Right of Lien: Legislative Enactments and Judicial Interpretation
An unpaid seller has certain rights to ensure that they're paid for the
service/labour rendered by them to the consumer. One such right, is the right of
lien which allows the unpaid seller to retain the buyer's property till he is
paid in full. This right is only meant to be used in instances of non-payment,
and not for any other debts owed by the buyer to the seller.
The right can only be exercised if two conditions are met:
During the period of the growth of trade and commerce, lien was dubbed Self-Help by the common law as it did not require interference from the court's side. However, with the progress in trade and commerce with time, the Court was forced to recognize that remedies as primitive as this one could not be allowed to be used so freely with no limits whatsoever as it could lead to anyone hanging on to whatever they had.
Thus, Lien has a huge potential of causing problems in the process of trade and commerce. As Lien's basic essence lies in a remedy- it was recognized as a right. Such a contract of Lien was based on the fact that each party had rights under the common law and this contract wasn't merely between the parties.
The essence of the Right of Lien was clarified by the Honorable Supreme Court, which talked about how Lien in its most basic sense is simply the right of a seller who is unpaid to retain possession of goods until the payment to the seller is complete. Thus, Right of Lien is more of a right granted by law, than a right granted by a contract.
Research Questions
Legislative Enactment
When the seller transfers the title of the goods to the buyer and the buyer fails to fulfil the payment requirements on time, the Sale of Goods Act of 1930 gives the seller certain rights. The right of lien is one such right.
Lien refers to the seller's right to hold a buyer's property until the buyer pays the seller's debt for the goods sold to him. Sections 46, 47, and 49 of this particular Act clarify the rights of the unpaid seller.
In instances where the buyer fails to complete to complete the payment, the aforementioned sections provide the seller with a right to keep the buyer's products or to refuse delivery of the same. In the event of a transfer of ownership, the seller must sell the property.
Section 170 of the Indian Contract Act 1872 talks about Particular Lien. It says that if a person is having a good shipped to them, the person has the right to keep the goods until they are paid for the services provided. If the individual seeking the right is not in possession of the products, the right cannot be exercised. This right to keep possession applies only to the goods on which the debts have accrued, and not to any other goods.
For example, if A gives his car to B for the purpose of reparation of some faults then in such a case, B will have the right of particular lien to retain possession of the car till A pays him for the services rendered by him.
Section 171 of the Indian Contract Act talks about General Lien. It talks about the right of bankers, factors, wharfinger, and attorneys to retain possession of any goods that are bailed to them to ensure that they're paid for their labor/skill, unless there in an express contract contradictory to the existence of this right.
In the case of Brandao vs. Barnett in England[1], the general lien was recognized for the first time. It was held that in the general area of a banker's lien, bankers have a general lien on all types of securities deposited to the bank by customers, unless specified otherwise in a contract or situations that indicate an implied contract that is not consistent with the lien.
Lord Campbell provided this portion of the ratio by citing Lord Kenyon's remarks in the case of David vs. Bowsher[2].
Unless there is evidence to prove that some specific protection was received in exceptional conditions that would take it out of the common law, he said, bankers have a general lien on all securities in their possession for their general balance.
Service providers are usually the ones who are granted the right of general lien. Such service providers have the right to keep the products that have been bailed to them in situations wherein the buyer owes them some amount of money. This Section is highly concerned with restricting the use of general liens by disallowing the use of this right unless it has been expressly provided for in their contract. Lien is regarded as a primitive remedy, and the common law does not encourage it, merely highlights it. Since anyone can hold onto products of one kind or another, a general lien could stymie trade and commerce.
Judicial Interpretation
The Allahabad High Court interpreted Section 170 of the Act's term labour or skill. The Court held that the use of one's labor/skill must have been in accordance with the specific intent of bailment, it must have been used in an attempt to improve the goods and in specific goods, lien would only be applicable over the goods which the bailee used his labor/skill[7].
Moreover, it is important to note that these sections only apply in cases wherein there is no express contract prohibiting the use of the right of lien.
For instance, if goods are being stored in a warehouse and payment remains incomplete, such goods will not fall under the ambit of Section 170 of the Act as there will no enhancement of the goods and no discharge of labor/skill[8].
While examining Section 170 of the Act, a recent Bombay High Court decision is noteworthy[9]. The Court reinforced that a bailee claiming lien does indeed have the right to keep the goods in question in his possession till the time the payment is made in full, and after such payment the right of lien ceases to exist.
