Section 60 CPC Protection Applies Only In Execution Proceedings; Bank Can Exercise Lien Over Salary Account: Kerala High Court
The High Court held that statutory protection against attachment of salary under Section 60 CPC is confined to execution of decrees and does not restrict a bank’s contractual or general lien over a guarantor’s account.
Justice Anil K. Narendran, Justice Muralee Krishna S., Kerala High Court
The Kerala High Court held that the protection available under Section 60(1)(i) of the Code of Civil Procedure applies only in cases of attachment and sale in execution of a decree and cannot be invoked to restrain a bank from exercising its lien over a guarantor’s salary account.
The Court was hearing connected writ appeals challenging a Single Judge decision arising from a dispute between a borrower, guarantors, and a nationalised bank concerning freezing of a salary account after a loan account was classified as a non-performing asset.
A Division Bench of Justice Anil K. Narendran and Justice Muralee Krishna S., while noting that, as per the Bank, in the present case, "the action initiated by the respondents by freezing the account of the petitioner is not an attachment but an exercise of the right of adjustment or the right akin to set off the said amount towards the loan account", underscored that “the provisions of Section 60(1)(i) of the CPC cannot be said as applicable to the present case.”
Furthermore, the Bench, while observing that even though "a reading of Section 171 of the Indian Contract Act coupled with Section 2(7) of the Sale of Goods Act, 1930, and Section 148 of the Indian Contract Act would give a general impression that the banker’s lien mentioned in Section 171 of the Indian Contract Act is applicable only in the case of goods bailed to them", relied on the Supreme Court’s ruling in Syndicate Bank v. Vijay Kumar (1992) to hold that “the general lien of the bankers was extended even to the money in the hands of the Bank, deposited by the customer”.
Background
The second petitioner had availed a loan of ₹50 lakhs under the Prime Minister’s Employment Generation Scheme for running a manufacturing unit, with the first petitioner standing as guarantor and offering property as collateral security.
According to the petitioners, the financing bank failed to process the margin money subsidy claim in time, resulting in higher EMI liability and eventual financial distress. The loan account was later classified as a non-performing asset, and proceedings under the SARFAESI Act were initiated.
Subsequently, the bank froze the guarantor’s salary account, invoking its right of general lien under Section 171 of the Indian Contract Act.
The writ petition challenged both the freezing of the account and the bank’s actions, seeking release of the salary account and relief against enforcement measures. The Single Judge allowed the petition in part, permitting operation of the salary account while limiting the bank’s lien to the extent permitted under Section 60(1)(i) CPC.
Both sides appealed, the guarantors challenging the finding that a lien existed at all, and the bank challenging the limitation imposed on its lien.
Court’s Observation
The Calcutta High Court examined Section 171 of the Indian Contract Act and the jurisprudence on banker’s lien, noting that judicial precedents recognise it as a valuable right allowing banks to retain securities and adjust amounts towards outstanding liabilities.
It relied on the Supreme Court authority holding that a banker has a general lien over securities or negotiable instruments deposited in the ordinary course of banking business and may use proceeds toward the customer’s debit balance.
The Court further noted precedents establishing that a lien may extend to money deposited with the bank and not merely physical goods.
In the present case, the guarantee agreement expressly obligated the guarantor to indemnify the bank and satisfy liabilities on demand, which, in the Court’s view, affirmed the bank’s right to adjust funds held in accounts.
“Viewed in the light of the general principles of banker’s lien as stated in Vijaykumar (1992) and other judgments referred to supra, it can only be said that the respondents are entitled to exercise their right of lien over the salary account of the petitioner as held by the learned Single Judge”, the Bench remarked.
Addressing the statutory protection argument, the Court analysed Section 60 CPC and held that its provisions apply only to property liable to attachment and sale in execution of a decree.
Relying on precedent, the Bench reiterated that the exemption clauses under Section 60 operate solely within execution proceedings and not outside that context.
It was observed that freezing an account pursuant to a contractual lien or right of adjustment is not equivalent to attachment in execution of a decree. Accordingly, the statutory salary protection could not be invoked to restrict the bank’s lien.
In such circumstances, the Court concluded that “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 petitioner as far as his salary account is concerned by limiting the lien of the respondent Bank”.
Conclusion
The Court held that the Single Judge erred in limiting the bank’s lien over the guarantor’s salary account by applying Section 60 CPC, since that provision is confined to execution proceedings.
It allowed the bank’s appeal, set aside the limitation imposed on the lien, dismissed the guarantors’ appeal, and dismissed the writ petition to that extent.
Cause Title: The Divisional Manager & Assistant Manager Canara Bank v. Agi Kumar S. (Neutral Citation: 2026:KER:11262)
Appearances
Appellants: P. Paulochan Antony, G. Viswanathan, Aswni M.P., Advocates
Respondents: O.M. Shalina, DSGI, Advocates M.P. Shameem Ahamed, Ahamed Iqbal, Muhammed Ashique, K. Reeha Khader
