Acknowledgement

A project is a joint endeavour which is to be accomplished with utmost

compassion, diligence and with support of all. Gratitude is a noble response of
one‘s soul to kindness or help generously rendered by another and its
acknowledgement is the duty and joyance. I am overwhelmed in all humbleness
and gratefulness to acknowledge from the bottom of my heart to all those who
have helped me to put these ideas, well above the level of simplicity and into
something concrete effectively and moreover on time.
This project would not have been completed without combined effort of my
revered Faculty-in-charge Dr. Tanaya Tarai (OSD Academics and Publications)
whose support and guidance was the driving force to successfully complete this
project. I express my heartfelt gratitude to her. Thanks are also due to my parents,
family, siblings, my dear friends and all those who helped me in this project in
any way. Last but not the least; I would like to express my sincere gratitude to
our Law teacher for providing us with such a golden opportunity to showcase our
talents. It was truly an endeavour which enabled me to embark on a journey which
redefined my intelligentsia, induced my mind to discover the intricacies involved.
Moreover, thanks to all those who helped me in any way be it words, presence,
Encouragement or blessings...

-DASHAMPREET KAUR

-3rd Semester

-B.A. LL.B (Hons.)

 DECLARATION

I hereby declare that the work reported in the B.A.LL.B (Hons.) Project entitled ― “Rights and
duties of an indemnifier” submitted at Maharashtra National Law University, Aurangabad is
an authentic record of my work carried out under the supervision of Dr. Tanaya Tarai. I have
not submitted this work elsewhere for any other degree or diploma. I am fully responsible for
the contents of my Project Report.

DASHAMPREET KAUR
Maharashtra National Law University, Aurangabad
 AIMS AND OBJECTIVES

The aim and objectives of this research project are:

• The project tends to throw light on the topic PLEGE under Indian Contract
Act,1875.
• The researcher tends to throw light on various duties and rights of the Pawnor
and Pawnee along with various essentials of Pledge.

HYPOTHESIS

This project summarises the topic of ‘Rights and duties of the Pawnor and
Pawnee’ and also discusses the essential ingredients of Pledge . The project
will help us in enhancing our knowledge about the topic ‘PLEDGE’ and its
significance in Law of Contract.

RESEARCH METHODOLOGY

For this study, doctrinal research method was utilised. Various articles, e-articles,
reports and books from library were used extensively in framing all the data and
figures in appropriate form, essential for this study.
The method used in writing this research is primarily analytical.
INTRODUCTION

“Pledge” as stated in the Section-172 of Indian Contract Act ,1872 has been defined as “The
bailment of goods as security for payment of a debt or performance of a promise” .
Thus a pledge is only a special kind of bailment, and the chief basis oi distinction is the object
of the contract. Where the object of the delivery oi goods is to provide a security for a loan or
for the fulfilment of an obligation, that kind of bailment is called pledge. “Pawn or pledge is a
bailment of personal property as a security for some debt or engagement. A pawner is one who
being liable to an engagement gives to the person to whom he is liable a thing to be held as
security for payment of his debt or the fulfilment of his liability.” The bailor in this case is
called “Pawnor” and the bailee is called the “Pawnee”.

ESSENTIALS OF A PLEDGE:

Following are the essential characteristics or ingredients of a pledge:

1. Delivery of possession
“Delivery of the chattel pawned is a necessary element in the making of a pawn.”The
property pledged should be delivered to the pawnee. Thus, Where the producer of a film
borrowed a sum of money from a financier-distributor, and agreed to deliver the final prints
of the film when ready, the agreement was held not to amount to a pledge, there being
no actual transfer of possession.Delivery of possession may be actual or constructive.
Delivery of the key of the godown where the goods are stored, is an illustration of
constructive delivery. Where the goods are in the possession of a third person, who, on the
direction of the pledger, consents to hold them on pledgee’s behalf, that is enough delivery. It
is sometimes called delivery by attornment.Delivery of documents of title which would
enable the pledgee to obtain possession is equally effective to create a pledge. This was
clearly recognised by the Supreme Court in Morvi Mercantile Bank Ltd v Union of India.

