Law · Banking Law
A customer, Rajesh, defaulted on a personal loan at a bank. Without prior notice, the bank exercised a right of lien on ancestral jewelry kept by Rajesh in a safe custody facility and also set off the credit balance in his unmatured recurring deposit against the loan arrears. Analyze the validity of the bank's actions under the Indian Contract Act and banking customs.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank is an agent for the jewelry and has an automatic right to seize any asset of the customer under the principle of universal security.
- 2The bank is a bailee for the jewelry and a debtor for the deposits; it cannot exercise a lien on safe custody articles as they are deposited for a specific purpose, and it cannot set off an unmatured recurring deposit.✓
- 3The bank is a trustee for the jewelry and cannot exercise a lien, but can set off the recurring deposit because the debt is certain.
- 4The bank is a bailee for the jewelry and can exercise a general lien under Section 171, and set off the recurring deposit regardless of maturity.
Correct answer
The bank is a bailee for the jewelry and a debtor for the deposits; it cannot exercise a lien on safe custody articles as they are deposited for a specific purpose, and it cannot set off an unmatured recurring deposit.
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