In a King's Bench decision[10], it was declared that an individual cannot bail goods to a third party if he himself does not have control over such goods. In this particular case, a hire-purchase agreement was entered into by the defendant with P, which allowed him to borrow the car and keep up with its maintenance. However, the defendants stipulated that the agreement could be terminated at any given time with adequate notice.
Scindia Steam Navigation Co. Ltd. v. Trustee of the Port of Karachi is an important case in emphasizing that the bailee shall lose his right to lien if he sells the goods as he has no right to do so, unless there is an express contract for the same.
As held in the case of Transport & General Credit Corp. v. Morgan[11], the right of lien exists only for the price of goods as stated in Section 46(1)(a)[12], and the right is solely based on statutory requirements rather than any equitable considerations. As a result, the seller is not entitled to a lien on any such payments, such as storage fees or the like.
In the case of Somes v. British Empire Shipping Co.[13], it was decided that once the payment has been completed, the seller has no right to demands the return of goods for the storage costs he paid for such goods when they were in his possession.
On the basis of the trade and commerce use of practice, specific carrier products tried to claim the right to general lien in the case of Rushforth v. Hadfield. In the instance of insolvency, it was noted that general lien has the potential of causing a significant disadvantage. Such general liens can cause a great deal of inconvenience to the entirety of traders as they provide advantages to those individuals who claim to have the privilege against the body of the creditors rather than coming with them for the sake of the state's insolvency.
In the case of Davendra Kumar v. Chaudhary Gulab Singh[14], the Nagpur High Court held that in instance where goods or securities are deposited in bank for purposed like safe custody, then the banker shall have no general lien on these goods as the acceptance of goods for specific purposes means that general lien is exempt.
In a Supreme Court judgement delivered by K.T. Thomas[15], the court stated that:
The term goods as specified in Section 171 of the Act must be interpreted in accordance with the Sales of Goods Act, and that the Bar Council of India Rules does not provide for any lien on the litigation files for the litigants. The laws, on the other hand, forbids an attorney from adjusting the fees owed to him or her against the client's liability.
Conclusion
To conclude, the researcher has examined the two broad types of Lien and the legislative enactments concerning the same. Moreover, the researcher has also examined some case laws that highlight the application of the Right of Lien by way of judicial interpretation.
The Right of Lien can open up a box of dangers and yet, it continues to be if great assistance and help. If a lien has been drafted well, it can help those who claim it by providing them protection to an extent. In the terminals of Lien worldwide, the group and subsidiary of a particular corporation, and in terms of debt and liabilities, the range is much wider than conventional terminal facilities.
End-Notes:
The right can only be exercised if two conditions are met:
- The goods must actually be in the possession of the unpaid seller.
- The seller, who remains unpaid, will only keep the goods if the price of the goods is paid.
During the period of the growth of trade and commerce, lien was dubbed Self-Help by the common law as it did not require interference from the court's side. However, with the progress in trade and commerce with time, the Court was forced to recognize that remedies as primitive as this one could not be allowed to be used so freely with no limits whatsoever as it could lead to anyone hanging on to whatever they had.
Thus, Lien has a huge potential of causing problems in the process of trade and commerce. As Lien's basic essence lies in a remedy- it was recognized as a right. Such a contract of Lien was based on the fact that each party had rights under the common law and this contract wasn't merely between the parties.
The essence of the Right of Lien was clarified by the Honorable Supreme Court, which talked about how Lien in its most basic sense is simply the right of a seller who is unpaid to retain possession of goods until the payment to the seller is complete. Thus, Right of Lien is more of a right granted by law, than a right granted by a contract.
Lien is of two types:
- Particular Lien:
In the case of a particular lien, the person reserves the right to keep possession of the goods until the charges owed on the property are paid. - General Lien:
A general lien is a right to keep ownership of property in exchange for payment of a debt, even though the debt is unrelated to the property in possession.
Research Questions
- What are the legislative enactments pertaining to the right of lien and its different types?
- What are the applications of this right in different case laws owing to the differences in judicial interpretation?
Legislative Enactment
When the seller transfers the title of the goods to the buyer and the buyer fails to fulfil the payment requirements on time, the Sale of Goods Act of 1930 gives the seller certain rights. The right of lien is one such right.