Certain goods were consigned with the Railways to “self” from Bombay for transit to Okhla.
The consigner endorsed the railway receipts to the appellant bank against an advance of Rs
20,000. The goods having been lost in transit, the bank as an endorsee of the railway receipts
and pledgee of the goods sued the Railways for the loss of the goods which Were worth Rs
35,500. The trial court rejected the action. The Bombay High Court allowed recovery up to Rs
20,000 only. There were cross-appeals against this decision.Later , the Supreme Court held
that Delivery of Railway receipts was the same thing as delivery of goods ,the pledge was ,
therefore, valid and the pledgee to sue for the loss.

But , In a contract of pledge (pawn), the right of ownership remains with ‘the pawner and is
not changed. If the ownership is transferred, the contract will be a contract of sale and not of
pledge.

2. In pursuance of contract

“Pledge is a conveyance pursuant to a contract ,and it is essential to a valid pledge that delivery
of the chattel shall be made by the pledger to pledgee in pursuance of the contract of pledge.”
But it is no necessary that delivery of possession and the loan should be contemporaneous.
“Delivery and advance need not be simultaneous and a pledge may be perfected by delivery
after the advance is made.” Delivery may be made before or in contemplation of an advance
,which ripens into a pledge as soon as the advance is made .
In a contract of pledge, the goods are given as security for the payment of a debt or for the
performance of a contract. The main purpose of the pledge is to assure the payment of the debt
other performance of the contract.

3. Only a Movable Property to be bailed

In a contract of pledge, only the movable property (goods) is given as security and it is not for
immovable property, The moveable property includes goods, jewellery and documents of title
to goods like a bill of lading, railway receipts etc.

4. Redelivery of goods or Right of sale:

After the goods are pledged two cases arise which decide the fate of the goods pledges :
(i)If the debt is paid by the Pawnor:
When the Pawnor pays the debt to the Pawnee then the goods pledged should be redelivered to
the Pawnor .
(ii) If the Pawnor is not able to pay the debt:
If the Pawnor does not pay the debt then the Pawnee can either retain the goods or sell the
goods to recover his funds by giving reasonable notice of this fact to the Pawnor

DUTIES OF PAWNEE:

In a contract both the parties have certain rights and duties . The same way in contract of Pledge
the Pawner and Pawnee both have certain rights and duties which are as follows:

1) Perform the Contract:

It is the duty of the Pawnee to perform the contract according to its terms and conditions.
It is the duty of the Pawnee to not make any such use of the goods pledged within him
which has not been authorised and cannot change the form of the goods pledged with
him. Also , The pawnee cannot mix the goods of the pawner with his own goods or with
someone other goods do not belong to pawner. If he does so, the pawner can get the
compensation for separation of his goods from other goods.
If any of this is done or any act is done which is inconsistent with the terms of the contract
the Pawnor can claim for damages.

2) Duty of Care towards the goods Pledged:

The Pawnee is bound to take as much care of the goods pledged as a man of ordinary
prudence would, under similar circumstances take ,of his own goods of the same bulk,
quality and value of goods pledged.

3) Return of Profit:

If the pawnee has earned any profit from the use of the goods pledged with him, which he
can not use according to the terms of the contract, he must return such profits to the
pawner.

4) Return of Goods:
The pawnee must return the goods pledged with him to the pawner as soon as the debt is
paid in full or promise is performed by pawner.
RIGHTS OF PAWNOR :
The bailor or Pawnor in this case also has certain rights which are as follows:

1) RIGHT TO GET BACK THE GOODS

The pawner has a right to get back the goods from the pawnee as soon as the payment
of the debt is made or the promise is performed.

2) EXPENSES OF SEPARATION
If the pawnee has mixed the goods of the pawner with someone other goods not
belonging to pawner without the consent of the pawner, pawner has a right to recover
the expenses of separation and cost of damage if any from the pawnee.

3) COMPENSATION FOR CHANGE OF FORM

If the pawnee has changed the form of the goods given as security; the pawner has right
to claim damages.

