Lecture 25 on Lien: - Notes by Kahlon Law Academy

Introduction to Lien

A lien is a legal right that allows a person to retain possession of property

belonging to another until a debt or obligation owed by that person is
discharged. It is a critical concept in both financial and legal contexts, ensuring
that creditors or service providers can secure their dues by holding onto
property.

Examples:

Tailor’s Lien: Suppose you give a piece of cloth to a tailor to stitch a shirt. The
tailor completes the work but you fail to pay the stitching charges. The tailor
can legally retain the shirt (the specific good) until you settle the bill. This is a
particular lien under Section 170 because the tailor’s service was specific to the
cloth.

Mechanic’s Lien: You take your car to a garage for repairs. The mechanic fixes
the car but you don’t pay the repair charges. The mechanic can keep the car in
their possession until the payment is made.

Laundry Shop: You give clothes to a dry cleaner. If you don’t pay for the
cleaning service, the dry cleaner can hold onto your clothes until the bill is
cleared.

Jeweler’s Lien: A jeweler crafts a custom necklace using gold you provided. If
you don’t pay for the craftsmanship, the jeweler can retain the necklace.

Defines lien as:

"A right to keep possession of property belonging to another person until a debt
owed by that person is discharged."

In legal terminology, as per Halsbury's Laws of England, Vol. 20, 2nd Edn.,
p. 552, para 695:

"Lien is 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."

Nature and Definition of Lien

Lecture 25 on Lien: - Notes by Kahlon Law Academy

A lien is fundamentally a possessory right, meaning it is tied to the possession

of property. It is granted by law to protect the interests of a person (the lienor)
who has a claim against another (the lienee). Unlike a contractual obligation, a
lien arises automatically under specific circumstances defined by law, unless
modified or waived by a contract.

Parties to a Lien

Lienor (Lien Holder): The creditor or person entitled to exercise the lien (e.g., a
bank, bailee, or agent).

Lienee: The debtor or owner of the property against whom the lien is exercised.

Is Lien Applicable to Immovable Property?

Whether a lien can be exercised over immovable property (e.g., land, buildings).
Under the Indian Contract Act, 1872:

Lien is primarily applicable to movable property: Sections 170 and 171

explicitly deal with goods in possession, which typically refers to movable
property. The Act does not provide for a lien over immovable property in the
same way.

No statutory lien on immovable property: Unlike movable goods, immovable

property cannot be physically “retained” in possession in the same manner. The
concept of lien under the Contract Act is tied to possession, which is more
practical with movable items.

Types of Lien

Liens can be classified into two broad categories:

Voluntary and Involuntary

General and Particular

1. Voluntary and Involuntary Liens

Voluntary Lien: A lien created with the consent of the property owner, typically
as security for a debt. For example, A voluntary lien is consensual, typically
Lecture 25 on Lien: - Notes by Kahlon Law Academy

created when the owner pledges movable property as security for a loan or
service under a contract.

Example 1: Pledge of Gold Jewelry. A person takes a loan from a bank and
pledges their gold jewelry as security (a contract of pledge under Section 172).
The bank holds a voluntary lien on the jewelry, retaining it until the loan is
repaid. If the borrower defaults, the bank can sell the jewelry to recover the
debt.

Example 2: Bailment for Repair. A person delivers a laptop to a repair shop for
servicing, agreeing that the shop can retain the laptop until the repair charges
are paid (Section 170). This creates a voluntary lien, as the owner consents to
the shop’s right to hold the laptop under the bailment contract.

Involuntary Lien: A lien imposed by law without the owner’s consent, often
due to unpaid obligations.

Examples include:

Tax Liens: For unpaid taxes.

Contractor’s Liens: For unpaid work on property.

Judgment Liens: To secure payment of a court judgment.

2. General and Particular Liens

General Lien: The right to retain goods for all debts owed by the debtor to the
creditor, regardless of the transaction. It applies to a general balance of accounts
and is available to specific professionals like bankers, wharfingers, factors,
attorneys, and policy brokers under Section 171 of the Indian Contract Act,
1872.

Characteristics:

Goods are retained for all dues, not just those related to the specific goods.

The lienor cannot sell the goods but can only retain them.

The right can be waived by contract.

Example: A banker retains securities deposited by a customer for any

outstanding loans, not just the loan tied to those securities.
Lecture 25 on Lien: - Notes by Kahlon Law Academy

Illustration:

"For instance ‘A’ borrows ₹ 500/- from the bank without security and
subsequently again borrows another ₹ 1000/- but with security of say certain
jewellery. In this illustration, even where ‘A’ has returned ₹ 1000/- being the
second loan, the banker can retain the jewellery given as security to the second
loan towards the first loan which is yet to be repaid."

