CAIIB BRBL Module D Unit 5 : Contract Of Pledge

18/11/2023

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CAIIB Paper 4 BRBL Module D Unit 5 : Contract Of Pledge (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 4 (BANKING REGULATIONS AND BUSINESS LAWS) includes an important topic called “Contract Of Pledge”. Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.

In this article, we are going to cover all the necessary details of CAIIB Paper 4 (BRBL) Module D (COMMERCIAL & OTHER LAWS WITH REFERENCE TO BANKING OPERATIONS) Unit 5 : Contract Of Pledge, Aspirants must go through this article to better understand the topic, Contract Of Pledge and practice using our Online Mock Test Series to strengthen their knowledge of Contract Of Pledge. Unit 5 : Contract Of Pledge

Contract Of Pledge

As per Section 172 of the Indian Contract Act 1872 “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 ‘pawnor’. The bailee is called ‘pawnee’.

To constitute a valid pledge, there must be:

A contract in relation to an identified chattel to be delivered to the pledgee as security
Actual delivery of possession of the identified chattel in pursuance of the contract.

The essential ingredients of a valid pledge are:

The property pledged should be actually or constructively delivered to the pawnee; and
Pawnee has only a special property in the pledge while the general property remains with the pawnor and wholly reverts to him on discharge of debt.

The major distinction between a pledge and lien is :-

In lien there is no power of sale or disposition of the goods whereas in case of pledge there is power to sell on default.
In the case of a lien, there is no transfer of any interest; the person exercising the lien has only a right to retain the subject matter of lien until he is paid. A lien disappears the moment the possession is lost and there is no right of sale. While in case of pledge, sale can be made in the event of default. Apledge is assignable.

Nature Of Pledge

If the pawnor makes default in payment of the debt in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor and retain the goods pledged as a security (or) he may sell the goods pledged, after giving notice of the sale to the pawnor.
If the proceeds of such sale are less than the amount due, in respect of the debt, 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.
Pledge is a type of bailment. The bailee, while he is in possession of the goods, steps into the shoes of the owner for the purpose of legal remedy. Thus, if any person were to deprive the bailee of the goods – by way of theft, etc. – the bailee, himself, would have the right to file a suit against such other person. If, any damages are received from such a suit, it would be split between the bailor and the bailee, according to the proportion of their losses or damages.
The pawnee can retain the goods pledged, not only for payment of the debt/interest on the debt but also for all necessary expenses incurred by him in preservation of the goods pledged. (Section 173)
Where person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest. (Section 179)
If a third person wrongfully deprives the bailee of the use of possession of goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made; and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury.

Pledge Without Actual Possession

Sometimes despite a charge of pledge available to a creditor/bank, it allows the custody of the movable property pledged to remain with the debtor for a special purpose. But this does not vitiate the effectiveness of the pledge.

Example: a cinema projector and accessories were pledged with a bank. The bank allowed the property to remain with the pledgers, Since it was required by the pledger for running his business. However subsequently the pledger sold the equipment. It was held by the Andhra Pradesh High Court that the sale was subject to priority of charge with the pledgee.

Pledge By Pledgee

Where, under certain circumstances, the pledgee further pledges the movable property pledged, the pledge will be valid only to the extent of the interest of the pledgee, which is equivalent to the amount for which the property has been given to him as security.
It has been held in the case, that if the pledgee pledges the goods pledged to him for a larger amount, the original pledger will still be entitled to the goods on paying the amount for which he himself pledged the goods.

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CAIIB Paper 4 (BRBL) Module D Unit 5- Contract Of Pledge ( Ambitious_Baba )