Lien refers to the seller's right to hold a buyer's property until the buyer pays the seller's debt for the goods sold to him. Sections 46, 47, and 49 of this particular Act clarify the rights of the unpaid seller.
In instances where the buyer fails to complete to complete the payment, the aforementioned sections provide the seller with a right to keep the buyer's products or to refuse delivery of the same. In the event of a transfer of ownership, the seller must sell the property.
Section 170 of the Indian Contract Act 1872 talks about Particular Lien. It says that if a person is having a good shipped to them, the person has the right to keep the goods until they are paid for the services provided. If the individual seeking the right is not in possession of the products, the right cannot be exercised. This right to keep possession applies only to the goods on which the debts have accrued, and not to any other goods.
For example, if A gives his car to B for the purpose of reparation of some faults then in such a case, B will have the right of particular lien to retain possession of the car till A pays him for the services rendered by him.
The essentials for Particular Lien are:
- Exercise of Labor and Skill
- In Accordance with Terms of Contract
- Goods upon which such skills are bestowed
- Possessory Right
Section 171 of the Indian Contract Act talks about General Lien. It talks about the right of bankers, factors, wharfinger, and attorneys to retain possession of any goods that are bailed to them to ensure that they're paid for their labor/skill, unless there in an express contract contradictory to the existence of this right.
In the case of Brandao vs. Barnett in England[1], the general lien was recognized for the first time. It was held that in the general area of a banker's lien, bankers have a general lien on all types of securities deposited to the bank by customers, unless specified otherwise in a contract or situations that indicate an implied contract that is not consistent with the lien.
Lord Campbell provided this portion of the ratio by citing Lord Kenyon's remarks in the case of David vs. Bowsher[2].
Unless there is evidence to prove that some specific protection was received in exceptional conditions that would take it out of the common law, he said, bankers have a general lien on all securities in their possession for their general balance.
Service providers are usually the ones who are granted the right of general lien. Such service providers have the right to keep the products that have been bailed to them in situations wherein the buyer owes them some amount of money. This Section is highly concerned with restricting the use of general liens by disallowing the use of this right unless it has been expressly provided for in their contract. Lien is regarded as a primitive remedy, and the common law does not encourage it, merely highlights it. Since anyone can hold onto products of one kind or another, a general lien could stymie trade and commerce.
There are several types of lien under General Lien:
- Banker�s Lien:
A banker's lien is created when products are bailed to the bank. It is strictly limited to the banker's securities and properties[3], and it is only applicable in situations where the bailed products are owned by the consumer but kept by the bank as insurance. In case the items entrusted to the bank are not owned by the consumer, then in such cases the banker does not have right of general lien over these goods[4].
- Factor�s Lien:
A factor is anyone who is entrusted with the possession of goods for the purpose of selling them. Such an individual had the express authority to sell goods in their own name, without revealing the name of the principal. A factor's lien occurs when products enter his real or constructive custody. In the ordinary course of his business, he is given possession[5]. The court stated in the case of E.H. Parakh v. King Emperor[6] that:
lien arises when the goods are supplied to the factor in the course of business and in his capacity as a factor.
- Wharfinger�s Lien:
A wharfinger is someone who owns a wharf and often collects goods for hire on his wharf. Usually, such collection of goods is for forwarding or distribution to the consignee, and the wharfinger has the responsibilities of loading and unloading cargo, and storing and delivering it.
- Attorney�s Lien:
Attorneys or Solicitors of any High Court have the right of general lien over all papers and records held by his clients that are in his possession in his professional capacity. Therefore, before the attorney/solicitor is paid for his services, he has the right of lien. However, with the refusal of further discharge of services by the attorney/solicitor- he forfeits his right to lien.
Judicial Interpretation
The Allahabad High Court interpreted Section 170 of the Act's term labour or skill. The Court held that the use of one's labor/skill must have been in accordance with the specific intent of bailment, it must have been used in an attempt to improve the goods and in specific goods, lien would only be applicable over the goods which the bailee used his labor/skill[7].
Moreover, it is important to note that these sections only apply in cases wherein there is no express contract prohibiting the use of the right of lien.
For instance, if goods are being stored in a warehouse and payment remains incomplete, such goods will not fall under the ambit of Section 170 of the Act as there will no enhancement of the goods and no discharge of labor/skill[8].
