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Right To Lien And Bailment: Judicial Interpretation

The researcher has conducted the research on the Right to Lien which is granted to the Bailee under a Contract of Bailment. The focus is mainly laid on Section 170 and Section 171 of the Indian Contract Act, 1872. The paper first makes an introduction to the concept of Bailment and Lien. Then it goes on to introduce the above - mentioned provisions of the Indian Contract Act, which is related to the two types of liens which are available to the bailee i.e. Particular Lien and General Lien.

Later, the paper continues to discuss mainly about the judicial pronouncements relating to both the types of liens. The main focus of the paper is on the different interpretations of the above - mentioned provisions. Under the discussion about General Lien, special emphasis has been laid on the most common kind of it, i.e., Banker's lien. The paper not only includes landmark decisions of Indian courts under the Indian laws, but a bit of attention has also been drawn on the English Law cases because there is not much differences in both the laws relating to Contracts.

Research Questions:

  1. Introduction to the Right to Lien.
  2. Particular Lien and its Prominent Interpretations
  3. Judicial Interpretations under Section 171 of the Indian Contract Act.


Research Method:
The researcher has followed the Doctrinal Method of Research to complete this paper. Different primary and secondary sources have assisted the researcher. It includes the usage of Case Laws, Statutes, Books, Rules etc.

Chapter I: Introduction To The Right To Lien

Bailment is considered to be the delivery of goods by one person to another for some purpose under a contract, and those goods shall be returned when the purpose is accomplished, or otherwise be disposed of depending on the directions of the bailor.[1]In a bailment, there are two parties, namely the Bailor and the Bailee. The former is the one who delivers the movable property, whereas the latter is the one who receives the same.

With the happening of Contractual or Non-Contractual Bailment, there arises certain duties which both the bailor and the bailee needs to perform along with some rights which they both possess. One of the major rights which any bailee possesses, is the ‘Right to Lien'. Under Indian Law, this right of the bailee is covered under Sections 170 and 171 of the Indian Contract Act, 1872 (hereinafter the Act).

John Bouvier defines Lien as the:

Right which one person possesses, in certain cases, of detaining property placed in his possession belonging to another, until some demand which the former has satisfied.[2]

Lien in its primary sense is a right held by one person to retain the goods which are continuously and rightfully in possession, whose ownership vests in some other person and the possession can be retained till the debt or the obligation is discharged.[3]

Section 170 of the Act is about Particular Lien, which basically expresses a very common principle that, if a person has a good being delivered to him or her, then that person can retain the goods unless and until he or she receives the remuneration for services rendered.[4] It is impossible to exercise this right if the person claiming the right is not in possession of the goods. This right to retain the possession is in respect to only those goods against which the dues have arisen, and not against any other good. For instance, A gives a rough diamond to B, a jeweller, and asks him to polish and cut the same.

So here, B has the right to particular lien to retain the diamond till he is entitled to the payment for the services rendered. Moreover, this right can only be claimed in respect of the goods upon which labour or skill has been exercised by the bailee.[5] But, it is a well settled principle that right to lien may be excluded if there exists a contract to its contrary.[6] Also, the right to lien seizes to exist if the bailee keeps the good bailed for more than the agreed time, or the reasonable time, for the completion of the work and eventually failed to do so.[7]

Section 171 of the Act gives an idea about General Lien. General lien is the right of an individual to retain the movable property as a security, which belongs to the other person. It is against a general balance which is due, until the liability of the holder is discharged.[8]

An individual can waive off the right to lien through a contract. According to this provision of the Indian Contract Act, this right is very commonly available to bankers, factors, wharfingers, high-court attorneys and policy-brokers. No other person shall have a right to retain the goods bailed, as a security for such a balance unless and until there is an express contract to its effect.[9] For instance, the banker's lien is a general lien and it can retain the goods in order to satisfy any debt other than for which the goods have been pledged.

General lien includes many types of liens but banker's lien is its most common kind. A general lien only confers the right to retain the goods and do not confer on the person entitled to the lien, the right to sell the goods.[10]But, banker's lien is a special form of general lien which even includes a right of sale after reasonable notice has been given to the customer, but only under English Law.[11] Banker's lien is the right of the bailee i.e. the bank, to satisfy a matured debt of a customer by seizing the property of the customer or their money and keeping it in bank's possession. Banker's lien is popularly known as implied pledge too.

