PLEDGE
A pledge is a special type of bailment in which a person temporarily transfers the possession or ownership of his/her property in order to secure a loan from the other person. It is defined as in the Indian Contract Act, 1872, as “The bailment of goods as a security for the payment of a debt or performance of a promise is called pledge. The bailor in this case is called a Pawner and the bailee is called a Pawnee.” Essentially, when the purpose of the bailment is to secure a loan, it is called a pledge. This article is concerned specifically with Section 176 of the Indian Contract Act, which deals with the pawnee’s right to sue or right of sale in case of the pawner’s default.
The essential ingredients that are required to constitute a pledge are as follows: 1. Delivery of possession – As in bailment, the delivery of possession is essential in a pledge. Thus, in the case of Revenue Authority vs Sudarsanam Pictures, a film producer borrowed a sum of money from a financier and agreed to deliver the final prints of the film when they were ready. This was held not to be a pledge because there was no delivery of possession at the time of the agreement.

It is also possible to let the pawner keep the physical goods even though the legal possession is transferred to the pawner. Thus, in Bank of Chittor vs Narsimbulu, a cinema hall equipment was pledged to the bank but the bank allowed the hall owner to keep the equipment to show the movies. The hall owner then sold the equipment to another party. It was held that the sale was subject to the pledge. This is known as hypothecation.

2. In return of a loan or a promise - The delivery must be in return of a loan or of acceptance of a promise to perform something.

3. In pursuance of a contract - The delivery must be done under a contract though it is not necessary that the delivery and the payment of loan be at the same time. Delivery can be made even after the loan is received.
The case of Lallan Prasad v Rehmat Ali is a particularly interesting one. The facts of the case are as follows:
The appellant advanced Rs. 20,000 to the first respondent against a promissory note and a receipt. The first respondent executed an agreement whereby he agreed to pledge aeroscraps, as security for the debt, to deliver them to the appellant, and to keep them in the appellant’s custody. The appellant filed a suit on the promissory note claiming that the first respondent failed to deliver the goods, that the agreement therefore did not ripen into a pledge, and that consequently, he was entitled to recover the amount advanced by him. It was found on the evidence that the goods were delivered to the appellant, and that he was its pledgee thereof.
A number of crucial observations were made by Justice Shelat in the judgment of this case. Firstly, it was held that a pawnee cannot maintain a suit for recovery of debt as well as retain the pledged property. Secondly, delivery and advance need not be simultaneous and a pledge may be perfected by delivery after the advance is made. Lastly, he observed that the pawner has an absolute right to redeem his property upon satisfaction of the debt or the promise. This right is not extinguished by the either the expiration of the stipulated time for the repayment of the debt or performance of the promise but only by the actual sale of the goods. If the pawner wishes to redeem his goods following the expiration of the stipulated time, he must pay the expenses that have arisen due to his default.
This judgment firmly established several important points of dispute regarding the rights of the pawnee, as per Section 176 of the Indian Contract Act.
Another relevant case which deals with Section 176 is that of Haridas Mundra vs National And Grindlays Bank Ltd. This case deals with the question of whether the right to sue and the right of sale are concurrent rights or mutually exclusive rights. The facts of this case are as follows:
The plaintiff had a current overdraft account with the defendant. To secure the overdraft, the plaintiff pledged shares with the defendant. The plaintiff executed a letter of lien empowering the defendant to sell and dispose of the shares on default of payment of the moneys due on demand. On failure of the plaintiff to make the payment, the defendant instituted a suit against the plaintiff for the recovery of its dues and obtained leave under Order 2 Rule 2 of the Code of Civil Procedure, 1908 to take appropriate proceedings in respect of the shares. The plaintiff argued that the right of the pawnee to sue upon the debt or the promise is alternative to his right to sell the pawn and that he cannot sell the pawn after he elects to sue on the debt or the promise.
In his judgment, Justice Bachawat observed that the right to sue and the right of sale are not alternative, but concurrent rights. To come to this conclusion, he first laid out the arguments presented by both sides, with full reference to the relevant case laws. Then, he focusses on the use of the semicolon and the use of the word “or” in Section 176, which reads as follows:
“If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.”
He stated that neither the semicolon nor the word “or” should be given too much importance, since in this context they do not imply that the alternative rights are mutually exclusive. Thus, right of the pawnee to sue upon the debt or promise does not exclude or destroy his right to sell the pawn. Then, he emphasised that specifying the place, date and time are is not necessary for a notice of sale to be reasonable. Finally, he dismissed the plaintiff’s claim that the defendant was acting mala fide. He concluded that the appeal must fail.
Thus, these two cases firmly establish the position of Indian courts with regards to Section 176.