BUSINESS LAW

Group no. 4

A PROJECT REPORT ON

LEGAL AND REGULATORY ASPECTS OF SPECIAL CONTRACTS NAMELY:

1. CONTRACT OF AGENCY
2. CONTRACT OF BAILMENT
3. CONTRACT OF PLEDGE
4. CONTRACT ON HYPOTHECATION

PRESENTED TO:

PROF. ANANT AMBDEKAR

FACULTY OF EMBA- MET INSTITUTE OF MANAGEMENT

SUBMITTED BY:

NAMES ROLL NOS.

GAURAV DARGAR 22

HASNAIN VARTEJI 24

JAINAM SHAH 26

KALASH GADA 28

KARTIK KOTHARI 30

MAHIMA ZATAKIA 32

MIHIR RAMAVAT 34

ADNAN ANSARI 36

NAWAZ SHAIKH 38

NIYATI BAGWE 40

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 TABLE OF CONTENTS

SR. TOPIC PAGE NO.

1 OBJECTIVES OF REOPRT 3

2 KEY WORDS 4

3 INTRODUCTION 5

4 CONTRACT OF AGENCY 6

5 CONTRACT OF BAILMENT 13

6 CONTRACT OF PLEDGE 20

7 CONTRACT OF HYPOTHECATION 25

8 CASE STUDIES 30

9 STATISTICAL DATA 42

10 CONCLUSION 45

11 BIBLIOGRAPHY 48

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 Objectives of the report

• To study about the special contracts namely:

1. Contract of agency
2. Contract of Bailment
3. Contract of Pledge
4. Contract of Hypothecation
• To study the essentials of these contracts.
• To study the statistical data of the above-mentioned contracts.
• To understand the working and functioning of these Special contracts.
• To know about the various case studies and its facts relating to these special contracts.

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 KEYWORDS

Essentials: Essentials mean the necessary requirement for the contract purpose.

Competent: This means the person should be eligible for the contract.

Consideration: Taking into account for a certain period of time.

Void: Not valid for the contract.

Remunerated: To pay for the services rendered.

Lien: Right to keep a possession of a property belonging to another person until the debt is
recovered.

Indemnified: Compensation for harm or loss.

Goods: Moveable property, merchandise.

Gratuitous: Given or done for free.

Plaintiff: A person who brings a case against another in court of law.

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 INTRODUCTION

Contracts provide a written document that outlines the full understanding of the business
relationship and claim of work so that at the end nobody create misunderstanding with reference
to the commitments made. They specify exactly about the business with complete information
about the two or more than parties. They are completely agreed by both the parties than only it
is to be called as contract.

As per the Act, “contract” is an agreement enforceable by law. The agreements that are not
enforceable by law are not contracts. Special contracts are contracts in which one party
promises to set aside the other from the loss caused due to him by the conduct of the promisor
himself, or by the conduct of any other person is called a special contract. It is the part of Indian
Contract Act 1872.

Basic terms and conditions laid down by the government is also called as legal and regulatory
aspects of Contract Act. Offer, consideration, parties, mutual consent, legality etc. are various
elements of the contract act. Legal and regulatory aspect refers to regulations and guidelines to
specifications relevant to its business. The Indian Contract Act 1872 is another legislation which
regulates all transactions of a company. It lays down principles relating to enforceability and
formation of contracts, rules governing the provisions of an agreement and offer, the various
types of contracts including those of indemnity and guarantee, bailment and pledge and agency.

Contract act serves you as a protection in every legal agreement you make in life. Contract laws
makes these agreements enforceable which means it gives you power to compensate and
obtain money for any damage caused to another party to your business. It reduces the risk that
company’s face.

All the business laws are based on law of contract because law of contract is main based upon
all other business laws are made. The law of contract not only affects the business activities
besides that it applies to every one of us in our lives. Because the law of contract, are basis of
our daily activities. We are further studying about the special contracts individually i.e. contract
of agency, contract of bailment, contract of pledge and contract of hypothecation.

