Bank Can Exercise Lien On Guarantor's Salary, Section 60 CPC Not Applicable: Kerala High Court

The Kerala High Court on 9 February held that a bank is entitled to exercise its right of lien over a guarantor's salary account. It clarified that protection under Section 60(1)(i) CPC does not restrict the bank's substantive right.

A Division Bench of Justice Anil K. Narendran and Justice Muralee Krishna S, while deciding cross appeals filed by Canara Bank and the guarantor, Agi Kumar, allowed the bank's appeal and set aside the single judge's direction limiting the lien.

The judges observed:

“A reading of Section 60 shows that the provisions therein are applicable only to property liable to attachment and sale in execution of a decree.”

Section 60(1)(i) protects a portion of a person's salary from attachment by exempting the first Rs. 1000 and two-thirds of the remaining amount, except in cases of maintenance.

The case arose when Kumar's daughter, proprietor of a manufacturing unit, availed a loan from Canara Bank under the Prime Minister's Employment Generation Programme. A term loan of Rs. 40.54 lakh and working capital limits of Rs. 6.9 lakh were sanctioned, with Kumar standing as guarantor and providing jointly owned property as collateral.

The loan was also eligible for a 35% subsidy through the Khadi and Village Industries Commission. Despite depositing the contribution and submitting required documents, the subsidy was not released, allegedly due to delays by the bank.

This allegedly resulted in higher EMIs and financial stress, which ultimately led to the account being declared NPA. The bank initiated recovery proceedings, which are pending before the DRT. During this period, Canara Bank froze Kumar's salary account, citing its right of general lien under Section 171 of the Indian Contract Act, prompting the filing of a writ petition.

A Single Judge had partly allowed the writ petition, directing the bank to permit the guarantor to use his salary account, limiting the bank's lien over the salary under Section 60(1)(i) CPC. He had clarified that the order would not apply to non-salary deposits. Aggrieved, both the guarantor and the bank filed cross appeals.

Before the Division Bench, the bank contended that a banker's lien is a substantive right and outside the scope of Section 60 CPC, which applies only to attachment in execution of a decree. The bench noted that the guarantor had undertaken an unconditional and irrevocable obligation to guarantee repayment of all amounts advanced under the guarantee agreement.

Relying on Supreme Court principles on banker's lien, the Bench held:

“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 Court further observed that Section 60 CPC applies only to property liable to attachment and sale in execution of a decree. Freezing of the salary account constituted an exercise of the bank's right of adjustment/set-off, not “attachment,” and therefore, protection under Section 60(1)(i) was not applicable.

“In such circumstances, it is only to be held that the learned Single Judge went wrong by granting the protection under Section 60(1)(i) of the CPC to the 1st petitioner as far as his salary account is concerned by limiting the lien of the 2nd respondent Bank. The impugned judgment of the learned Single Judge is liable to be set aside to that extent.”

Accordingly, the High Court allowed the bank's appeal.

For Appellants: Advocates P Paulochan Antony, G Viswanathan and Aswni M.P

For Respondents: M.P Shameem Ahamed, Ahamed Iqbal, Muhammed Ashique, K.Reeha Khader, Sreejith K and O.M Shalina DSGI