Bank Can Freeze Guarantor’s Salary Account to Recover Loan Dues: Kerala High Court Clarifies CPC Exemption Does Not Apply to Banker’s Right

“Lien Over Salary Is Not Attachment…Freezing of a salary account by the bank is not an ‘attachment’ under law — it is a lawful act of adjustment or set-off, not subject to protection under Section 60(1)(i) CPC”, Kerala High Court

In a significant ruling on bankers' lien and the interpretation of Section 60(1)(i) of the Civil Procedure Code, the Kerala High Court has held that a bank’s action of freezing a guarantor’s salary account to recover dues from a defaulted loan is not equivalent to a legal attachment, and therefore, the exemption provided under CPC does not apply.

“CPC Exemption Does Not Apply When Bank Exercises Right of Lien or Set-Off”

Reversing the finding of the Single Judge, the Bench categorically held that the protection granted to salary from attachment under Section 60(1)(i) CPC is not applicable when the bank exercises its right of lien or set-off over funds in a guarantor’s account.

“The action initiated by the respondents by freezing the account of the 1st petitioner is not an attachment… it is in exercise of the right of adjustment or the right akin to set-off… Therefore, the provisions of Section 60(1)(i) of the CPC cannot be said as applicable to the present case.”

In doing so, the Court set aside the limited relief granted by the Single Judge, who had previously directed that the lien over the salary account could only be enforced to the extent permitted under Section 60(1)(i) of the CPC — namely, after exempting ₹1,000 and two-thirds of the remaining salary.

The Division Bench disagreed with that interpretation:

“The learned Single Judge went wrong by granting the protection under Section 60(1)(i) of the CPC to the 1st petitioner… Freezing of the account was an act of contractual enforcement, not judicial attachment.”

“Banker’s Lien Is Not Limited to Goods — Includes Money in Salary Account”

While CPC Section 60 speaks of exemption from attachment, the High Court drew a clear distinction between judicial execution of decrees and contractual banking remedies, emphasizing that Section 60 applies only in the context of execution of court decrees, not in contractual enforcement between banks and guarantors.

Referring to the Supreme Court’s authoritative ruling in Syndicate Bank v. Vijay Kumar (1992) 2 SCC 330, the Court reaffirmed:

“The general lien of bankers was extended even to money in the hands of the Bank, deposited by the customer… Such lien is judicially recognised and is part of the law merchant.”

The Court also relied on its own prior decisions in Thankappan V.K. v. Uthiliyoda Muthukoya [2011 (2) KHC 738] and the Punjab High Court's precedents, to reiterate that money deposited in a bank account is covered by banker’s lien, especially where a contract such as the guarantee agreement expressly permits such adjustment.

“Guarantor Cannot Rely on CPC Exemption After Contractually Undertaking Full Indemnity”

Importantly, the Court pointed to clause in the guarantee agreement (Exhibit R1) executed by the petitioner, which unconditionally allowed the bank to recover dues through any lawful means, including adjusting amounts in his own accounts:

“The guarantor shall unconditionally and irrevocably guarantee the repayment… as also all amounts… and the clause permits recovery by adjusting monies in the guarantor’s own accounts.”

This effectively waived any objection to the bank's right to recover from the guarantor’s salary account, irrespective of whether the money was “salary” or otherwise.

A Broader Message: Banking Remedies Stand Outside CPC Execution Limitations

This judgment has broader implications for how banks can enforce their contractual rights outside the judicial process. The Court recognized that CPC protections apply only in cases of execution, and cannot be invoked to limit a bank’s commercial remedies under contract law or the Indian Contract Act.

The ruling also clarified that Section 60(1)(i) CPC was enacted to protect salaried individuals from court-ordered attachments in civil litigation, but does not apply when the recovery is effected directly by the bank in its capacity as creditor and not through court process.

“Section 60 CPC is located within Part II relating to execution of decrees… Here, the bank’s action was not a decree execution, but a contractual act of recovery — hence, CPC has no application.”

Lien Over Salary Account Valid — No CPC Protection Available

Ultimately, the Kerala High Court held that Canara Bank was well within its rights to freeze the salary account of a guarantor, and that the exemption under Section 60(1)(i) CPC could not be invoked to challenge the same. The writ petition was dismissed and the appellate writ by the bank was allowed.

This ruling not only strengthens the enforceability of guarantee contracts in banking law, but also draws a sharp line between judicial attachments and commercial rights, preserving the integrity of banker’s lien even over salary deposits — a long-contested area in Indian financial litigation.

Date of Decision: 09 February 2026