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 CONTRACT OF AGENCY

Meaning: -

When one party delegates some authority to another party and the latter performs his actions
more or less on behalf of the first party and this relationship between them is known as Agency.
All big corporates and multinational companies work through Agency. An Agent is a person
employed to do any act for another, or to represent another in dealings with third person. The
person for whom such act is done is called the “Principal”.

Following are the Essentials of Agency: -

1. Principal:
To constitute agency there must be a principal, who appoints another person as an
agent to represent or work on his behalf.
2. Agreement:
Not necessary a contract.
3. Principal must be competent:
Principal must be competent to the contract, i.e. the principal must be of the age as per
law applicable and who is of sound mind, becomes an Agency.
4. Free consent:
Both the parties need to agree mutually for the contract without any compulsion or
pressure.
5. Consideration not necessary:
Generally, contract without consideration is void. But according to the exception to the
general rule i.e. prescribed by the government- a contract without consideration is a valid
contract.
6. There must be an Agent:
Person with age as per law and of sound mind can become an Agent. Agent is a
person who is appointed by the Principal to work on his behalf.

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1) VARIOUS TYPES OF AGENTS:

• General Agent:
A general agent possesses the authority to carry out a broad range of transactions in the
name and on behalf of the principal. The general agent may be the manager of a business or
may have a more limited but nevertheless ongoing role—for example, as a purchasing agent
or as a life insurance agent authorized to sign up customers for the home office. General
agent is basically appointed for certain personal reasons.
• Special Agent:
Agent appointed to do a single specific job. For example, a real estate broker is usually a
special agent hired to find a buyer for the principal’s land.
• Broker:
An Agent whose job is to create a contractual relationship between two parties. He is not
entrusted with the possession of goods. He simply acts as a connecting link and bring it
to parties together to bargain and if the circumstances materialize he becomes entitled
to his commission called brokerage. He makes a contract in the name of his Principal.
• Commission Agent:
An Agent appointed to buy and sell goods for his Principal and the best possible terms
in his own name and who receives Commission for his labour.
• Auctioneer:
An Agent who acts as a seller for the Principal in an Auction. He is primary an agent for
the seller, but upon the property being knocked down he becomes also the agent of the
buyer.
• Del Credere:
An agent who acts as a salesperson, broker and guarantor for the Principal. He
guarantees the credit extended to the buyer, if the buyer does not pay, he will pay. Thus,
he occupies the position of a surety it as well as an Agent. He is not answerable to his
principle for the failure of the third person to perform the contract. A del credere agent
constituted an exception to this rule.
• Factor:
A Factor is an agent who is entrusted with the possession and contract of the goods to
be said by him for his Principal. He has possession of the goods, authority to sell them
in his own name and a general discretion as to this sale. He may sale on the usual term
of credit may receive the price and give a good discharge to the buyer.

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 2) RIGHTS OF AGENT:
• Right to remuneration:
An agent, when he has wholly carried out the business of the agency has the right to
be remunerated of any expenses suffered by him while conducting the business.
• Right of lien:
The agent has the right to hold (keep with himself) any movable or immovable property
of the Principal until his due remuneration is paid to him by the Principal.
• Right of retainer:
An agent has the right to retain any remuneration or expenses incurred by him while
conducting the Principal’s business.
• Right to be indemnified:
The agent has the right to be indemnified against all the lawful acts done by him during
the course of conducting the Principal’s business.
• Right to be compensated:
The agent has the right to be indemnified against all the lawful acts done by him during
the course of conducting the Principal’s business.

3) DUTIES OF AGENT:

• To follow the instructions of the principal.

• Conduct business with skill as much as the person of his position holds.
• To show the books of accounts whenever asked by the principal.
• To communicate with the principal in case of emergency.
• Not to delegate duties assigned to the Agent.
• Avoid conflict with respect to principal’s interest.
• If the instructions given by principal not followed than the principal can repudiate the
contract between them.
• To be liable for misrepresentation or fraud.
• To compensate for any damage or loss caused.

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4) RIGHTS OF PRINCIPAL

• To direct the agent for conduct of business (sec 211).

