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Bailment And Bank Locker Liability

According to Section 148 of the Indian Contract Act, 1872 bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the bailor and the person to whom they are delivered is called the bailee.[1]

Bailment is another type of special contract. And being a contract, all-natural requirements of the contract are applicable on bailment. Thus, it includes an act of delivering goods from one person to another for a specified purpose and for a specified period of time on trust. The goods are to be returned after the purpose is over.

Bailment is a term which is derived from the French word bailor which means to deliver. It is generally considered to be a contractual relationship between the two parties i.e. the bailor (the one who gives the good on bailment) and the bailee (the one who takes the goods on bailment), bind themselves in a contract either expressly or impliedly to act according to particular terms. The control or possession of the property is transferred to the bailee along with the goods, while the ownership and its interest are retained with the Bailor only.[2]

What needs to be kept in mind while talking about bailment is it can be only of goods and does not include services. And �goods� according to section 2(7) of the Sale of Goods Act[3] means every kind of movable property other than money and actionable claim and thus keeping money in a bank account is not bailment and services or personal favor such as asking a person to look after your house in your absence is not bailment, as a house is not a movable property.

The concept of bailment is also different from that of sale which includes the intentional transfer of ownership of goods or personal property in exchange for a monetary value. On the contrary, bailment does not transfer ownership of goods or property and only transfers possession or custody for a specific period of time. It is an activity or a process in which the property of one person temporarily goes into the possession of another. In our daily lives, we face several instances where the possession of the property is transferred to someone else for a specific purpose or a specific time such as giving a dress to the tailor for stitching, or parking our car in a parking lodge, giving our mobile phone for repair, etc.[4]

Essential Features Of Bailment

After discussing the meaning and the scope of bailment, there are some of its essential features that need to be elaborated, they are as follows:
  • Delivery of goods:
    Delivery of goods or property is often confused with custody, but they are not the same. Delivery involves the transfer of possession of goods or property to a third person for a specific reason and for a specific amount of time. For instance, the servant holding an umbrella of his master is not a bailee but a custodian until there is a purpose for holding the umbrella by the servant, thus there should be a purpose for the transfer of property, without which it will not qualify as a contract of bailment.[5]

    There is a case named Ultzen vs Nicols[6] 1894, in which the plaintiff went to a restaurant for dinner, and when he entered the room, the waiter took his coat and hung it on a hook behind him. After the dinner when the plaintiff was going to leave, the coat was gone. So in this case, it was held that the waiter voluntarily took the responsibility of keeping the coat while the customer was dining and was thus a bailee. Therefore, he was liable to return it.

    There are two types of delivery in the contract of bailment i.e. Actual and Constructive. In actual delivery, the physical possession of the goods is handed over to the bailee while in constructive delivery the possession of the goods remains with the bailor upon authorization of the bailee. In other words, the bailee authorizes the person to keep possession of the goods. In 1966 there was a case by the name Bank of Chittor v. Narsimbulu[7] AIR 1966, in which a person pledged cinema projector with the bank but the bank allowed him to keep the projector so as to keep the cinema hall running. In this case, the court held that this was constructive delivery because something was done that changed the legal possession of the projector. Even though the physical possession was with the person, the legal possession was with the bank.
  • Delivery upon contract:
    In order to have a valid bailment, the delivery of the goods and property must be done upon a contract mentioning that the goods will be returned when the purpose is accomplished. And if the goods are given without any contract, there is no bailment. The same was held in the case of Ram Gulam v. Govt. of UP[8], in which the jewelry of the plaintiffs was stolen and was later seized by police. Later on, the jewelry was stolen from the police custody after which the plaintiff sued the govt. for returning the jewelry. In this case, it was adjudged that the goods were not given to the police under any contract and thus there was no bailment.

    However, the decision of this case was later criticized by and lapsed in the case of State of Gujarat v. Menon Mohammad[9] AIR 1967 in which the SC held that bailment can happen even without an explicit contract. In this case, certain motor vehicles were seized by the State under Sea Customs Act, which was then damaged and the court held that the govt. was indeed the bailee and the State was responsible for proper care of the goods.
  • Conditional Delivery:
    It means that the delivery of the goods is not permanent and is based on a specific condition or a purpose after the accomplishment of which it has to be returned to be the actual owner. The possession is given to the bailee only on the condition that he will either return the goods or dispose of them according to the wishes of the bailer after the purpose for which the goods were given. For instance, when we give a electronic gadget for repair, the shopkeeper is supposed to return it after repairing it. In case a bailee is not bound to return the goods to the bailor, then the relationship between them is not of bailment.