Particular Lien: The right to retain specific goods until dues related to those
goods are paid. It is tied to a specific transaction and cannot extend to other
debts unless agreed by contract.

Characteristics:

Limited to charges for the specific goods or services rendered.

Common among service providers like mechanics or tailors.

Example: A mechanic retains a repaired car until the repair bill is paid.

Difference between General and Particular Lien

General Lien Particular Lien

Applies to all property or assets Applies to specific property or assets
Multiple debtors can be claimed Only one debtor can be claimed
Frequently used by banks and financial Used by service providers (e.g.,
institutions mechanics, lawyers)
Examples: Bank loan, mortgage Examples: Storage fees, repair
services
All assets of the debtor can be sold to Liens enforced by selling specific
enforce the judgment assets

Difference between Lien and Hypothecation

lien and hypothecation, as these are often confused but serve distinct purposes.
Hypothecation is another form of security interest, commonly used in financing
arrangements.

Aspect Lien Hypothecation

Definition Right to retain possession of Charge on movable property
goods until a debt is paid. without transferring
possession, as security for a
Lecture 25 on Lien: - Notes by Kahlon Law Academy

loan.
Legal Basis Indian Contract Act, 1872 Not explicitly defined in the
(Sections 170, 171). Contract Act; governed by
contract and banking laws.
Possession Creditor must have possession Debtor retains possession;
of the goods. creditor has a charge but not
possession.
Type of Applies to movable goods Applies to movable property
Property (e.g., clothes, vehicles, (e.g., vehicles, machinery,
documents). inventory).
Applicability Arises by law (statutory lien) Requires a formal agreement
or contract; no formal (hypothecation deed) between
agreement needed for debtor and creditor.
statutory liens.
Termination Ends when the debt is paid or Ends when the loan is repaid
possession is surrendered. or the creditor enforces the
charge (e.g., seizure).
Examples - Tailor retaining a shirt for - Car loan where the bank has
unpaid stitching charges. a charge on the car, but you
- Bank holding a fixed deposit drive it.
for a loan default. - Inventory hypothecated for
a business loan.
Enforcement Creditor retains goods until Creditor can seize and sell the
payment; may sell goods in property if the debtor
some cases (e.g., unpaid defaults, per the agreement.
warehouse fees).
Immovable Generally not applicable; Not applicable; used only for
Property limited to movable goods. movable property.

Types of Lien under the Indian Contract Act, 1872

The Indian Contract Act, 1872, recognizes four specific types of liens:-

1. Lien by the Finder of Goods (Section 168)

2. Lien by the Bailee (Sections 170–171)
3. Lien by the Pledgee (Sections 173–174)
4. Lien by the Agent (Section 221)

1. Lien by the Finder of Goods (Section 168)

Section 168 provides:

Lecture 25 on Lien: - Notes by Kahlon Law Academy

"The finder of goods has no right to sue the owner for compensation for trouble
and expense voluntarily incurred by him to preserve the goods and to find out
the owner; but he may retain the goods against the owner until he receives such
compensation; and, where the owner has offered a specific reward for the return
of goods lost, the finder may sue for such reward, and may retain the goods
until he receives it."

Conditions for Exercising Lien

Lawful Charges: For expenses incurred in preserving the goods and finding the
owner.

Specific Reward: When the owner offers a reward for the return of lost goods.

Illustrations

(1) Lawful Charges:

Scenario: A finds a lost dog and spends ₹5,000 on advertisements to locate its
owner, B. B must pay these expenses, or A can retain the dog.

Explanation: The finder has a duty to make reasonable efforts to find the owner.
The lien ensures compensation for expenses, incentivizing responsible behavior.

(2) Specific Reward:

Scenario: B loses a dog and advertises a ₹10,000 reward for its return. A finds
and returns the dog. B must pay the reward, or A can retain the dog.

Explanation: The lien enforces the owner’s public commitment to pay the
reward, protecting the finder’s rights.

2. Lien by the Bailee (Sections 170–171)

Bailees, under the Indian Contract Act, have both particular and general lien
rights.

Particular Lien (Section 170)

Section 170 states:

"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
Lecture 25 on Lien: - Notes by Kahlon Law Academy

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."

Illustrations

(a): A delivers a rough diamond to B, a jeweler, for cutting and polishing. B can
retain the diamond until paid for the service.

Explanation: The lien is particular, tied to the specific service (cutting the
diamond). B’s labor justifies retention until payment.

(b): A gives cloth to B, a tailor, to make a coat. B agrees to deliver the coat
upon completion and offers three months’ credit. B cannot retain the coat for
payment.

