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Section 96: Sections 76 to 123 [Repealed by the Indian Sale of Goods Act, 1930]

Indian Contract Act • Official Statutory Text & Practice Guide

Statutory Regulation
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Competent Court / Tribunal
Act 1872
Section 95 All 266 Sections of Indian Contract Act Section 97

Legal Commentary & Landmark Judgments: Section 96

Historical Section 96 of the Indian Contract Act, 1872 governed sales of goods on credit, enacting that the seller possessed no possessory lien during the subsistence of the agreed credit term, but providing that if the buyer became insolvent before taking actual delivery, the seller's possessory lien instantly revived by operation of law. Codified into Section 47(1)(b) of the Sale of Goods Act, 1930, this rule harmonizes credit accommodations with commercial insolvency safeguards.

  • Temporary Suspension of Possessory Lien During Credit Term: In credit sales, the statutory lien was suspended for the duration of the agreed credit period, obligating the seller to deliver physical custody upon demand without insisting upon advance payment of the purchase price.
  • Instantaneous Revivor of Lien upon Buyer's Insolvency: If the buyer became commercially insolvent or suspended payment before delivery was completed, the seller's possessory lien instantly revived by operation of law, overriding the unexpired credit tenure and entitling the seller to withhold delivery.
  • Requirement of Undelivered Custody: The revivor of lien was contingent on the goods remaining in the custody or control of the seller; if physical delivery had already been completed, the seller was relegated to the status of an unsecured creditor claiming the contract debt.
Key Landmark Precedents:
  • Miles v. Gorton (1834) 2 C & M 504: Celebrated mercantile authority universally cited in Indian courts, holding that where goods are sold on credit and remain in the vendor's warehouse, the vendee's insolvency before actual delivery instantly revives the vendor's possessory lien notwithstanding the unexpired credit term.
  • Official Assignee of Madras v. Mercantile Bank of India Ltd. (1934) 61 IA 416 (PC): The Privy Council affirmed that commercial insolvency immediately alters possessory entitlements over goods and negotiable documents of title, restoring equitable protective liens to unpaid vendors against the official assignee or receiver.
Courtroom Practice & Strategic Litigation Guidance:

In commercial insolvency disputes, if a defaulting buyer or liquidator seeks mandatory interim delivery of goods purchased on credit, establish the buyer's acts of commercial insolvency (dishonored cheques, suspension of payments, or admissions of illiquidity). Pleading the statutory revival of the seller's lien defeats interim injunctions and preserves security over the physical assets.

Section 95 All 266 Sections of Indian Contract Act Section 97