Contract of Pledge under Indian Contract Act
Contract of Pledge under Indian Contract Act, 1872
1. Definition of Contract of Pledge
A Contract of Pledge is a type of special bailment where goods or movable property are delivered by the pledger (owner/debtor) to the pledgee (creditor) as security for a debt or performance of a promise. The pledgee holds possession of the goods until the debt is repaid or the promise performed.
2. Legal Provision
The contract of pledge is defined and governed by Sections 172 to 181 of the Indian Contract Act, 1872.
Section 172 defines pledge (or pawn) as the bailment of goods as security for payment of a debt or performance of a promise.
3. Essential Elements of Contract of Pledge
| Element | Explanation |
|---|---|
| Delivery of goods | There must be actual or constructive delivery of goods by pledger to pledgee. |
| Goods or movable property | The subject matter must be movable goods. |
| Security for debt or promise | The goods must be delivered as security for payment or performance. |
| Contract of bailment | The relationship is a special bailment. |
| Possession | The pledgee must have possession of the goods. |
4. Types of Pledge
Pledge by the owner (e.g., goods owned by the pledger).
Pledge by a non-owner (e.g., a person in possession of goods pledges them).
5. Rights and Duties of Pledger and Pledgee
Rights and Duties of Pledgee (Section 176 to 178):
Right to retain goods until payment or performance (right of lien).
Right to sell pledged goods if debt is not repaid after notice (Section 176).
Duty to take reasonable care of the goods (Section 178).
Not allowed to use pledged goods unless agreed upon.
Rights and Duties of Pledger:
Right to redeem pledged goods on payment or performance.
Duty to repay the debt or perform the promise.
If goods are lost or damaged without pledgee's fault, pledger bears loss (Section 179).
If pledgee misuses goods, pledger can sue for damages.
6. Difference Between Pledge and Other Similar Contracts
| Aspect | Pledge | Bailment | Hypothecation |
|---|---|---|---|
| Possession of goods | Given to pledgee | Given to bailee | Possession remains with debtor |
| Purpose | Security for debt/performance | Delivery for safekeeping or use | Security without delivery |
| Right to sell | Pledgee can sell goods on default | Bailee cannot sell | Hypothecatee cannot sell |
7. Illustrative Case Law
Case 1: K.K Verma v. Delhi Cloth & General Mills Co. Ltd. AIR 1963 SC 169
Facts: The Supreme Court held that the delivery of goods to the pledgee creates a contract of pledge if the goods are delivered as security for a debt or performance of promise.
Principle: Delivery and intention to create security are essential to constitute a pledge.
Case 2: M.C. Chockalingam v. Indian Bank AIR 1962 Mad 107
Facts: Held that a pledge can be created by constructive delivery when actual delivery is not possible.
Principle: Constructive possession (like handing over documents or control) can suffice for pledge.
Case 3: Lakshman Das v. J.K. Ghosh (1928) ILR 50 Cal 282
Facts: Discussed pledge by a non-owner.
Principle: A person in lawful possession of goods (even if not the owner) can create a valid pledge.
8. Important Provisions to Remember
| Section | Content |
|---|---|
| 172 | Definition of pledge |
| 173 | Delivery of goods as pledge |
| 174 | Who may pledge goods |
| 175 | Pledge by non-owner |
| 176 | Rights of pledgee to retain and sell goods |
| 177 | Sale of pledged goods and notice |
| 178 | Duty of pledgee to take care of goods |
| 179 | Loss or deterioration of goods |
9. Practical Importance
Widely used in banking and finance as security for loans.
Protects creditor’s interests while ensuring debtor’s right to redeem.
Provides clear legal framework for possession and enforcement.
10. Summary
| Aspect | Details |
|---|---|
| Nature | Special bailment where goods are security |
| Parties | Pledger (owner or possessor) and pledgee (creditor) |
| Subject matter | Movable goods |
| Delivery | Actual or constructive delivery required |
| Rights of pledgee | Retain goods, sell after notice if debt unpaid |
| Duties of pledgee | Take care of goods, not misuse |
| Rights of pledger | Redeem goods on payment/performance |
Conclusion:
The contract of pledge under the Indian Contract Act, 1872 is a well-defined mechanism where movable goods are delivered as security for a debt or promise. It balances the rights and duties of both parties, ensuring protection for the creditor while safeguarding the debtor’s interests.
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