Pledge
Also called: Pawn
The bailment of goods as security for payment of a debt or performance of a promise (Section 172 of the Contract Act). The bailor is called the pawnor and the bailee the pawnee.
Explained
Section 172 of the Indian Contract Act, 1872 defines pledge as the bailment of goods as security for payment of a debt or performance of a promise. The bailor is the pawnor and the bailee is the pawnee. Since a pledge is a bailment, delivery of the goods to the pawnee is essential, though delivery may be actual or constructive. Only goods, that is movable property, can be pledged.
Pledge differs from hypothecation, where the borrower keeps possession and the lender has only a charge, and from a mortgage under Section 58 of the Transfer of Property Act, 1882, which is a transfer of an interest in specific immovable property. Pledge also differs from an ordinary bailment because its purpose is security.
The pawnee's rights are set out in Sections 173 to 176. He may retain the goods for the debt or promise, its interest, and necessary expenses of possession and preservation (Section 173), but not for any other debt unless so agreed, though such an agreement is presumed for subsequent advances (Section 174). He may recover extraordinary expenses (Section 175). On the pawnor's default, Section 176 lets him sue on the debt and keep the goods as collateral security, or sell them after giving the pawnor reasonable notice; the pawnor remains liable for any shortfall. Under Section 177 a defaulting pawnor may still redeem the goods at any time before the actual sale, paying the expenses caused by his default.
Sections 178 to 179 deal with pledges by persons who are not full owners. A mercantile agent in possession with the owner's consent can make a valid pledge in the ordinary course of business if the pawnee acts in good faith without notice of want of authority (Section 178). A person in possession under a contract voidable under Section 19 or 19A, not yet rescinded, can pass a good title to a pawnee in good faith (Section 178A). A person with a limited interest can pledge to the extent of that interest (Section 179). Examiners test the notice requirement for sale, the right to redeem before actual sale, and these exceptions.
What the law says
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”.
Defines pledge, pawnor and pawnee
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.
If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.
Pawnee's rights on default, including sale after notice
If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them; but he must, in that case, pay, in addition, any expenses which have arisen from his default.
Defaulting pawnor's right to redeem before actual sale
[Where a mercantile agent is, with the consent of the owner, in possession of goods or the document of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge.
Explanation.—In this section, the expressions “mercantile agent” and “documents of title” shall have the meanings assigned to them in the Indian Sale of Goods Act, 1930 (3 of 1930).
Pledge by a mercantile agent
When the pawnor has obtained possession of the goods pledged by him under a contract voidable under section 19 or section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the pawnor’s defect of title.]
Pledge by a person in possession under a voidable contract
Where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest.
Pledge where pawnor has only a limited interest
Example
For example, A borrows money from B and hands over his gold bangles as security. This is a pledge. If A fails to repay on the due date, B may sell the bangles after giving A reasonable notice, and A can still redeem them by paying before the sale actually takes place.
For the exam
- Section 172: bailment of goods as security; pawnor is bailor, pawnee is bailee.
- Delivery of possession, actual or constructive, is essential; only goods can be pledged.
- Section 176: on default the pawnee may sue and retain, or sell after reasonable notice.
- Section 177: the pawnor may redeem at any time before actual sale.
- Valid pledges by non-owners: mercantile agent (178), voidable contract holder (178A), limited interest (179).
69 questions in the Law Maker question bank use this term. Practise Contract Law questions
Related terms
- BailmentThe delivery of goods by one person to another for some purpose, on a contract that they will be returned or disposed of as the deliverer directs once the purpose is accomplished (Section 148 of the Contract Act).
- GoodsUnder Section 2(7) of the Sale of Goods Act, 1930, every kind of movable property other than actionable claims and money, including stocks and shares, growing crops and things to be severed from land.
- Mercantile agentUnder Section 2(9) of the Sale of Goods Act, an agent having, in the customary course of business, authority to sell goods, consign them for sale, buy goods, or raise money on their security.
- MortgageThe transfer of an interest in specific immovable property to secure the payment of money advanced or to be advanced as a loan, an existing or future debt, or an engagement giving rise to a pecuniary liability.
- Nemo dat quod non habetA person cannot transfer a better title than he himself has. In Indian law it is embodied in Section 27 of the Sale of Goods Act, 1930, subject to listed exceptions protecting good faith buyers.
Further reading
Checked 6 November 2026. Statutory text is quoted from the Bare Acts library, taken from India Code. See the full glossary.