    This is a key feature of bailment that distinguishes it from other types of relations such as agency. It was observed in the case of U Co. Bank v. Hem Chandra Sarkar[10] 1990, that the distinguishing feature between a bailment and an agency is that the bailee does not represent the bailor. He merely exercises some rights of the bailor over the bailed property. The bailee cannot bind the bailor by his acts. Thus, a banker who was holding the goods on behalf of its account holder for the purpose of delivering them to his customers against payment was only a bailee and not an agent.

Relation Between Bailment And Bank Locker

Keeping our family jewelry in bank lockers is an age-old practice in India. But a recent response by the RBI to a "Right to Information (RTI)" query has virtually set the cat among the pigeons. The RBI has categorically stated that the banks cannot be held liable for the loss of valuables in a bank locker if such a loss was caused by theft or burglary.

Stance of Law on the Subject of Bank Locker Liability
Surprisingly, the legal rules and procedures of the bank locker contract actually vouch for this reality. The safe deposit memorandum of hiring the locker clearly states that the bank will not be responsible for any loss or damage of the contents of the safe deposit vault in the case of war, civil disorder, theft, or burglary.

This means unless the loss of valuables happens due to internal fraud or misappropriation, the banks will not undertake any responsibility for valuables in your locker. In fact, the bank locker agreement clearly stipulates that the valuables will remain in the safe deposit vault purely at the personal risk of the hirer who has hired the locker for storing the valuables.

The contract also contains a very generic statement that the bank in question will take all measures and necessary precautions to ensure that the locker and its contents are protected.

However, it is very clear from the agreement that in any eventuality, the bank does not assume any liability for the value of the items stored in the vault.[11]

Importance of issue of bank locker liability
In recent times there have been a number of such cases where the liability of the banker in the event of loss to locker valuables comes into question. There have been few high-profile cases in the recent past. For instance, there was a group of burglars, who in a daring robbery attempt, dug a 125 feet long tunnel and decamped with valuables from more than 75 lockers at the PNB, Sonepat branch.

In another case over 40 lockers of Central Bank branch UP were completely emptied out. In IOB in Chennai account holders were so shocked by a daring daylight robbery that there was a literal clamor to withdraw their savings and empty their lockers in the branch. The common thing in all of these cases I that the bank has refused to accept any responsibility for valuables lost from the locker. In fact, nowadays banks are insisting that anyone opting for a bank safety vault facility should first get the valuables insured before placing them in the safe deposit locker. That becomes an additional cost to the individual on top of the locker rent, which has to be anyways paid to the bank.

The relationship between the bank and the person hiring the locker is not that of a landlord and tenant. On the contrary, it is a relationship between the bailor and bailee. That means the bank is not aware of the contents of the locker and that is something only the individual knows. A bailor-bailee relationship means that the bank does not take responsibility for the contents of the safe deposit locker and that continues to be the sole liability of the individual. The locker can only be opened by the person who has kept the valuables in the locker combined with the master key of the bank. In any unforeseen circumstance like theft, burglary, war, or civil strife, the bank is absolved of any responsibility pertaining to the contents of the locker. The bank only takes responsibility in the event of deficiency in service.[12]

In a nutshell whenever someone place their valuables in a bank locker, they need to take a few basic steps to protect their interest.

Judicial Analysis
Atul Mehra v. Bank of Maharastra[13]

Facts: In this case Atul Mehra (the appellant) in the present appeal had hired locker on 15th January 1986 at Bank of Maharashtra (the respondent). He had deposited jewelry in the locker the value of which he claimed as Rs 4,26,160.

The strong room in which the locker was located was broken in and the contents thereof were stolen by miscreants. On 9th January 1989 an FIR for the same was filed. It was stated in the FIR that all other 43 lockers in the strong room were also broken in and contents were thereof stolen. In February 1989, all the 44 locker holders made representation to the bank by a registered acknowledgment duly pointing out the gross negligence and misconduct of the respondent in maintaining the lockers. They have contended that the alleged strong room was made up the affair and it was made only of plywood, whereas it ought to have been made of iron and concrete.

Issues: The following issues were contended in the present case:
  • Whether the plaintiffs have suffered a loss due to misconduct and negligence by the defendant?
  • Whether the defendant-Bank has no contractual liability to make good loss incurred by the plaintiffs?
  • Would the relationship between the locker hirer and the bank fall within the definition of bailment as given in Section 148of the Indian Contract Act, 1872, merely on the locker being hired; or is it necessary also to prove by independent evidence entrustment, quantity, quality, and value of the property claimed?

