Bank Cannot Invoke General Lien on Corporate Debtor’s Fixed Deposit for Group Company’s Dues
- REEDLAW
- 13 hours ago
- 4 min read
REEDLAW Legal News Network reports: In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, held that a bank cannot exercise its general lien over a Corporate Debtor’s Fixed Deposit (FD) to recover dues owed by a group or related company. The Appellate Tribunal clarified that the general lien under Section 171 of the Indian Contract Act, 1872, applies strictly to liabilities of the same customer, and its extension to third-party or group entity obligations is impermissible. The Tribunal, therefore, directed the release of the Corporate Debtor’s FD amount with applicable interest.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra and Mr. Arun Baroka (Technical Members), while adjudicating a Company Appeal, held that a banker’s general lien under Section 171 of the Indian Contract Act, 1872 can be exercised only against the liabilities of the same customer and not for dues of related or group entities. Hence, the bank’s lien over the Corporate Debtor’s Fixed Deposit was held invalid, and the funds were directed to be released with interest.
The Appellate Tribunal dealt with an appeal filed against an order of the Adjudicating Authority directing a bank to lift the lien marked on a Fixed Deposit (FD) amounting to ₹27.60 crores held by the Corporate Debtor. The FD had been created in 2017, accompanied by a letter from the Corporate Debtor requesting the bank to mark a lien against the deposit in connection with any credit facility that might be due from it. After the commencement of insolvency proceedings against the Corporate Debtor under Section 7 of the Insolvency and Bankruptcy Code, 2016, the Resolution Professional (RP) repeatedly requested the bank to release the funds, asserting that no credit facilities had ever been extended to the Corporate Debtor by the bank.
The bank declined to release the FD, contending that it was entitled to retain the deposit under a general lien pursuant to Section 171 of the Indian Contract Act, 1872, as the deposit allegedly secured foreign currency loans granted to another Reliance Group entity. The Resolution Professional moved the Adjudicating Authority under Section 60(5) of the Code, seeking a direction to lift the lien and release the funds to the Corporate Debtor’s account. The Adjudicating Authority allowed the application, holding that the bank could not withhold the Corporate Debtor’s funds to recover dues owed by another group company and that the lien claim was unsupported by any valid contract or legal basis.
Challenging this order, the bank argued that the lien letter covered not only the Corporate Debtor’s obligations but also those of its related entities and that the banker’s general lien under Section 171 authorised it to retain the FD until all liabilities of the group were cleared. The Resolution Professional, however, maintained that the lien letter explicitly referred only to the Corporate Debtor’s own liabilities and that the bank’s attempt to extend its scope to unrelated companies was contrary to settled law. It was further contended that the Corporate Debtor had no outstanding dues to the bank and that the principle of banker’s lien could not be invoked for third-party debts.
Upon examining the lien letter dated 27 March 2017, the Appellate Tribunal held that the reference to the word “us” in the document clearly applied only to the Corporate Debtor and not to any other group entities. It found that no credit facilities had ever been sanctioned to the Corporate Debtor and that the bank’s reliance on the general lien principle was misplaced. The Tribunal observed that Clause (10) of the lien letter, which provided for set-off or consolidation of accounts, could not be invoked in the absence of any outstanding liability owed by the Corporate Debtor itself.
The Appellate Tribunal relied on the Supreme Court’s decision in Syndicate Bank v. Vijay Kumar and similar rulings from the Karnataka, Kerala, and Orissa High Courts, reiterating that a banker’s general lien can be exercised only in respect of dues owed by the same customer and not for obligations of other entities within a corporate group. It concluded that the bank’s action in withholding the FD amount was wholly unjustified and unsupported by any contractual or statutory authority. Accordingly, the Tribunal upheld the Adjudicating Authority’s direction requiring the bank to lift the lien marked on the FD of ₹27.60 crores and to release the funds along with accrued interest, holding that the impugned order suffered from no illegality or infirmity.
Mr. Abhijeet Sinha, Sr. Advocate, with Ms. Jinal Shah, Ms. Palak Nenwani and Mr. Rohit Chopra, Advocates, represented the Appellant.
Mr. Krishnendu Datta, Sr. Advocate, with Ms. Anannya Ghosh and Ms. Mrinalini Mishra, Advocates, appeared for the Respondents.
This is premium content available to our subscribers.
To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.
Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.
Already a subscriber? Click the link below to access the full document and linked case laws.
REEDLAW Legal Intelligence & Research is India’s most trusted legal publishing and research platform, empowering professionals with structured judicial insights and authoritative legal intelligence since 1985.
The platform offers comprehensive resources spanning Corporate Insolvency, Bankruptcy, Company Law, SARFAESI, Debt Recovery, Contract, MSMEs, Arbitration, Banking, and Commercial Laws. Through curated journals like IBC Reporter and Bank CLR, and an advanced Online Legal Research Database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.
Comments