Pledge – Definition and Nature
A Pledge is defined under Section 172 of the Indian Contract Act, 1872 as the bailment of goods as security for payment of a debt or performance of a promise. The person who delivers the goods is called the pawnor (or pledgor), and the person to whom the goods are delivered is called the pawnee (or pledgee). The ownership of the goods remains with the pawnor, but possession is transferred to the pawnee. The pawnee has the right to retain the goods until the debt is repaid. This arrangement ensures that creditors have security for repayment, making it a common practice in commercial and banking transactions.
Rights and Duties in Pledge
The pawnee has the right to retain the pledged goods until payment of the debt, interest, and any necessary expenses incurred in connection with possession. If the pawnor defaults, the pawnee can either sue the pawnor for the debt and retain the goods as collateral or sell the goods after giving reasonable notice. The pawnor, on the other hand, has the right to redeem the goods by repaying the debt at any time before the actual sale. These rights and obligations balance the interests of both parties, ensuring fairness in the transaction. The legal framework makes pledges reliable in trade and finance, especially when goods, stock, or valuable commodities are involved.
Real-Time Example
Suppose Ravi needs a loan of ₹1,00,000 from a bank. To secure the loan, he pledges his gold ornaments with the bank. Here, Ravi is the pawnor, and the bank is the pawnee. The bank keeps the gold as security but does not become its owner. Once Ravi repays the loan with interest, the bank must return the gold. However, if Ravi fails to repay, the bank can sell the ornaments after giving him proper notice. This everyday example shows how pledge protects the creditor while still safeguarding the debtor’s ownership rights.
Mnemonic to Remember (Parties in Pledge)
“PP – Pawnor & Pawnee”
- Pawnor = Person who Pledges the goods (borrower)
- Pawnee = Person who Protects the goods until repayment (lender)
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