The court, in this case, held that exclusive possession of the goods is sine qua non for bailment. Therefore, mere hiring of a locker would not be sufficient to constitute a contract of bailment as provided under Section 148 of the Indian Contract Act, 1872. And it was also added that the question of reasonable care and quantum of damages would arise only after it has been shown that actual exclusive possession of the property was given by the bailee to the bailor, i.e. the bank. Since the bank was not aware of the contents of the locker, hence it was impossible to know the quantity, quality, or value of the jewelry that was allegedly kept in the locker at the time when the robbery occurred.

The judge, in this case, has also referred to Mohinder Singh Nanda�s case which refers to the same incident of the robbery of 44 lockers. The judge had held that it is not per incuriam hence the same will be binding on this court. In this case, it was held that there was no exclusive possession to the bank hence no compensation was allowed to the plaintiff. The lower courts have also relied on this judgment and the present court has established that there is no error in doing so.

In another case, the judge referred to lay down the same principle that it has to be proved that the bailor was aware of the value of the property and was entrusted with its safekeeping in which the bank was entrusted with the jewelry and the valuation of the jewelry had been proved with sufficient evidence produced to the police at the time of the robbery. The bank was held liable for negligence because the robbery was committed by the manager within the bank itself.

But in the present case, the judge has asserted that the plaintiffs have miserably failed to prove the entrustment of the jewelry which was allegedly kept in the locker. There is no proof of any kind to show the value of the jewelry which was kept in the locker. No expert witness has been produced to show that the jewelry mentioned in the plaint would be worth the amount claimed. Therefore the judgment was given in the favour of the respondent i.e. the bank.

Termination Of Bailment

A bailment is ended when its purpose has been achieved when the parties agree that it is terminated, or when the bailed property is destroyed. A bailment created for an indefinite period is terminable at will by either party, as long as the other party receives due notice of the intended termination. Once a bailment ends, the bailee must return the property to the bailor or possibly be liable for conversion.[14]

A contract of bailment terminates under the following circumstances
  • If the bailment is for a specified period, the bailment terminates as soon as the stipulated period expires
  • If the bailment is for a specific purpose, the bailment terminates as soon as the purpose is fulfilled.
  • If the bailee does any act with regard to the goods bailed, which is inconsistent with the terms of bailment, the bailment maybe terminated by the bailor even though the term of bailment has not expired or the purpose of bailment has not been accomplished.
  • A gratuitous bailment can be terminated by the bailor at any time, even before the specified time or before the purpose is achieved, subject to the limitation that where such termination causes loss in excess of benefit actually derived by the bailee, the bailor must indemnify the bailee for the amount in which the loss occasioned exceeds the benefit derived.
  • A gratuitous bailment is terminated by the death either of the bailor or of the bailee.

As we analyzed the case of Atul Mehra v Bank of Maharastra, we observed that the whole decision relies on a previous judgment by the same court which relates to the same incident of robbery of Bank of Maharashtra�s 44 lockers. This judgment has laid down a crucial principle in the context of the delivery of possession of goods in a contract of bailment.

It has basically laid down that the bailee must be made aware of the contents of anything he receives for safe custody so as to gauge the amount of any possible liability that may arise in the future. In this case, the bank had no knowledge of the quality, quantity, or nature of goods kept inside the locker.

According to me, the court has been right in giving this decision in favor of the respondents because holding the bank responsible for the loss of any goods kept in the locker by their customers would give rise to uncountable amount of liability as it may be found difficult to prove that there was no exclusive possession of the contents of the locker. Such uncountable liability would also discourage banks to give such a facility which is currently utilized by countless people around the globe.

Subsequently, the judgment acts as a good precedent as it mitigates the responsibility of the banks to some extent which is absolutely required to allow them to provide service to the public. The liability of the contents of a bank locker is placed on the customer itself as long as he has a part in accessing the lockers while the liability would undoubtedly shift to the bank in case of breach of trust on any of the employee�s parts.

  1. Section 148 of the Indian Contract Act 1872
  2. Singh Avatar, Contract and Specific Relief (6th Edition, 2016).
  3. Section 2(7) of the Sale of Goods Act.
  4. Bailment and bank locker, (accessed on 27/09/20 at 10.55 pm).
  5. Supra note 2.
  6. Ultzen v. Nicolls [1894 1 QB 92].
  7. Bank of Chittor v. Narsimbulu, AIR 1966 AP 163
  8. Ram Gulam v. Govt. of UP, AIR 1950 All 206.
  9. Gujarat v. Menon Mohammad, AIR 1967.
  10. U Co. Bank v. Hem Chandra Sarkar, 1990 AIR 1329.
  11. Understanding the nuances of bank locker liability, (accessed at 27/09/20 at 11.08 pm).
  12. Ibid.
  13. Atul Mehra v Bank of Maharastra, AIR 2003 P H 11, II (2003) BC 570.
  14. Supra note 4.

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