Introduction

A pledge, also referred to as pawn is a form of bailment in which goods are delivered as security for the repayment of a debt. Section 172 of the Indian Contract Act, 1872 (ICA) deals with pledge.

Section 172 of ICA

• As per this Section, the bailment of goods as security for payment of a debt or performance of a promise is called pledge.
• The bailor is in this case called the pawnor.
• The bailee is called the pawnee.
• Illustration:
  • A borrows Rs. 5000 from B and delivers 500 shares of a company as a security for the payment of the debt. The bailment of shares is pledge.

Essentials of Pledge

• Bailment:
  • There must be bailment of goods pledged. Therefore, delivery of the goods, whether actual, symbolic or constructive is necessary to constitute a pledge.
  • In the case of Morvi Mercantile Bank v. Union of India (1956), the Supreme Court held that the delivery of chattel pawned is a necessary element in the making of a pawn, but the delivery and the advance need not be simultaneous, and a pledge may be perfected by delivery subsequent to the advance made.
• Bailment of goods as security:
  • The bailment of goods must be by way of security.
• Purpose of Security:
  • Security must be for the payment of a debt or performance of a promise.
• Special Property:
  • A pawnee has only a special security in the pledge, the general property remains in the pawnor and wholly reverts to him on discharge of the debt.
  • It has been held by the Supreme Court that the pawnee also holds the conditional general property interest in the pledge, the condition being that he can pass in that general property only in the event of the pledge being brought to sale.
• Goods:
  • The subject matter of the pledge is goods which are capable of actual, symbolic or constructive delivery. Any kind of existing goods, documents or valuable things of personal nature can be pledged.

Case Law

• In the case of Lallan Prasad v. Rahmat Ali (1967), the Supreme Court held that pledge is a bailment of personal property as a security for some debt. A pawnor 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.