Right of Lien
- Lien is the right of creditor to retain possession of goods and securities belonging to the debtor till the debts due to him (creditor) are paid.
- This right is available only on goods and securities and not on balances in the accounts.
- It is a statutory right but parties may exclude this right by mutual consent.
- Lien entitles retention of possession of goods but the creditor cannot sell the goods.
- Lien can be Particular lien (Sec 170 of the Indian Contract Act) or General Lien. In particular lien, the creditor has right to retain goods on which some labour has been done and till the charges pertaining to that have been paid. In the case of General Lien, creditor has right to retain the goods and securities belonging to the debtor for all dues payable by him. This right is available only to bankers, factors, wharfingers, attorneys (Section 171 of the Indian Contract Act).
- Banker’s Lien is also a general lien but it is an implied pledge because the banker has right to retain as well as sell goods of the borrower after giving him reasonable notice.
- Fur exercising right of lien, (a) the goods or securities and debt should be in the same right and same capacity (b) Loan should be due or overdue and lawful (iii) Reasonable notice is given. Further, Right of Lien is available on the goods and securities received in the ordinary course of business.
- It is not available when the goods or securities have been deposited for a specific purpose; goods received for safe custody or lying in safe deposit vault or goods left by the debtor negligently. However, in the case of loans against pledge of jewellery, bank can exercise right of general lien on the ornaments left in the possession of the bank after adjustment of the jewellery loan in case some other advance is outstanding.
- Negative lien is a declaration from the borrower to the effect that securities/goods offered as security are not encumbered and that the borrower will not create any charge over them without bank’s permission. This undertaking does not create a