Banks have ready access to their customer's money. This trust reposed in them is liable to abuse, as they may take undue advantage and resort to illegal means to recover their dues. This happens quite often, but very few know their rights and how to assert them.
To what extent does a bank have a right of lien over its customer's funds has been considered in a judgement of the national commission in the case of ING Vysya Bank Ltd versus YG Sreeram Setty.
Gautam Enterprises had taken an advance of Rs 80,000 from ING Vysya Bank's Jayanagar Branch in Bangalore in 1983. Setty became a guarantor for this.
Thereafter, sometime in 1986, Setty placed Rs 20,000 and Rs 30,000 in two deposits with ING Vysya Bank's Fraser town branch, under the Akshaya deposit certificate scheme. These deposits were to mature in 1993 for Rs 40,490 and Rs 60,735. When Setty sent the deposit receipts for claiming the maturity value, the bank returned these stating there was no money in his deposit account, as it had been adjusted against the dues of Gautam Enterprises, which had defaulted.
Setty sent a legal notice issue, which was ignored. He then filed a complaint before the Bangalore District Forum. The bank contended that it had it had the right to adjust the amount of Setty's deposits against the dues of Gautam Enterprises since Setty was the guarantor. The bank relied on the provisions of section 171 of the Indian Contract Act which authorises bankers, factors, wharfingers, attorneys and policy-brokers to exercise a general right of lien over goods bailed to them. The forum upheld this contention and dismissed the complaint.
Setty appealed to the Karnataka State Commission which observed that the deposits could not have been pledged with the bank as these were in the Fraser Town branch, while the loan to Gautam Enterprises had been issued by the Jayanagar branch. It held that it was not permissible for one branch to exercise lien over the property with another. Accordingly, the state commission set aside the forum's order and directed the bank to pay the maturity value of the deposits.
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Now, the bank challenged this order before the national commission, which analysed the provisions of section 171 of the Contract Act. A bank can exercise lien as a security for a general balance of account on any goods bailed to it. According to the Sale of Goods Act, goods means every kind of moveable property other than actionable claims and money. The Contract Act defines bailment as delivery of goods by one person to another for some purpose, after which they have to be returned or disposed of according to the directions of the person delivering them.
In the case of bailment, a banker has the right of lien. But this right would not entitle the bank to straightway appropriate the amount due and payable under the deposits to the guarantors, without first calling upon the principal debtor to repay the loan. If default persists, then the bank would have to call upon the guarantor to pay the amount on behalf of the defaulter.
In this case, there was no bailment of the deposits for the loan given. In fact, the deposits were made a year after the loan was advanced. Since there was no bailment of the deposits, the bank did not have lien over these. Accordingly, the national commission dismissed the bank's petition with a cost of Rs 5,000 and confirmed the order directing the bank to pay the maturity value of the deposits to Setty.
The author is a consumer activist