4) RIGHT TO REDEEM GOODS (Section-177)

Pawnor has right to file a suit for recovery of goods; if the pawnee makes an sale
without giving a reasonable notice, such sale consider void.
If the pawnee has made sale of goods without giving reasonable notice to the pawner,
‘the pawner has a right to sue for the redemption of goods, treating the sale as void after
depositing the does with the court.
In the case of Lalla Prasad vs. Rahamat Ali it was held that “Satisfaction of the debt or
engagement extinguishes the pawn and the pawnee on such satisfaction is bound to
redeliver the property. The pawner has an absolute right to redeem the property pledged
upon tender of the amount advanced.” It has been pointed out by the Supreme Court in
Jaswantrai Manilal Akhaney vs. State of Bombay held that “the special interest of the
pledgee comes to an end as soon as the debt for which the goods were pledged is
discharged. It is open to the pledger to redeem the pledge by full payment of the amount
for which the pledge had been made at any time if there is no period fixed for
redemption, or at any
time after the fixed date and the right continues until the thing pledged is lawfully sold”.
The right to redeem clearly continues up to the time on the expiry of which the pawnee
has notified that the goods would be sold. But the right continues even longer, for
Section 177 clearly provides that the pawnor may redeem the goods at any subsequent
time before the actual sale of them. “So long as the sale does not take place the pawner
is entitled to redeem the goods on payment of the debt.” In other words, the right to
redeem is extinguished not by the expiry of time specified in the notice of sale, but by
the actual sale of the goods.
Where the pawner redeems after the expiry of the specified time, he is bound to pay to
the pawnee such expenses as have arisen on account of his default. [S. 177] Where the
pawner redeems before the expiry of the specified period, he would remain bound by
the terms of the loan, if any, that a premium would be leviable on premature repayment.
The pawner has the right to take back with the goods the increase, if any, that the goods
have undergone during the period of pledge. In a case of M.R. Dhawan vs. Madan
Mohan (Delhi High court), the pledge was that of certain shares of a company and
during the period of pledge the company issued bonus and rights shares.1t was held that
these increases belonged to the pawner.
Redemption means the enforcement of the right to have the title to corpus of the pledged
property restored to the pledgor free and clear of the pledge. A suit for redemption has
to be filed for exercising this specific remedy and not just for a declaration of the right
of redemption.
The suit was for redemption of pledged gold ornaments. The premises of the pawnee
were raided and the ornaments were seized by officers of the Income Tax Department.
The transaction of pledge between the parties was proved. Section 293 of the Income
Tax Act could not defeat the right of the pawnor to institute the suit for recovery of his
ornaments.

Illustration :
A borrows Rs.10000 from B and pledge his T.V set. When the loan is due to its
repayment, B without giving any notice to A, sell his T.V set. Such sale is void and A
can file a suit against B.
5) RIGHT TO GET PROFIT
If the pawnee has earned a profit by using pawner’s goods which has not allowed to
him with conditions of the contract, the pawner has a right to get back the goods along
with profit earned by pawnee by paying the pawner.

6) REDEMPTION OF DEBT
A pawner who makes default in payment of debt at the stipulated date has a right to
redeem the debt at any subsequent time before the actual sale of the goods pledges after
paying additional expenses which have arisen from his default.

DUTIES OF PAWNOR:

1) DUTY TO PAY DEBT

It is the duty of the pawner to pay the amount of debt or perform the contract within
stipulated time according to the terms of the contract.

2) DUTY TO COMPENSATE
It is the duty of the pawner to compensate the pawnee for an extraordinary expenses
incurred by him for the preservation of the goods pledged (Sec-175).
Section 175 states “ The Pawnee is entitled to receive from Pawnor extraordinary
expenses incurred by him for preservation of the gods pledged”
But, for such expenses the Pawnee cannot retain the goods ,he can only sue the
Pawnor to recover them.

3) DUTY TO PLEDGE GOODS

It is the duty of the pawner to pledge only those goods for which he has good title.
If the pawner’s title is defective and this fact is not in the knowledge of the pawnee
the pawnee has good title.