• To claim compensation for loss caused him due to agents’ negligence or misconduct
(sec 212).
• To claim all sums received by the agent on his behalf (sec 217).
• To empower his agent to employ sub-agent (sec 190).
• To demand proper account of business of agency (sec 213).
• To hold the agent liable for unauthorized appointment of sub-agent (sec 193).

4) DUTIES OF PRINCIPAL

a) Towards agent: -

• To pay remuneration to his agent.

• To compensate the agent against the consequences of lawful act.

• To compensate the agent in respect of injury caused by his neglect or want of skill.

b) Towards third party: -

• To be bound by acts of agent acting within the scope of his authority.

• To be bound by misrepresentation or fraud of his agent in the course of his employment.

• To be bound by notice given to the agent.

• To responsible for contracts entered into by agent through his name is not disclosed.

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5) TYPES OF AGENCY

• Agency by express agreement: This agency means where there is an oral agreement
between the principal and the agent.
• Agency by implied agreement: It is actual agency where the principal and agent are
firm to create an agent principal relationship with all the necessary conducts.
i. Agency by estoppel: The opponent person cannot deny on any terms mentioned
in the agreement for which the opponent will be liable for it.
ii. Agency by holding out: The principal is bound by the acts of the agent if, on an
earlier occasion he made other persons to believe that other person doing some acts on
his behalf is doing with his authority.
iii. Agency by necessity: Is an agency created by an emergency arising from a
situation making it necessary for the agent to act without receiving the authority of the
principal, in order to prevent harm to the principal.
• Agency by ratification: A situation in which a person or company inaccurately claims to
be an agent for another person or company and conducts some act in that capacity, but
which the principal (who is not actually a principal) later accepts and recognizes.
• Agency by operation of law: An agency that exists because it will conform to prevalent
law that is not because of an agreement between the agent and the principal.

Difference between Agent and Servant:

Agent:
1. An agent has an authority to create contractual relationship between the principal and a third
party.
2. An agent is not subject to the direct control or supervision of the principal. As such, he has
greater discretion in his actions. A principal has the right to direct what the agent has to do but
the master has also the right to say how it is to be done.

3. An agent is paid commission on the basis of work done.

4. A principal is liable for only those acts which are within the scope of the authority given to the
agent.

5. An agent may work for a number of principals at the same time.

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Servant:
1. A servant has no such

2. A servant acts under the direct control and supervision of his master, and is bound to carry
out all reasonable orders given to him in the course of his work.

3. A servant is paid by way of salary or wages.

4. A master is liable for the wrongs of his servants committed in the course of employment.

5. A servant usually serves only one master.

CASELET: (1.) Lilly vs. Doubleday

FACTS:

The principal instructed to the agent to keep the goods at A’s Warehouse but the agent placed a
part of them at a different warehouse i.e. B’s which was equally safe. The good placed in B’s
ware house get destroyed without negligence. In this case it was held that the agent is liable for
the loss. Any disobedience or departure from instruction make the agent absolutely liable for the
loss.

INFERENCE: -
In the above caselet agent did not follow the instruction given by the principle. Because of which
the good were destroyed, if the goods in A’s warehouse were destroyed then the owner was
liable as he instructed to do so. But as the good at B’s warehouse were destroyed which was
not instructed by the owner i.e. principle. Thus, agent’s action was against agents’ principles
order so agent was liable.

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 CASELET (2.) Bolton v. Lambert

FACTS:

The managing director of a company, purporting to act as agent on the company’s behalf, but
without its authority, accepted an offer made by Lambert, the defendant, for the purchase of
some sugar works belonging to them. Lambert subsequently withdrew the offer but the
company ratified the managing director’s acceptance. HELD: That Lambert was bound. The
ratification related back to the time of managing director’s acceptance and so the withdrawal of
the offer was inoperative.

INFERENCE: -
Managing director of the company was acting as companies’ agent. He accepted the offer made
by Lambert of some sugar works. Later Lambert withdrew his offer but till then other directors
made that offer and acceptance of that offer by managing director officially valid. Now Lambert
is bound to perform his part of offer, he can’t withdraw it anymore.