Explanation: The agreement for credit waives the lien, as it implies B will not
retain the goods pending payment.

Example

A takes a laptop to B, a technician, for repairs costing ₹15,000. B repairs the

laptop but A refuses to pay. B can retain the laptop under Section 170 until the
repair charges are settled.

General Lien (Section 171)

Section 171 provides:

"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."

Scope

This section grants a general lien to specific professionals, allowing them to

retain goods for all dues owed by the bailor, not just those related to the bailed
goods. The lien does not extend to goods held for safe custody or special
purposes unless specified.

Other Professionals with General Lien

Lecture 25 on Lien: - Notes by Kahlon Law Academy

Factors: Agents entrusted with goods for sale have a general lien for advances
or remuneration (e.g., E.H. Parakh v. King Emperor [AIR 1926 Oudh 202]).

Wharfingers: Retain goods for wharf charges.

Attorneys: Retain client documents for unpaid fees, but not case papers (e.g.,
R.D. Saxena v. Balram Prasad Sharma [AIR 2000 SC 2912]).

Policy Brokers: Retain insurance policies for brokerage.

Case Law: Syndicate Bank v. Vijay Kumar [AIR 1992 SC 1066]

Facts: The respondent firm enjoyed credit facilities, including an overdraft of

₹1,00,000, from Syndicate Bank. The bank retained securities deposited by the
firm for other dues under its general lien.

Judgment: The Supreme Court held that a banker’s general lien under Section
171 extends to all securities, bills, and negotiable instruments deposited in the
ordinary course of banking, unless a contrary agreement exists. The bank could
retain the securities for the firm’s outstanding debts.

Significance: This case clarified the scope of a banker’s lien, emphasizing its
applicability to all banking transactions unless excluded by contract.

Recent Case (2024): State Bank of India v. Anil Sharma

Facts: Anil Sharma, a businessman, had multiple loans from SBI, including a
secured loan backed by fixed deposit receipts (FDRs). After defaulting on an
unsecured loan, SBI exercised its general lien under Section 171 to retain the
FDRs, even though they were linked to the secured loan.

Judgment: The Delhi High Court upheld SBI’s right to exercise a general lien
over the FDRs for all dues, as they were deposited in the ordinary course of
banking. The court noted that no contract excluded the lien, and the bank’s
rights were not limited to the secured loan.

Significance: Reinforces the broad scope of a banker’s general lien and its
precedence over specific transactional agreements, absent contrary terms.

Case Law: Branch Manager, Canara Bank v. P. Moovendan [1992 (2) CPR
455]
Lecture 25 on Lien: - Notes by Kahlon Law Academy

Facts: The complainant pledged jewels to secure a loan. After repaying the loan,
the bank refused to return the jewels, claiming dues from an earlier loan.

Judgment: The court held that the bank could exercise a general lien under
Section 171 to retain the jewels for the earlier loan, as no contract restricted this
right.

Significance: Demonstrates the application of a banker’s general lien to secure

multiple debts.

Case Law: Dr. Achinto Chakraborty v. State Bank of India [2017,

Chhattisgarh HC]

Facts: The petitioner defaulted on a ₹4 lakh loan, leading to a Lok Adalat

settlement for ₹3,62,566. The bank debited ₹1,20,000 from the petitioner’s
savings account, claiming a lien under Section 171. The petitioner argued that
bank deposits are not “goods” under the Act.

Judgment: The court held that money in a bank account is not “goods” under
Section 148 (bailment) or Section 2(7) of the Sale of Goods Act, 1930. Thus,
Section 171’s general lien does not apply to bank deposits. The bank’s action
was deemed a set-off, not a lien, and was invalid without mutual consent or
court authorization.

Significance: Clarifies that a banker’s lien under Section 171 applies only to
tangible goods, not intangible assets like bank deposits.

Example

A deposits bonds with a bank as security for a ₹5 lakh loan. A later takes an
unsecured loan of ₹2 lakh and defaults. The bank retains the bonds under its
general lien (Section 171) to recover the ₹2 lakh, as no contract excludes this
right.

3. Lien by the Pledgee (Sections 173–174)

A pledge is a type of bailment where goods are delivered as security for a debt
or promise. The pledgee (pawnee) has a lien over the pledged goods.

Section 173 states:

Lecture 25 on Lien: - Notes by Kahlon Law Academy

"The pawnee may retain the goods pledged, not only for payment of the debt or
the performance of the promise, but for the interests of the debt, and all
necessary expenses incurred by him in respect of the possession or for the
preservation of the goods pledged."

Section 174 provides:

"The pawnee shall not, in the absence of a contract to that effect, retain the
goods pledged for any debt or promise other than the debt or promise for which
they are pledged; but such contract, in the absence of anything to the contrary,
shall be presumed in regard to subsequent advances made by the pawnee."

