Pledge cases 1

PLEDGE CASES
Lallan Prasad v. Rahmat Ali and Anr., 1996
Facts of the case
In this case, the plaintiff advanced INR 20,000 to the defendant against a promissory note and
a receipt. An agreement was signed by both the parties where the defendant agreed to pledge
his aeroscapes as collateral against his debt. As per their agreement, the defendant had to
deliver the aeroscapes to the appellant and the goods would remain in his custody.
The plaintiff filed a lawsuit claiming that the above-mentioned goods were never delivered to
be in his custody and therefore, this agreement cannot be considered as a contract of pledge.
He claimed that he was entitled to recover the amount loaned by him.
Issue involved in the case
1. Whether pledged goods were delivered in the plaintiff’s custody?
2. Was the plaintiff entitled to any compensation as he claimed that there was no
contract of pledge since the goods were not delivered?
Judgement of the Court
The judgement was in the favour of the defendant. It was held by the Supreme Court that the
pledged goods were delivered to the plaintiff. This meant that this agreement did ripen into a
contract of pledge. The Court also stated that the plaintiff was not entitled to any
compensation on his stance that the goods were never pledged to him.
The Morvi Mercantile Bank Ltd. And Anr. v. Union of India, 1965
Facts of the case
In this case, a firm operating in Mumbai entrusted their goods worth INR 35,500 to Railways
for its delivery to Delhi. The firm got their receipt for these goods from the Railways. In
order to get an advance of INR 20,000 from the plaintiff, the firm pledged these receipts as
collateral for the same.
The goods were lost by the railways and they offered to compensate with certain parcels to
the plaintiff. The plaintiff rejected this and claimed that those weren’t the goods that were
pledged to them. The plaintiff, hence, sued the railways to recover INR 35,500 against the
value of goods pledged to them including the damages.
Issues involved in the case
1. Whether railway receipts can be considered as valid goods under contract of

pledge?
2. Whether the plaintiff was the pawnee of the goods or the documents of the good’s
title?
3. Whether the plaintiff could sue for the entire value of the goods or only what was
advanced by him?
The Supreme Court of India ruled in favour of the plaintiff. It was held that railway receipts
can be valid as goods under a contract of pledge. It was also held that the plaintiff was the
pawnee of the goods and not merely its documents of title. It was stated that since the pawnee
in a contract of pledge has the authority as the owner of the goods, the plaintiff will be
allowed to sue for the entire value of the goods and not just the amount he has advanced.
K. M. Hidayathulla v. the Bank of India, 2001
Facts of the case
In this case, on 10th December, 1993, the petitioner pledged certain gold jewels with the
respondent. These jewels were pledged against a certain amount. The petitioner failed to
repay the amount within the agreed time. The bank held an auction for the jewels on 20th
May, 1997 to recover the debt. The petitioner claimed that as per Section 176, the bank had
the right to either file a suit against him for recovery or sell the jewels via an auction after
giving reasonable notice to the petitioner, however, it must have taken place within the
prescribed time for filing the suit.
Issues involved in the case
1. Whether any such condition was mentioned in Section 176 of the Act?
2. Whether the pawnee could auction the goods after the prescribed period?
The judgement passed by the Madras High Court was in the favour of the bank. It was held
that the bank had two remedies; either to file a suit for recovering the debt or selling the
goods after reasonable notices to the pawnor. It was found that there was no connection
between the two remedies. Merely because the period for filing a suit had passed, it did not
mean that the other alternatives could not be used. It was held that if the pawnee resorted to
any alternate course of sale, the prescribed period should be extended for the same.
PLEDGE BY HYPOTHECATION
The concept of pledge by hypothecation introduces a nuanced understanding of pledge
transactions, wherein goods may remain in the custody of the pledger for a specific purpose
without undermining the effectiveness of the pledge itself.
One notable case illustrating this principle is Reeves v Capper, which serves as an early
example. In this case, the captain of a ship pledged his chronometer with the shipowner, who
permitted its use for a voyage. Subsequently, the captain pledged the chronometer again with
another person. The pivotal question revolved around the validity of the initial pledge. The
court ruled in favor of its validity, affirming that the arrangement did not negate the
effectiveness of the pledge.
Similarly, the Andhra Pradesh High Court's decision in the case of Bank of Chittoor v
Narasimbulu further elucidates the concept of constructive pledge. In this instance, a cinema
projector and accessories were pledged with a bank, with the bank allowing the property to
remain with the pledgers, given its integral role in the operation of a running cinema.
Subsequently, the pledgers sold the machinery. The court deemed the sale subject to the
pledge, highlighting the concept of constructive delivery or delivery by attornment to the
bank.
Moreover, the Privy Council's ruling in a case involving the repledging of certain railway
receipts further underscores the resilience of the initial pledge. In this scenario, a firm of
merchants pledged railway receipts with a bank, only to take them back under the guise of
clearing the goods and repledging them with another bank. The Privy Council held that the
first pledge remained valid, emphasizing the continuity of the pledge despite subsequent
transactions.
Similarly, the validity of a pledge was upheld in a case involving motor vehicles pledged by a
motor dealer for demonstration purposes. Despite allowing the vehicles to remain in his
possession, the pledge was deemed valid. These instances underscore the flexibility within
pledge transactions, wherein goods may be allowed to remain with the pledger for specific
purposes without compromising the efficacy of the pledge itself.
The concept of pledge by hypothecation introduces a nuanced understanding of pledge

transactions, emphasizing the continuity and effectiveness of the pledge despite the goods
remaining in the custody of the pledger for specific purposes. Through various legal rulings
and interpretations, the resilience of the pledge arrangement is underscored, highlighting its
adaptability within the legal framework.

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PLEDGE CASES

Lallan Prasad v. Rahmat Ali and Anr., 1996

Facts of the case

Issue involved in the case

1. Whether pledged goods were delivered in the plaintiff’s custody?

Judgement of the Court

Facts of the case

Issues involved in the case

1. Whether railway receipts can be considered as valid goods under contract of

Judgement of the Court

K. M. Hidayathulla v. the Bank of India, 2001

Facts of the case

Issues involved in the case

Judgement of the Court

The concept of pledge by hypothecation introduces a nuanced understanding of pledge

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