While examining Section 170 of the Act, a recent Bombay High Court decision is noteworthy[9]. The Court reinforced that a bailee claiming lien does indeed have the right to keep the goods in question in his possession till the time the payment is made in full, and after such payment the right of lien ceases to exist.
In a King's Bench decision[10], it was declared that an individual cannot bail goods to a third party if he himself does not have control over such goods. In this particular case, a hire-purchase agreement was entered into by the defendant with P, which allowed him to borrow the car and keep up with its maintenance. However, the defendants stipulated that the agreement could be terminated at any given time with adequate notice.
Scindia Steam Navigation Co. Ltd. v. Trustee of the Port of Karachi is an important case in emphasizing that the bailee shall lose his right to lien if he sells the goods as he has no right to do so, unless there is an express contract for the same.
As held in the case of Transport & General Credit Corp. v. Morgan[11], the right of lien exists only for the price of goods as stated in Section 46(1)(a)[12], and the right is solely based on statutory requirements rather than any equitable considerations. As a result, the seller is not entitled to a lien on any such payments, such as storage fees or the like.
In the case of Somes v. British Empire Shipping Co.[13], it was decided that once the payment has been completed, the seller has no right to demands the return of goods for the storage costs he paid for such goods when they were in his possession.
On the basis of the trade and commerce use of practice, specific carrier products tried to claim the right to general lien in the case of Rushforth v. Hadfield. In the instance of insolvency, it was noted that general lien has the potential of causing a significant disadvantage. Such general liens can cause a great deal of inconvenience to the entirety of traders as they provide advantages to those individuals who claim to have the privilege against the body of the creditors rather than coming with them for the sake of the state's insolvency.
In the case of Davendra Kumar v. Chaudhary Gulab Singh[14], the Nagpur High Court held that in instance where goods or securities are deposited in bank for purposed like safe custody, then the banker shall have no general lien on these goods as the acceptance of goods for specific purposes means that general lien is exempt.
In a Supreme Court judgement delivered by K.T. Thomas[15], the court stated that:
The term goods as specified in Section 171 of the Act must be interpreted in accordance with the Sales of Goods Act, and that the Bar Council of India Rules does not provide for any lien on the litigation files for the litigants. The laws, on the other hand, forbids an attorney from adjusting the fees owed to him or her against the client's liability.
Conclusion
To conclude, the researcher has examined the two broad types of Lien and the legislative enactments concerning the same. Moreover, the researcher has also examined some case laws that highlight the application of the Right of Lien by way of judicial interpretation.
The Right of Lien can open up a box of dangers and yet, it continues to be if great assistance and help. If a lien has been drafted well, it can help those who claim it by providing them protection to an extent. In the terminals of Lien worldwide, the group and subsidiary of a particular corporation, and in terms of debt and liabilities, the range is much wider than conventional terminal facilities.
End-Notes:
- Brandao vs. Barnett in England (1843-60) All ER Rep 719
- David vs. Bowsher (1794) 5 Term Rep 488
- Punjab National Bank Ltd. v. Arura Mal Durga Das, (1960) 2 Pun 823.
- Chettinad Mercantile Bank Ltd. v. P.L.A. Pichammau Achi, IR 1945 Mad 447.
- Law of Contract and Specific Relief - Chapter X- Of Bailment, Manupatra
- E.H. Parakh v. King Emperor AIR 1926 Oudh 202.
- Kalloomal Tapeshwari Prasad & Co. v. Rashtriya Chemicals & Fertilizers ltd., AIR 1990 All 214
- Id.
- Khaalid Muhammad Sami vs. Marudhar Studios Pvt. Ltd. and Ors. (23.04.2019 - BOMHC) MANU/MH/0816/2019
- Bowmaker Ltd. v/s Wycombe Motors Ltd (1946) 2 All ER 113, 115
- Transport & General Credit Corp. v. Morgan 1939 1 Ch 531
- The Sale of Goods Act, 1930, 46
- Somes v. British Empire Shipping Co. 1860 8 HLC 338
- Davendra Kumar v. Chaudhary Gulab Singh ILR (1946) Nag 210
- R.D. Saxena v. Balaram Prasad Sharma, (2000) 7 SCC 264
Award Winning Article Is Written By: Ms.Deepanshita Singh
Authentication No: JU115212518997-1-0621
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