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CS Professional · Banking and Insurance - Laws and Practice · Advances, Securities and Documentation

Meera Textiles holds a current account with a scheduled bank and has handed over share certificates to the bank's branch for safe custody. The account is overdrawn by Rs 4 lakh on a separate transaction, and there is no contract to the contrary. Which statement is correct under the Indian Contract Act, 1872?

The bank may retain the share certificates as security for the general balance of account. Section 171 of the Indian Contract Act gives bankers a general lien over goods bailed to them, unless a contract says otherwise, so the unrelated overdraft does not defeat the right.

  1. AThe bank may retain the certificates as security for the general balance of accountCorrect
  2. BThe bank may retain them only against a debt that arose from that same custody
  3. CThe bank has no right to retain them unless a registered pledge deed exists
  4. DThe bank may sell the certificates at once without notice

Explanation

Section 171 allows bankers, in the absence of a contract to the contrary, to retain any goods bailed to them as security for a general balance of account. This is the banker's general lien. The second option describes a particular lien, which is narrower than what the section gives bankers. Sale is a pledge right and is not given by lien.

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