The main difference between a pledge and a lien is the right to sell. Pledge confers an implied authority to sell, whereas a lien confers just a mere right of retention.[12] It is implied pledge because in the event of default by the customer, the bank possesses the power to sell the property without resort to the courts.

Chapter II: Particular Lien And Its Prominent Interpretations

There have been several landmark judicial pronouncements with different interpretations of the Right to lien under Bailment, with regard to both Particular Lien and General Lien under the respective provisions of the Indian Contract Act. This chapter deals the sub-head of Particular Lien.

It is pertinent to discuss the extent of the Right to Lien. For that, reliance has to be placed upon a 1990 judgment where the Allahabad High Court interpreted the phrase labour or skill which is mentioned in Section 170 of the Act[13]. The court put forth their understanding as, that, the labour or skill must be:

  1. first spent in accordance with the specific purpose of bailment;
  2. secondly, that labour or skill must have been so spent so as to bring about an improvement in the bailed goods;
  3. thirdly, the application of lien is only on those goods over which the bailee has spent his expense and labour or skill and not on any other good, the reason being that it is particular lien.[14]

Moreover, these conditions apply only if there is no contract to the contrary i.e. no contract against the exercise of this right.[15] For instance, if goods are stored in a godown for. payment and if it is not done, then it cannot attract Section 170 of the Act because there would occur no improvement in the goods, nor any skill or labour is exercised with respect to the goods.[16]

Extent of exercise of Right to Lien

Bringing the point of discussion to whether the exercise of right of lien can extend to selling the bailed goods. In the case of Vithoba Laxman Kalar v/s MarotiUkandsaKalar[17], the plaintiff bailed the cattle to the defendant for the purpose of grazing. There was an agreement between them that the plaintiff will pay Rs. 3 per month as grazing dues. But, he did not. After 15 months, the grazing dues arose upto Rs. 45 when the defendant gave a notice to the plaintiff that non-payment will amount to selling off the cattle. The plaintiff refused to reply and defendant sold the cattle.

The High Court of Nagpur firstly stated that there is no chapter regarding bailment under the Indian Contract Act which says that in the absence of any contract to the contrary, one can exercise his right to sell the property. Further, they held that there was no express contract regarding the sale of the bailed property, hence it cannot be said to be a valid one. So, the conclusion drawn is, that the right of lien does not entitle the bailee make the sale of the goods and recover the dues meanwhile, unless the statute expressly confers the right regarding the same.[18]

Though Section 170 of the Act affirms that the bailee has the right to retain the goods until the remuneration is received for the services rendered, but it nowhere states that this right even enables him to sell the goods to recover the dues.

Moreover, while scrutinizing Section 170 of the Act, it is significant to mention the very recent Bombay High Court decision of Khaalid Muhammad Sami vs. Marudhar Studios Pvt. Ltd. and Ors.[19]it was held that the bailee has the right to retain the goods over which he had been claiming lien until and unless all the charges which are claimed, were received, and that, the detention of these goods shall continue to exist till the payment is actually affected.

Right of Lien of third parties

It is significant to take into consideration the right to lien of third parties. It is pertinent to note that the first point which is to be focused upon is that whether the person who is making the bargain has the authority to do that or not.[20]

In a King's Bench decision of Bowmaker Ltd. v/s Wycombe Motors Ltd.[21], it was held that if the person does not have the authority over the goods, he cannot bail the same to the third person. In this case, the defendant (Bowmaker) entered into a hire-purchase agreement with P, to let him the motor car and the latter had to take care of it in every possible way, and the defendants also had a condition that they can terminate the agreement on sufficient notice anytime.

The defendants terminated it after 4 months by notice. Post the termination, P met with an accident and left the car with plaintiff (Wycombe) for repair of the car. On non-payment for repairs, held the car on lien. The reasoning of the court was based on the fact that since P was not authorised to have the possession of that car post that date, it cannot be said to be a lien between P and the plaintiff, and hence, the plaintiffs cannot claim the amount from the defendant.

