities.(Re European Bank (1872) 8 Chapter App 41) In other words, the lien extends to all forms of securities deposited, which are not specifically entrusted or to be appropriated.

8. Case Laws and Illustrations

• State Bank of India v/s Javed Akhtar Hussain[1]:

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[2] 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.

• Valpy v. Gibson[3]:

Goods were sold and sent by the sellers at the request of the buyer to the shipping agents of the buyer, and were put on board a ship by those agents. Subsequently, they were re-landed and sent back to the sellers for the purpose of re-packing. While they were still in the possession of the sellers for that purpose, the buyer became insolvent. Thereupon the sellers refused to deliver them to the buyer’s trustee in bankruptcy except upon payment of the price. Held, that the sellers had lost their lien by delivering the goods to the shipping agents, and their refusal to deliver the goods to the trustee was wrongful.

• Gurr Cuthbert[4]:

Sale of stack of hay for 86 dollars, to be paid for as it is taken away, the whole to be removed by a certain date. Part, but only part, was paid for and removed by the buyer before that date, and two months after that date the seller cut up and used the remainder. In doing so, the seller waived his line, and the buyer successfully maintained an action against him.

• Grice Richardson[5]:

The appellants, who traded in Australia, imported three parcels of tea which they sold to the respondents, who gave their acceptance or promissory notes for the price. The appellants were also warehousemen, having a bonded warehouse in which they had stored the tea on its importation. On selling the tea to the respondents, the appellants handed them delivery orders, which stated that the tea to which it referred was warehoused by the appellants. The delivery orders were subsequently endorsed by the respondents to w & Co. And entries were made at the warehouse that the tea had been transferred to the company. Subsequently, W & Co became insolvent and their acceptance and notes were dishonoured, by which time part of the tea had been delivered to W & Co and part remained in the warehouse, for which the appellants had not been paid. Held that the appellants as vendors retained their lien in respect of the tea which remained in the warehouse.

[1] The State Bank Of India vs Javed Akhtar Hussain And Others, (1992) 94 BOMLR 585.

[2] Union Bank Of India vs K.V. Venugopalan And Ors., AIR 1990 Ker 223.

[3] (1847) 4 CB  837, 72RR 740.

[4](1843) 12 LJ Ex 309, 61 RR 787.

[5] (1877) 3 App Cas 319 (PC).

[1] Bevan v. waters, (1824-34) AII ER Rep 304, (1828) 3 C&P 520 per Best CJ, 33 RR 692.

[2] Halsbury’s Laws of England, Vol. 68, 5^th edn., 1 October 2008, LIEN, para

[3] Syndicate bank v. Davendra karkera, AIR 1994 Kant 1.

[4] Forth v. Simpson, (1849)v 13 QB 680, 116 ER 1423 (in a bailment of a racehorse sent to training stables, the rainer has no lien if the owner has the right to have the horse redelivered ti him to run in any ace he pleases).

[5] Albermale supply Co. Ltd. v. hind & co., [1928] 1 KB 307, (1927) AII ER Rep. 401 (CA).

[6] RSN Pillai, Bagavathi, Business Law, S Chand, 3^rdedn 2010, p.262.

[7] RSN Pillai, Bagavathi, Business Law, S Chand, 3^rdedn 2010, p.262.

[8] http://www.updateindia.in/pdf_file/13822944171820676290.pdf (last visited September 10, 2018).

[9] Section 47(2) SOGA.

[10] Imperial Bank v. London & St. Katherine Docks Co. Ltd. (1877) 5Ch D 195.

[11] Section 53.

[12] Jain Mills and Electrical Store v. state of Orrisa, AIR 1991 ORI 117.

[13] Law of Sale of Goods, Avtar Singh, Eastern Book Company, 7^thedn, 2011, p 188.

[14] 1939 1 Ch 531.

[15] 1860 8 HLC 338.

[16] Section 49.

[17] Misa v. Currie [1874-80] All Rep 686;

[18] Punjab Nationl Bank td v. Arura Mal Durga Das AIR 1960 Punj. 632.

[19] Chettinad Meracntile Bank Ltd v. PLA Pichamman Achi AIR 1945 Mad 447.

[20] AIR 1965 Mad 266.

[21] Chettinad Meracntile Bank Ltd v. PLA Pichamman Achi AIR 1945 Mad 447.

[22] Official Assignee of Madras v. SRMMRM Ramaswami chetty AIR 1920 Mad 664.

[23] State Bank of India v. Deepak Malviya AIR 1996 All 165.

[24] Kalloomal Tapeshwari Prasad & co. v. Rashtirya chemicals & Fertilizers ltd., AIR 1990 AII 214.

[25] Steadman v. Hockley, (1846) 15 M&W 553; Bleaden v. Hancock, (1824-34) AII ER Rep 108.

[26] Kallomal Tapeshwari Prasad & co. v. Rashtriya chemicals & Fertilizers Ltd., AIR 1990 All 214.

[27] Surya Investment Co. v. State Trading corpn of India, AIR 1987 Cal 46.

[28] (1944) Nag 37, AIR 1943 Nag 249.

[29] Scindia Steam Navigation Co. Ltd. v. Trustee of the port of Karachi, AIR 1930 Sind 36 ( in the absence of contract to the contrary).

[30] White v. Gainer, (1824) 2 Bing 23 per Best Cj at 24.

[31] Green v. All Motors ltd., [1917] 1 KB 625.

[32] [1928] 1 KB 307, [1927] All ER Rep 401.

[33] Lloyds Bank v. Administrator General of Burma, AIR 1934 Rangoon 66.

[34] State Bank of Travencore v. Bhargavan ,1969 Kerala, 572.