ILLUSTRATIONS:

Illustration 1: A appoints B as his agent and tells him to go to the bank and deposit A’s money.
This is an ‘Expressed’ authority from A to B.

Illustration 2: A owns a shop in Kolkata but resides in Delhi. A has hired B to manage the shop.
B buys goods in the name of A for A’s shop. This is ‘Implied’ authority from A to B.

Illustration 3: A has employed B in his shop. A asks B to buy some things for the shop. B should
use only legal means to obtain those things. B cannot steal or do something which is illegal.

Illustration 4: A has employed B in his vegetable shop which is in Delhi. A asks B to take the
vegetables to Kolkata to sell them. On his way to Kolkata, B finds that the vegetable may rot after
two days. B has the authority to sell them in Lucknow to protect the interest of profits to be earned
by A.

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 Contract of bailment

(The word bailment is derived from the French word “ ballier “ which means to deliver)

Meaning:

A bailment is the delivery of goods by one person to another for some purpose upon a contract
that they shall, when the purpose is accomplished, be returned or otherwise disposed of
according to the direction of the person delivering them. A bailment for the mutual benefit of the
parties is created when there is an exchange of performances between the parties (e.g. a
bailment for the repair of an item when the owner is paying to have the repair accomplished).

A bailor receives the sole benefit from a bailment when a bailee acts gratuitously (e.g. the owner
leaves the precious item such as a car or a piece of jewelry in the safekeeping of a trusted
friend while the owner is traveling abroad without any agreement to compensate the friend).

A bailment is created for the sole benefit of the bailee when a bailor acts gratuitously (e.g., the
loan of a book to a patron, the bailee, from a library, the bailor). If there is no contract, there is
no bailment. The contract giving rise to bailment can be express or implied. Property
deposited in a court under orders is not property delivered under a contract. Such delivery or
transfer does not constitute bailment.

The person delivering the goods is called "Bailor" and the person to whom the goods are
delivered is called the "Bailee".

Following are the ESSENTIALS OF BAILMENT:

1. Contract:
There can be no bailment without a contract, all conditions for valid contract must be
satisfied, such as competent parties’ free consent, lawful object etc.
2. Goods:
Moveable property is known as goods. goods are tangible things that are produced,
bought or sold, then finally consumed.

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 3. Delivery of goods:
Contract is for delivery of movable goods from one party to another. If the goods are
immovable then the contract is not for bailment. Possession means control of goods to
the exclusion of others. Mere custody of goods as against possession is not sufficient.
For example, a master while giving his goods to his servant retains the possession with
him and parts only with the custody of the goods. If there is no deliver there is no
contract of bailment.
4. Purpose of delivery:
He delivery of the goods is for temporary purposes. It may be for safe-custody, repair,
carriage or for gratuitous use by the bailee. For example, A giver gives his watch to the
watch maker.
5. Return of goods:
Under such contract, the goods are redelivered to the bailor or according to his directions
upon the fulfillment of the purpose by the bailee. For the purpose to fulfil the contract there
must be return of goods. It should be noted that return of goods in specie does not mean that
their form cannot change. For example, old ornaments can be changed into new one. A piece of
cloth can be stitched into a shirt.

6. Right of ownership:
In a contract of bailment, the ownership does not change it remains of the bailor only. If
the ownership is transferred, the contract will be a contract of sale and is not of bailment.
7. Number of parties:
There are two parties in such contract e.g., the bailor and bailee. There must be
atleast two parties. The person delivering the goods is called the bailor and the person to
whom the goods are bailed is called the bailee.
8. Goods in possession of Bailee:
The delivery of the goods is not essential if the goods are already in the possession of
the person who enters into the contract as bailee.
9. Change of possession:
The possession of goods must be affected by such contract. Mere custody without
possession is not a contract of bailment.

