pledge
Section 172 of the Indian Contract Act, 1872 defines a pledge as the bailment of goods as security. The person who delivers the goods is the pawnor; the creditor who receives them is the pawnee. Delivery of possession, actual or constructive, is essential; without it there is at most a hypothecation.
The pawnee may retain the goods for the debt, interest and expenses (section 173). If the pawnor defaults, the pawnee may sue on the debt and keep the goods as collateral security, or sell them after giving reasonable notice (section 176). A pledge differs from a mortgage, which concerns immovable property, and from a lien, which is only a right to retain.
Example
Since the jeweller had delivered the gold bars to the bank as security, the transaction was a pledge, not a hypothecation.
In Indian law
- s.172, Indian Contract Act, 1872 (definition)
- ss.173 and 176, Indian Contract Act, 1872 (pawnee's right of retention and sale)
See also
bailment · lien · mortgage · guarantee
Read more in the study notes
- Banker and customer: who they are and the legal character of the relationship (Banking Law)
- Rights of a banker: lien, set-off, appropriation and charges (Banking Law)
- Kinds of accounts, opening an account, and special classes of customers (Banking Law)
- Lending by banks: principles, priority sector, securities, interest and penalty (Banking Law)
- Default and recovery: Debts Recovery Tribunals and the SARFAESI Act (Banking Law)
- Theft and snatching (Bharatiya Nyaya Sanhita)