Explain the Nature of Bankers Right of Lien?

Right of general lien is one among the many rights that the bank enjoys and it is said to be one the most important rights. A right of a person to retain goods belonging to some other person, until the person’s demands in possession are satisfied is said to be a lien. This right is conferred on the bankers by Section 171 of Indian Contract Act.

General lien is the right to retain any property belonging to the other till all dues are cleared. This right can only be exercised by the banker as a banker and not as bailee. Lien of the banker is said to be a pledge which is implied. According to banker’s lien, if debtor makes any default, banker can sell the goods in possession and recover the amount, after providing a reasonable notice to the customer. Bank cannot use this right if some valuables are deposited with it for safe custody because then it is bailment.

Such a right cannot be used in the case stated below:

1. When for safe custody, valuables are deposited.
2. When for a specific purpose, money or documents are deposited.
3. When due to mistake, some securities are left with the bank.
4. When the customer holds the property as trustee and bank has the notice of trust.
5. When there is an express agreement that right of general lien shall not be exercised by the bank.