The principle of Bowmaker case can be applicable in Indian jurisprudence as well because in a very old decision of Miller v/s Nasmyths Patent Press Company of the Calcutta High Court[22], the question regarding Section 170 of the Act became a point of discussion and Wilson J held that the Indian position under Contract law is not at all different from what is applicable in England.

Loss of Bailee's Right to Lien

There are several conditions which can be the reason behind the loss of bailee's Right to Lien. The first condition is that a bailee gains his or her right to lien by his or her possession over the goods and it can be lost by him or her as soon as the possession is lost.[23]. The Calcutta High Court also held in the Surya Investment case that even though the bailee loses the lien along with possession, but he or she still retains the right to recover the expenses which are incurred by him or her for the preservation of goods from the deterioration not yielded in the contract.

The second condition is, that, the lien is also lost if the person surrenders the possession of the goods even though he or she subsequently regains its possession later, as it was held by the Nagpur High Court in the case of, EC Eduljee v/s Café John Bros.[24] In this case, the plaintiff - respondent purchased a second - hand refrigerator and it was agreed between him and the defendant - appellant that the refrigerator should be put in order.

Further, after accepting the good, he realised that it was not in working order. So, appellant took the parts of it away for repair. The bill of the repairs were not paid and appellant i.e. Eduljee refused to return the parts. It was held by the Hon'ble Court that when the contract had been performed and the goods were handed back, the lien ended. Moreover, they supported the decision of lower courts where they said that the repairs were made as an act of grace.

The third condition of loss of lien occurs when the bailee sells the bailed goods. By referring to Halsbury Vol.1, it was highlighted by the court, in the case of Scindia Steam Navigation Co. Ltd. v. Trustee of the port of Karachi[25], that firstly, the bailee has no right to sell the goods unless there is an express contract for the same and if he makes the sale of bailed goods, then it causes him or her to lose the right to lien.

Furthermore, focus has to be laid upon the phrase ‘contract to the contrary'. As it is previously mentioned that, the right to lien may cease to exist if there is a contract regarding the same. This means that there will be no lien where the contract which has been entered into, lays down that the goods shall have to be returned even in the absence of the receipt of remuneration. This can be understood by laying emphasis on the Illustration (b) of Section 170 of the Act, which is quoted as: A gives cloth to B, a tailor, to make into a coat. B promises A to deliver the coat as soon as it is finished, and to give a three months credit for the price. B is not entitled to retain the coat until he is paid.

Hence, if any of the above conditions are fulfilled, then the bailee's Right to Lien ceases to exist.

Chapter III: Judicial Interpretations Under Section 171 Of The Indian Contract Act, 1872

Now, approaching towards the interpretation of Section 171 of the Act i.e. the general lien of bankers, factors, wharfingers, attorneys and policy brokers. General lien was first established in the case of Brandao v/s Barnett[26]in England. It was held in the context of a banker's lien that bankers undoubtedly have general lien on all the securities deposited with them by any customer, unless there has been an express contract or there exist circumstances that show an implied contract which stands inconsistent with the lien.

This part of the ratio was given by Lord Campbell by referring to what Lord Kenyon highlighted in the case of David v/s Bowsher[27]. He quoted:
Bankers have a general lien on all securities in their hands, for their general balance, unless there be evidence to show that any particular security was received under special circumstances which would take it out of the common rule.

Further, there are other kinds of lien covered under this provision as well, as stated previously.

Banker's Lien

When goods are bailed to the bank, it is said to be banker's lien. It is rigidly confined to the securities and properties which are in the custody of the banker[28] and it is only applicable in cases where the bailed goods belong to the customer, but is held by the bank as security. If the goods are in possession of the bank but is not owned by the customer, then the bank does not have the right to lien over it.[29]

Further, this right is available for security for general balance on account of any goods bailed to them. It was in the case of State Bank of India, Kanpur v. Deepak Malviya and Ors.[30], where the Allahabad High Court marked that if a certain sum of money is due to the bank in one account, then the bank may retain as security money or other movable that is in its hands for another account. Here, the court simply stated about Section 171 of the Act that the general principles which cover the banker's lien specifically authorises the bank to retain the pledged goods such as ornaments by claiming the lien over those, till the money of the bank is not cleared in connection with the account.

