Have you ever faced confusion while reading a banking question that asks whether a bank can retain, sell, or exercise rights over a customer’s security? Many banking professionals and exam aspirants lose marks not because they do not know lien, but because they do not know where lien stops and where pledge or charge begins.
Lien is one of the most frequently tested yet misunderstood topics in banking law, credit management, and recovery-related chapters. On the surface, lien sounds simple—right to retain goods. But once you enter real banking scenarios, questions arise. Can the bank sell the goods? Does limitation apply? What happens if the asset is kept only for safe custody?
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This article explains lien step by step using practical banking examples and exam-oriented clarity. It is designed to help readers apply concepts confidently in JAIIB, CAIIB, CCP, and internal bank exams.
Who Will Benefit
- Banking exam aspirants preparing law and credit chapters
- Bankers handling advances, securities, and documentation
- Students seeking conceptual clarity instead of rote learning
Before proceeding further, watch the video explanation carefully and share your doubts or real-life banking experiences in the comments.
Before we dive in, watch this video for a complete breakdown:
What Is Lien? Core Meaning Under the Indian Contract Act
Lien refers to the legal right to retain goods or securities belonging to another person until a lawful debt is paid. The key concept is retention. Lien does not transfer ownership and does not automatically grant the right to sell.
Lien arises from a bailor–bailee relationship. When goods are delivered for a specific purpose, the receiver becomes the bailee and gains the right to retain goods until lawful charges are paid.
Key Characteristics of Lien
- Possession is essential
- Ownership remains with the original owner
- Right is defensive in nature
- No right to sell unless expressly permitted
Particular Lien – Narrow, Specific, and Transaction-Based
A particular lien exists when goods are retained only for dues arising from the same transaction. It is limited in scope and applies strictly to specific goods and specific debts.
Important Features
- Applicable to one specific transaction
- Cannot be used for unrelated debts
- No right to sell goods
- Ends once payment is made
General Lien – Wider Coverage but Restricted Power
A general lien allows retention of goods for any general balance due, not restricted to a single transaction. This right is available only to certain categories of professionals.
Persons Entitled to General Lien
- Bankers
- Factors
- Wharfingers
- Policy brokers
- High Court attorneys
A crucial exam point is that general lien does not include the right to sell goods. The creditor can only retain possession.
Banker’s Lien – Implied Pledge with Sale Rights
Banker’s lien is the strongest form of lien and is treated as an implied pledge. It gives banks superior rights compared to ordinary creditors.
Rights Under Banker’s Lien
- Right to retain securities and goods
- Right to sell securities for recovery
- Ownership remains with the customer
- Possession remains with the bank
Limitation Aspect
Normally, loan recovery has a limitation period of three years, extendable through acknowledgement of debt, revival letter, balance confirmation, or part payment. However, banker’s lien has no limitation period as long as securities remain with the bank.
Cases Where Banker’s Lien Does Not Apply
- Safe custody articles
- Securities deposited for a specific purpose
- Articles left by mistake
- Unmatured or not-yet-due debts
- Stolen goods or securities
The same capacity rule applies. The debtor and the owner of goods must be the same person.
Negative Lien – Restriction Without Security
Negative lien has no statutory definition and is purely a banking practice. It is only a written undertaking by the borrower.
What the Borrower Undertakes
- Not to sell the asset
- Not to create any charge
- To take lender’s consent before dealing with the asset
Limitations of Negative Lien
- Asset remains with borrower
- No possession with bank
- No right to sell
- No enforceable security interest
Practical Exam and Banking Insights
Clear understanding of lien helps in distinguishing between lien, pledge, hypothecation, and charge. It also improves accuracy in case-based MCQs and real banking decisions.
Always Ask These Questions
- Who has possession?
- Is sale permitted?
- Is the debt matured?
- Is it a legal right or a personal undertaking?
Conclusion
Lien may appear simple, but it plays a critical role in banking operations, credit security, and legal recovery. The real strength lies in understanding its scope and limitations.
Particular lien is limited and transaction-specific. General lien is wider but without sale rights. Banker’s lien is an implied pledge with sale power and no limitation period. Negative lien is only a restriction and not a security.
Apply these distinctions while solving MCQs and analyzing case studies to gain confidence and accuracy in exams and professional practice.
