Rights of Pawnee
Rights of Pawnee (Under the Law of Pledge)
1. Introduction: Who is a Pawnee?
A Pawnee is a person to whom goods, securities, or movable property is delivered as security for a debt or obligation.
The contract of pledge (or pawn) is defined under Section 172 of the Indian Contract Act, 1872.
The person who gives the goods is called the Pledger or Pawnor, and the person who receives them as security is the Pawnee or Pledgee.
2. Rights of Pawnee (Pledgee)
The law grants several rights to the Pawnee to protect his interest and secure repayment of the debt:
A. Right to Retain Possession (Section 176)
The Pawnee has the right to retain possession of the goods pledged until the debt or obligation for which the goods are pledged is satisfied.
This is a jus retentionis — the right to hold onto the goods until payment.
Even if the original debt is transferred to another person, the Pawnee retains the right to keep the goods until the debt is paid.
B. Right to Sell the Goods (Section 176)
If the debt is not repaid within the agreed time, or if no time is fixed, after giving reasonable notice to the Pawner, the Pawnee has the right to sell the goods pledged.
The sale must be in good faith and reasonable manner to recover the debt.
If the sale results in a surplus after satisfying the debt, the surplus must be returned to the Pawner.
If the sale proceeds are insufficient, the Pawnee may recover the remaining amount from the Pawner.
C. Right to Sue the Pawner
If the Pawnee is unable to recover his debt by sale or if there is a shortfall, he can sue the Pawner for the balance.
The right to sue exists independent of the right of possession or sale.
D. Right to Apply the Securities (if securities are pledged)
If securities are pledged, the Pawnee may realize the securities or receive dividends or interests due, and apply them towards the debt.
E. Right to Deliver Goods to the Surety
If the Pawner's debt is guaranteed by a surety, the Pawnee can deliver the pledged goods to the surety for the debt’s security.
F. Right to Compensation
If the Pawnee incurs reasonable expenses for the preservation or protection of the pledged goods, he may claim reimbursement from the Pawner.
3. Duties of Pawnee
Along with rights, the Pawnee also has duties:
To take reasonable care of the goods pledged.
Not to use the goods except as agreed.
To return the goods once the debt is paid.
To conduct sale in a fair manner if exercising the right to sell.
4. Important Case Laws on Rights of Pawnee
K.K Verma v. Radha Kishan (1955)
The court held that the Pawnee's right to retain possession is a jus retentionis and cannot be lost unless the debt is paid or the Pawnee waives the right.
The Pawnee can hold possession even if the debt has been assigned to another person.
Ranjit Singh v. Union of India (1962)
The Supreme Court recognized the Pawnee’s right to sell the goods after reasonable notice.
The sale must be done in a reasonable and bona fide manner, and the Pawnee must account for the surplus proceeds.
N. Radhakrishnan v. Union of India (1971)
The court emphasized the Pawnee’s duty to take reasonable care of the goods.
If the Pawnee is negligent and causes loss, he is liable for damages.
Union of India v. Vasavi Co-operative Housing Society Ltd. (2006)
Reiterated that if goods are pledged as security, the Pawnee has the right to apply proceeds from sale first to the debt and then account for the balance.
5. Summary Table: Rights of Pawnee
| Right | Explanation |
|---|---|
| Right to retain possession | Can hold goods until debt or obligation is satisfied |
| Right to sell the pledged goods | Can sell after reasonable notice if debt not paid |
| Right to sue for deficiency | Can sue Pawner if sale proceeds are insufficient |
| Right to apply securities | Can realize securities or apply dividends to debt |
| Right to deliver to surety | May deliver goods to surety if applicable |
| Right to claim expenses | Can recover reasonable expenses incurred |
6. Conclusion
The rights of the Pawnee are designed to protect the Pawnee’s interest in securing the debt or obligation for which the goods or securities are pledged. However, these rights come with corresponding duties to act in good faith, maintain the goods properly, and conduct any sale fairly and reasonably.
This balance ensures protection for both the Pawnee and the Pawner under the law of pledge in the Indian Contract Act.
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