Also, the Nagpur High Court in the case of Davendra Kumar v. Chaudhary Gulab Singh[31]observed that where valuables and securities are deposited for any specific purpose, for e.g., for safe custody, in that case the banker has no general lien over them because the acceptance of the goods for any special purpose implies that the general lien is excluded.

Banker's lien as Implied Pledge

Under English Law, banker's lien is considered to be an implied pledge.[32] In Indian Law, under bailment, especially pledge, the pledgee is vested with the right to sell the goods to receive the amount due against it at the default of the pledgor, under Section 176 of the Act.

In case of bailment, only right to retain the good is being possessed by the bailee and not the right to sell. However, by placing relying on the Section 6(1)(f) of the Banking Regulation Act, 1949,[33] it can be observed that this provision gives the bank the power to sell. Hence, it can somehow be said that it is an implied pledge.

Factor's Lien

A factor is an agent who is entrusted with the possession of the goods for the purpose of selling.[34] The factor has the right to buy or sell the goods, so he or she sells the goods under his or her own name without disclosing that of the principal.[35]

The lien of a factor arises with goods coming into his actual or constructive possession.[36] He is given the possession in the ordinary course of his business.[37] In the case of E.H. Parakhv. King Emperor[38], the court highlighted that the lien shall arise when the goods have been delivered to the factor in course of the business and in his capacity as a factor.

Wharfinger's Lien

A wharfinger is the owner of a wharf who receives merchandise on his wharf for hire, either for the purposes of forwarding or for delivery to the consignee on such wharf.[39] The wharfinger, along with dealing with the loading and unloading of the cargo, even performs the function of storing and delivering the same.[40] In the Board of Trustees of the Port of Bombay v.Sriyanesh Knitters,[41]suits were instituted by the Port Trust for recovering the remuneration of the imports.

They had a right to lien and sale in exercise of lien over goods against which the amount is due, under Major Port Trusts Act, 1963. There, it was held by the Supreme Court, while overruling the Bombay High Court decision, that, this Major Port Trusts Act is not a comprehensive code and it did not specifically exclude the application of Section 171 of Contract Act. And, that the duties of the trust were laid down under the Major Port Trusts Act which gives a view that any amount which is due in respect of the duties, would be considered as a ‘general balance of account'.

Attorney's Lien

An attorney or a solicitor of any High Court has a general lien on all the papers and documents which is owned by his client(s), which are currently in his possession in the professional capacity. So,he is entitled to the lien untilthe fee for his professional service is paid. But, if the attorney or the solicitor refuses to act any more for the client, he loses his Right to Lien for the same.[42]

There has been a Supreme Court decision of 2000, where the court held that the papers or the documents which are given to an advocate for one particular case is not considered to be goods, and that an advocate after the enactment of the Advocates Act, 1961 cannot exercise the lien under Section 171 of the Act. Also, the keeping of files does not amount to bailment of goods in case of advocates.[43]

It was also highlighted by the court in this case that the word goods as mentioned in Section 171 of the Act have to be understood according to what is stated in Sales of Goods Act, and that the Bar Council of India Rules does not provide for any lien to the litigants on the litigation files. But rather, the rules prohibit an advocate doing an adjustment in the fees which is payable to him or her against the liability to the client.

Conclusion
The researcher has mainly come to a conclusion that there are not much differences under the concept of lien under the Indian Law and the English Law. The main topic of the research paper was related to the judicial interpretations by different courts, but of the same Right to Lien. The paper discussed about both the types of lien i.e. Particular Lien and General Lien. The particular lien part of the paper has broadly laid emphasis on extent of right to lien, the right to third parties, and loss of bailee's right to lien. This has been discussed through various case las which not only includes Indian cases, but also English cases for better understanding of the subject.

Whereas under the General Lien heading, the researcher has mainly laid her focus upon the judicial interpretations of different types of general liens, where banker's lien has been given a special attention. The liens other than banker's lien includes, factor's lien, wharfinger's lien, and attorney's lien. Under banker's lien, the attention has also been drawn towards the Banking Regulations Act which gives the banker the right to sell the goods, along with the right to retain it.

