The Sale of Goods Act, 1930 (hereinafter referred to as the "Act") defines an unpaid seller as a seller that has not been paid the full price of the goods that have been sold or that has received a bill of exchange or other negotiable instrument as conditional payment, and the condition on which it was received has not been fulfilled.1
Interestingly, the position of the seller's agent may sometimes be akin to that of the seller insofar as exercising the rights of an unpaid seller are concerned.
For instance, an agent of the seller to whom the bill of lading has been endorsed or who has paid the price of the goods or is directly responsible to the seller for the price of the goods is also deemed to be an unpaid seller.2
The rights provided to an unpaid seller, under the Act, are dependent on whether the property in the goods has passed to the buyer or not. An unpaid seller of the goods, the property in which has passed to the buyer, in entitled to exercise the following rights:3
- Right of lien on the goods for the price while he is in possession of them;
- Right to stop the goods in transit after he has parted with the possession of the goods (incase the buyer becomes insolvent); and
- Right to re-sell the goods (subject to the goods being of a perishable nature or the unpaid seller exercising its right of lien or stoppage in transit4).
An unpaid seller of the goods, who is in possession of them, is entitled to retain possession, i.e. exercise a right of lien over the goods, in the following cases:
- Where the goods have been sold without any stipulation of credit;
- Where the goods have been sold on credit but the term of credit has expired;
- Where the buyer becomes insolvent.5
Further, an unpaid seller is also entitled to exercise its right of lien if he is in the possession of the goods as an agent of the buyer or the bailee for the buyer.6
The Black's Law Dictionary defines lien as "a legal right or interest that a creditor has in another's property, lasting usually until a debt or duty that it secures is satisfied". Vendor's Lien has also been defined under the Black's Law Dictionary as a lien held by a seller of goods, who retains possession of the goods until the buyer has paid in full.
The term lien implies that the property in the goods has vested in the buyer, because no man can have a lien on his own goods. A lien necessarily presupposes that the property in the goods has passed, as the seller cannot be said to possess a right of lien on his own property, which is in the nature of a right of distress over the property of another.
It is settled law that the question of lien in respect of the goods, it is apparent that an unpaid seller has a lien on the goods for the price "while he is in possession of them". Therefore, if the unpaid seller does not have possession of the goods, he cannot have lien on such goods. This view has also been upheld by the Hon'ble High Court of Delhi in the judgment titled as "Pawan Hans Helicopters Ltd. vs. Aes Aerospace Ltd.".7
In addition to an unpaid seller losing the possession of the goods, the Act also provides for the following specific situations, in which an unpaid seller loses its right of lien, i.e. when:
- The unpaid seller delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods;
- The buyer or his agent lawfully obtains possession of the goods;
- The unpaid seller has waived its right of lien over the goods.8
However, in the presence of a contractual stipulation, an unpaid seller's lien, recognized in terms of Section 46 and 47 of the Act, may not stand terminated upon delivery of the goods to the carrier.
The Hon'ble Supreme Court of India has in the judgment titled as "Suchetan Exports Pvt. Ltd. vs. Gupta Coal Ltd. and Ors."9 held that wherein the contract for sale provided that the seller would retain its lien over the goods and title would pass to the buyer on payment of the full price of the goods, then the unpaid seller of the goods is entitled to exercise lien over the goods, notwithstanding that the possession of the goods may not be with the unpaid seller.10
Unpaid seller who pas possession of the goods in which the property has passed to the buyer, can exercise the right of lien only in the following cases:
- where the goods have been sold without any stipulation of credit;
- where the goods have been sold on credit but the term of credit has expired;
- where the buyer becomes insolvent.
Further, unpaid seller loses his right of lien as per Section 49 of the Act.
However, in case the parties enter into a contractual stipulation to retain the right of lien and transfer of title upon payment, then notwithstanding that the possession of the goods may have transferred to the buyer, the unpaid seller would have the right of exercising lien over the goods.
1 Section 45(1) of the Act
2 Section 45(2) of the Act
3 Section 46(1) of the Act
4 Section 54(2) of the Act
5 Section 47(1) of the Act
6 Section 47(2) of the Act
7 2008 (2) ARBLR 63 Delhi
8 Section 49 of the Act
9 Special Leave Petition (Civil) No. 20100 of 2011
10 Suchetan Exports P. Ltd vs. Gupta Coal India Limited & Ors.; Special Leave Petition (Civil) No.20100 of 2011
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