Kerala High Court Holds Bank Entitled to Exercise General Lien Over Salary Account; Section 60(1)(i) Not Applicable

A Division Bench of the Kerala High Court, comprising Justice Anil K. Narendran and Justice Muralee Krishna S., heard appeals against a Single Judge’s interim directions in a writ petition challenging Canara Bank’s freezing of a guarantor’s salary account and the classification of a loan account as NPA. The appeals raised the scope of a banker’s general lien under Section 171 of the Indian Contract Act and the applicability of Section 60(1)(i) of the Code of Civil Procedure.

The High Court allowed W.A. No. 3077 of 2025 in part and dismissed W.A. No. 3176 of 2025. It held that the bank was entitled to exercise its general lien over the first petitioner’s salary account, rejecting the Single Judge’s direction that had limited the lien to the protections provided under Section 60(1)(i) CPC. The Court concluded that Section 60 applied only to attachment and sale in execution of a decree and was therefore not available as a shield against a bank’s right of adjustment or set-off exercised outside execution proceedings. The Court, in its reasoning, observed: “Viewed in the light of the general principles of banker’s lien as stated in Vijaykumar [(1992) 2 SCC 330] and other judgments referred to supra, it can only be said that the respondents 1 to 3 are entitled to exercise their right of lien over the salary account of the 1st petitioner as held by the learned Single Judge.” The judgment also cited the established principle that “by mercantile system the Bank has a general lien over all forms of securities or negotiable instruments deposited by or on behalf of a customer in the ordinary course of banking business.”

Background

The dispute arose after the second petitioner, proprietor of a manufacturing unit, obtained a term loan under the Prime Minister’s Employment Generation Programme (PMEGP) with the first petitioner acting as guarantor and offering joint property as collateral. The petitioners contended that the financing bank failed to timely process a 35% Margin Money Subsidy claim with KVIC, causing higher EMIs, financial distress, and eventual classification of the account as NPA. The bank, relying on the guarantee agreement (Ext.R1) and internal practice, asserted a right of general lien and invoked set-off, thereafter freezing the first petitioner’s salary account maintained with another branch of Canara Bank. The second petitioner challenged SARFAESI proceedings separately before the Debts Recovery Tribunal (S.A. No. 484 of 2025) and filed a complaint with the Banking Ombudsman.

The Single Judge had allowed the writ petition in part and directed that the first petitioner be permitted to operate his salary account while limiting the bank’s lien to the extent and period permissible under Section 60(1)(i) CPC. The bank and guarantors separately appealed. The High Court reviewed statutory provisions (Section 171 Indian Contract Act; Section 2(7) Sale of Goods Act; Section 148 Indian Contract Act; Section 60 CPC) and considered precedents including Syndicate Bank v. Vijaykumar (1992), R.D. Saxena (2000), Lakshmi v. State Bank of Travancore (1987), and Thankappan V.K. (2011). The Court found that, in light of authoritative decisions, a banker’s lien could extend to monies and the contractual guarantee explicitly recognised rights of lien and adjustment. It held that the Single Judge erred in applying Section 60(1)(i) CPC to restrain the bank’s lien since that provision governed execution proceedings only. Accordingly, the Court set aside the Single Judge’s limitation insofar as it applied Section 60(1)(i), dismissed the writ petition, allowed W.A.3077/2025, and dismissed W.A.3176/2025. The DRT proceedings and the Banking Ombudsman complaint remained unaffected; no further interim relief was granted.

Case Details: Case No.: W.A.Nos.3077 & 3176 of 2025 Case Title: W.A.Nos.3077 & 3176 of 2025 — Against the judgment dated 14.11.2025 in W.P.(C) No.34654 of 2025 Appearances: For the Petitioner(s): Shri M.P. Shameem Ahamed; Shri Ahamed Iqbal; Shri Muhammed Ashique; Smt. K. Reeha Khader; Smt. O.M. Shalina DSGI For the Respondent(s): Shri P. Paulochan Antony; Shri G. Viswanathan; Shri Sreejith K.; Smt. Aswni/Aswini M.P.