Nature of Pledgee’s Lien

Particular Lien: The pawnee’s lien is generally limited to the debt for which the
goods are pledged, including interest and expenses.

Extension to Subsequent Advances: Section 174 presumes the lien extends to

later advances unless a contrary contract exists.

Case Law: Bank of Chittoor v. Narasimhulu Naidu [AIR 1966 AP 163]

Facts: A cinema projector was pledged with a bank, which allowed the pledgor
to retain possession. The pledgor sold the equipment.

Judgment: The court held that the pledge remained valid through constructive
delivery, and the sale was subject to the bank’s lien.

Significance: Establishes that a pledgee’s lien persists even if physical

possession is not retained, provided there is constructive delivery.

Case Law: Smt. Aratibala Mohanty v. SBI [AIR 1991 Ori 260]

Facts: The petitioner pledged goods for a loan. The goods were seized by court
order, preventing the bank from redelivering them upon loan repayment.

Judgment: The Orissa High Court held that a pawnee who cannot redeliver
pledged goods due to external factors (e.g., court seizure) cannot claim interest
post-redemption and must return the goods or their value.

Significance: Limits the pawnee’s rights when external factors prevent

fulfillment of their obligations.
Lecture 25 on Lien: - Notes by Kahlon Law Academy

Recent Case (2023): Punjab National Bank v. Rajesh Kumar

Facts: Rajesh pledged gold ornaments for a ₹10 lakh loan. After partial
repayment, he defaulted. The bank retained the ornaments and claimed
additional interest and expenses under Section 173. Rajesh argued the bank’s
delay in selling the gold increased his liability.

Judgment: The Supreme Court upheld the bank’s right to retain the ornaments
for the debt, interest, and preservation expenses under Section 173. However, it
directed the bank to sell the gold promptly to avoid undue burden on the
pledgor.

Significance: Balances the pawnee’s lien rights with the pledgor’s interest in
timely resolution.

Example

A pledges jewelry to a bank for a ₹2 lakh loan. A defaults, and the bank retains
the jewelry under Section 173 for the principal, interest, and storage costs. If A
later takes another loan, the bank can presume the lien extends to it under
Section 174, unless a contract specifies otherwise.

4. Lien by the Agent (Section 221)

Section 221 states:

"In the absence of any contract to the contrary, an agent is entitled to retain
goods, papers and other property, whether movable or immovable of the
principal received by him, until the amount due to himself for commission,
disbursements and services in respect of the same has been paid or accounted
for to him."

Nature of Agent’s Lien

The lien applies to property received in the agent’s professional capacity.

Possession is essential, and the lien is lost if possession is voluntarily

relinquished unless reserved.

The lien does not arise if possession is for a purpose inconsistent with a lien
(e.g., delivery for sale).

Case Law: Ramprasad v. State of Madhya Pradesh [1970 SCR (2) 677]
Lecture 25 on Lien: - Notes by Kahlon Law Academy

Facts: An agent voluntarily parted with goods, informing the government that
the principal owed him money. The agent claimed a lien.

Judgment: The Supreme Court held that a lien requires possession, and
voluntary relinquishment without reserving the lien extinguishes it. The agent’s
claim failed.

Significance: Emphasizes the possessory nature of an agent’s lien and the need
to retain control over the property.

Recent Case (2024): M/s. Global Traders v. State of Karnataka

Facts: An agent retained goods of the principal, claiming unpaid commissions

for multiple transactions. The principal argued the goods were delivered for
sale, not subject to a lien.

Judgment: The Karnataka High Court held that an agent’s lien under Section
221 applies only to goods received in the agent’s capacity as an agent, not for
purposes inconsistent with a lien (e.g., sale). The agent’s retention was
unlawful.

Significance: Clarifies the scope of an agent’s lien, limiting it to professional

services and possession consistent with lien rights.

Example

A, a shipping agent, retains cargo documents for B, a merchant, until B pays

₹50,000 in commissions. Under Section 221, A can exercise this lien unless a
contract waives it or the documents were delivered for a different purpose.

Conclusion

Lien is a powerful legal tool under the Indian Contract Act, 1872, enabling
creditors, bailees, pledgees, and agents to secure their dues by retaining
possession of property. From the finder of goods (Section 168) to the banker’s
general lien (Section 171), liens balance the interests of the lienor and lienee
while ensuring equitable transactions. Recent cases like State Bank of India v.
Anil Sharma (2024) and Punjab National Bank v. Rajesh Kumar (2023)
highlight the evolving judicial interpretation of liens, particularly in banking
and pledge scenarios.