Bibliography
Acts/ Regulations/ Rules Referred

  • Indian Contract Act, 1872.
  • Banking Regulations Act, 1949.
  • Major Port Trusts Act, 1963.
  • Sales of Goods Act


Books

  • Avtar Singh, Contract and Specific Relief.
  • Pollock and Mulla, The Indian Contract Act.


Websites Referred:

  • Manupatra
  • SCC Online
  • West Law
  • Lexis Nexis


End-Notes:

  1. Section 148, Indian Contract Act, 1872.
  2. John Bouvier, Bouvier's Law Dictionary, 1978(8th Ed. Vol. 2, 1914).
  3. Pollock and Mulla, The Indian Contract Act, 1473 (15th Ed., 2018).
  4. Section 170, Indian Contract Act, 1872. See also: Shipping Corpn. of India Ltd. and Ors. v. C.L. Jain Woolen Mills and Ors., AIR 2002 SC 1806.
  5. Section 170, Indian Contract Act, 1872.
  6. Pollock and Mulla, The Indian Contract Act, 1476 (15th Ed., 2018).
  7. E.J. Judah v. King Emperor, (1925) 53 Cal 174.
  8. Kent Comm (ii) 634.
  9. Section 171, Indian Contract Act, 1872.
  10. Alliance Bank of Simla Ltd. v. Ghamandi Lal Jaini Lal, AIR 1927 Lah 408.
  11. Chapter II, Banker's General Lien, 24. (available at: https://shodhganga.inflibnet.ac.in/bitstream/10603/131970/10/10_chapter%202.pdf, last visited: 26th October, 2019, 20:32)
  12. The Odessa, (1916) 1 AC 145 at 159, PC.
  13. Bailee's particular lien.—Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.
  14. KalloomalTapeshwari Prasad & Co. v. Rashtriya Chemicals & Fertilizers ltd., AIR 1990 All 214.
  15. Ibid.
  16. Ibid.
  17. Vithoba Laxman Kalar v. MarotiUkandsaKalar, AIR 1940 Nag 273.
  18. Pollock and Mulla, The Indian Contract Act, 1474 (15th Ed., 2018).
  19. MANU/MH/0816/2019 (Decided on 23.04.2019 - BOMHC)
  20. Keene v. Thomas, [1905] 1 KB 136.
  21. (1946) 2 All ER 113, 115.
  22. (1882) ILR 8 Cal 312
  23. Surya Investment Company v. State Trading Corporation, AIR 1987 Cal 46 :: Jacobs v. Latour, (1828) 130 E.R. 1010.
  24. (1944) Nag 37.
  25. AIR 1930 Sind 36.
  26. (1843-60) All ER Rep 719.
  27. (1794) 5 Term Rep 488.
  28. Punjab National Bank Ltd. v. Arura Mal Durga Das, (1960) 2 Pun 823.
  29. Chettinad Mercantile Bank Ltd. v. P.L.A. Pichammau Achi, IR 1945 Mad 447.
  30. AIR 1996 All 165.
  31. ILR (1946) Nag 210.
  32. Brandaov. Barnett, (1843-60) All ER Rep 719.
  33. Section 6(1) - In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:- (f) managing, selling and realising any property which may come into the possession of the company in satisfaction or part satis­faction of any of its claims.
  34. Stevens v. Biller, (1883) 25 Ch D 31.
  35. Pollock and Mulla, The Indian Contract Act, 1484 (15th Ed., 2018).
  36. Bryans v. Nix, (1839) 4 M&W 775, 51 RR 829.
  37. Law of Contract and Specific Relief - Chapter X- Of Bailment, Manupatra.
  38. AIR 1926 Oudh 202.
  39. Pollock and Mulla, The Indian Contract Act, 1484 (15th Ed., 2018).
  40. Board of Trustees of the Port of Bombay v. Sriyanesh Knitters, AIR 1999 SC 2947.
  41. AIR 1999 SC 2947.
  42. Supra 37.
  43. R.D. Saxena v. Balaram Prasad Sharma, (2000) 7 SCC 264.

Written By: Jaanvi Singh. BBA-LLB (H), 2nd Year, Bennett University   

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