Introduction
Bailment and pledge are two important concepts in the Indian Contract Act, 1872 that deal with the transfer of possession of goods from one person to another. While both these terms involve the transfer of possession, there are significant differences between bailment and pledge. This article aims to provide a detailed understanding of the differences and similarities between bailment and pledge and some of the important judgments on bailment and pledge.
About Bailment
Bailment is defined under Section 148 of the Indian Contract Act as the delivery of goods by one person (bailor) to another (bailee) for a specific purpose, upon a contract that the goods will be returned or disposed of according to the bailor’s directions when the purpose is accomplished. In simple terms, it is a temporary transfer of possession of goods from one person to another, without transferring ownership.
The key elements of bailment are:
- Delivery of goods: There must be a physical transfer of possession of goods from the bailor to the bailee.
- Purpose: The goods must be delivered for a specific purpose, and the bailee must use them only for that purpose.
- Return or disposal: The goods must be returned or disposed of as per the bailor’s instructions once the purpose is fulfilled.
- No transfer of ownership: The ownership of goods remains with the bailor, and the bailee only has possession.
- Example: A person gives their car to a mechanic for repairs. Here, the person is the bailor, and the mechanic is the bailee. The car is delivered for a specific purpose (repairs), and once the repairs are done, it must be returned to the owner.
About Pledge
Pledge is defined under Section 172 of the Indian Contract Act as the delivery of goods by a debtor (pledgor) to a creditor (pledgee) as security for payment of a debt or performance of a promise. In pledge, the possession of goods is transferred as security for a debt, and the pledgee has the right to retain the goods until the debt is repaid.
The key elements of pledge are:
- Delivery of goods: There must be a physical transfer of possession of goods from the pledgor to the pledgee.
- Security for debt: The goods must be delivered as security for a debt or performance of a promise
- Right to retain: The pledgee has the right to retain the goods until the debt is repaid.
- Transfer of ownership: In case of default by the pledgor, the pledgee has the right to sell the goods and recover the debt.
- Example: A person pledges their gold jewelry to a bank in exchange for a loan. Here, the person is the pledgor, and the bank is the pledgee. The jewelry is delivered as security for a debt (loan), and the bank has the right to retain it until the loan is repaid.
Differences between Bailment and Pledge
| Basis | Bailment | Pledge |
| Purpose Transfer of ownership Right to use Return of goods Liability | It is for a specific purpose. There is no transfer of ownership in case of default. The bailee has a right to use the goods for specific purpose. In bailment, the goods must be returned to the bailor once the purpose is fulfilled. The bailee is liable for any loss or damage to the goods. | It is for security for a debt or promise. There is transfer of ownership to the pledgee in case of default by the pledger. The pledgee doesn’t have a right to use the goods. Here, the goods can only be returned after the debt is repaid. Pledgee is not liable unless there is no negligence on his part. |
Similarities between Bailment and Pledge
- Transfer of possession: Both bailment and pledge involve the transfer of possession of goods from one person to another.
- Delivery of goods: In both cases, there must be a physical delivery of goods from the bailor/pledgor to the bailee/pledgee.
- Return of goods: The goods must be returned to the bailor/pledgor once the purpose is fulfilled or the debt is repaid.
- Duties of bailee/pledgee: Both the bailee and pledgee have a duty to take care of the goods and return them in the same condition as they were received.
Supreme Court Judgments on bailment and pledge
- Ramesh Hiranand Kundanmal v. Municipal Corporation of Greater Bombay (1992)
In this case, the Supreme Court held that a contract for pledge is a contract of bailment with a special purpose, and the pledgee has a duty to take care of the goods until the debt is repaid.
- State Bank of India v. Official Liquidator (2013)
In this case, the Supreme Court held that in case of default by the pledgor, the pledgee has the right to sell the goods after giving reasonable notice to the pledgor.
Conclusion
In conclusion, bailment and pledge are two distinct concepts under the Indian Contract Act that involve the transfer of possession of goods. While bailment is for a specific purpose and does not involve a transfer of ownership, pledge is for security of a debt and involves a transfer of ownership in case of default by the pledgor. It is essential to understand the differences between these two concepts to avoid any confusion.
