General lein of the borrowers goods even though amount paid but he should as guarantor

Neither a borrower nor a guarantor beS. Murlidharan Share · print
· T+ The AP High Court has ruled that a bank is not obliged to
return pledged goods even on the borrower repaying a loan if the
former had other claims against the borrower.
The court was disposing of a writ petition filed by V. Srinadha Reddy,
who had pledged some gold ornaments to obtain a loan and,
additionally, had stood guarantee to another borrower availing himself
of a loan from the same bank.
The borrower for whom the petitioner had stood guarantee for repayment
failed to repay the loan.
The bank after invoking the guarantee refused to part with the jewels
pledged earlier on the ground they are required to be retained as a
‘lien', even though the petitioner himself had repaid his jewel loan.
The court was interpreting Section 171 of the Indian Contract Act that
gives banks among other institutions, a general lien over goods
belonging to their borrowers lying in their possession, till the
latter paid off other dues unless there is an express agreement to the
contrary between the two.
General lien
The relevant section under the heading ‘General lien of bankers,
factors, wharfingers, attorneys and policy brokers', reads as follows:
“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.”
The court held that the broad sweep of such general lien against a
borrower extends to goods lying in banks' possession against amounts
owed in respect of guarantees extended against third-party loans that
had fallen due.
Mired in controversy
Third-party loan is mired in controversy, with the Debt Recovery
Tribunal adjudicating on the dispute still seized of the matter.
The bank contended that till such time the dispute is finally
resolved, the gold ornaments will not be returned.
(The author is a Delhi-based chartered accountant.)
(This article was published in the Business Line print edition dated
December 20, 2011--


CA Ramachandran Mahadevan,M.Com.,F.C.A.,
I-708,Mantri Tranquil,Subramanyapura Post,
Bangalore-560061
Karnataka,India.
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