Court affirms bank's lien over customer's salary account for loan recovery, dismisses petitioner's appeal against lien enforcement.
The Kerala High Court, in a decisive ruling on February 9, 2026, upheld the right of Canara Bank to exercise a general lien over the salary account of a guarantor, AGI Kumar S, amidst an ongoing subsidy dispute under the Prime Minister's Employment Generation Scheme (PMEGP). This ruling came as a result of two writ appeals filed in relation to a loan account classified as a Non-Performing Asset (NPA) due to alleged negligence by the bank in processing a Margin Money Subsidy.
The case revolved around the financial assistance availed by AGI Kumar S's daughter, through Canara Bank, for her business under the PMEGP Scheme. The bank's delay in processing the Margin Money Subsidy resulted in higher EMIs, leading to the loan being classified as an NPA. Consequently, the bank invoked its rights under Section 171 of the Indian Contract Act to freeze the salary account of the guarantor, AGI Kumar S, to recover the outstanding debt.
The petitioners challenged this action, arguing that the lien does not extend to money in salary accounts and sought protection under Section 60(1)(i) of the Civil Procedure Code, which exempts certain property from attachment and sale in execution of a decree. However, the court found that the bank was within its rights to exercise a lien on the salary account as the relationship between the bank and the customer is governed by the general principles of banker's lien.
The judgment emphasized that the lien allows banks to retain deposited money as security for the general balance of accounts. The court also noted that the protection under Section 60(1)(i) of the CPC is applicable only in cases of attachment and sale in execution of a decree, and not in situations where the bank exercises its lien or set-off rights.
The Divisional Bench, comprising Judges Mr. Anil K. Narendran and Muralee Krishna S., dismissed the writ petition filed by the petitioners against the enforcement of the lien, thereby allowing Canara Bank to proceed with its recovery actions. The court reiterated that the lien is a substantial right of the bank recognized under the law merchant and is not limited to goods but extends to money deposited with the bank.
This ruling underscores the courts' stance on upholding contractual obligations and the rights of banks to secure their interests, even in the face of procedural lapses or subsidy disputes. The decision has significant implications for borrowers and guarantors, emphasizing the importance of understanding the terms and conditions of banking agreements, especially concerning lien and set-off rights.
Bottom Line:
Banker's lien extends to money deposited in the bank, not just goods bailed to them. Section 171 of the Indian Contract Act permits banks to retain security for general balance, including money. However, protection under section 60(1)(i) of the CPC, which applies only to attachment and sale in execution of a decree, does not apply to bank actions like freezing accounts for adjustment or set-off.
Statutory provision(s): Indian Contract Act, 1872 Section 171, Civil Procedure Code, 1908 Section 60(1)(i), Article 226 of the Constitution of India.