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1) DUTIES OF BAILOR

• To disclose all the faults and if he fails to disclose them then the damage or loss caused
to the bailee will be suffered by him.
• To bear extraordinary expenses incurred by bailee for such bailment.
• To receive the goods in return after the purpose of bailee is accomplished.
• To indemnify the bailee for the cost incurred due to the defective title of goods bailed to
the bailee.

2) RIGHTS OF BAILOR

• Right to make damages if bailee makes wrongful use.

• Right to enforce bailee’s performance.
• Right to demand return of goods.
• Right to claim compensation against unauthorized goods.

3) DUTIES OF BAILEE

• Take care of goods bailed if he takes proper care of goods then he will he liable for no
loss.
• Bailee shall not make any unauthorized use of goods bailed. If in case he makes the
unauthorized use then bailor can terminate the Bailment.
• Not mix goods with his own goods if he does that without the consent of the bailor then:
➢ Bailor also has an interest in the mixture.
➢ Bailee bears the expenses of any separation or any damages caused
to the mixture.
➢ If not possible to separate the goods, bailee shall compensate the
bailor for the loss occurred.

• Return goods without any demand on accomplishment of purpose of expiration at the

time of period.
• Bailee shall return goods to the bailor with profit occurred or interest.
• Not set up adverse title to the goods bailed.

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4) RIGHTS OF BAILEE

• Right to know material faults in goods.

• Right to claim proportionate share in mixed goods.
• Right claim expenses of bailment.
• Right to claim damages.
• Right to claim Indemnity.
• Right to recover compensation.
• Right to claim Lien for remuneration.

KINDS OF BAILMENT:

BAILMENT FOR SAFE-CUSTODY:

When the bailor delivers his goods to the bailee only for keeping it. in his safe-custody, the
bailment is said to be bailment for safe-custody.
Illustration: A delivers his camera to B to keep it in his safe-custody for six months. This will be
the bailment for safe-custody.

BAILMENT FOR USE:

If the bailor delivers, the goods to the bailee to use it. The bailment will be the bailment for use.
Illustration; A delivers his bicycle to B to use it for two days. This will be the example of
bailment for use.

BAILMENT FOR REWARD:

Where the bailment is for use or for sate-custody and the bailee or bailor can charge for his
services, then it will be the case of bailment for
Illustration: A delivers his bicycle to B to use it for two days for Rs.50 daily. This will be the
bailment for a reward because Bailor (A) will get a reward for the use of a bicycle.

GRATUITOUS BAILMENT;
Where the bailment is for safe-custody or for use and bailee does not charge anything, the
bailment is a bailment for gratuitous.
Illustration: A delivers his bicycle to his friend B to use it for two days without reward. It will be
the case of gratuitous bailment.

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 BAILMENT FOR LOST GOODS:
When a person finds out the lost goods of another has the same responsibilities as the bailee
has against the goods the bailor. such implied bailment Will be the case of bailment of lost
goods. Under such conditions, the bailee is entitled to retain the goods until he receives
compensation for the trouble and expenses, he has to bear in order to find but the owner of the
lost goods.
Illustration: A found the lost horse B and redelivered it to B. It will be the bailment for last
goods.

BAILMENT FOR PLEDGE:

When any moveable goods are given as security for the debt, to creditor by the debtor, it will be
bailment for pledge until the repayment.
Illustration: A gets a loan from B and hands over his B as security until the repayment of the
loan. It will be the bailment for pledge.

5) TERMINATION OF CONTRACT OF BAILMENT

• On Expiry of Period.
• On achievement of objective.
• Gratuitous Bailment.
• Inconsistent use of goods.
• After the death of bailor and bailee.

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 CASELET (1.) Ultzen vs. Nicholas

FACTS:

The plaintiff went to a restaurant for dining. When he entered the room, the waiter took his coat
and hung it on a hook behind him. When the plaintiff arose to leave, the coat was missing. It
was held that the waiter voluntarily took the responsibility of keeping the coat while the customer
was dining and was thus a bailee. Therefore, he was liable to return it.

INFERENCE:

In the above caselet the waiter himself took the responsibility of the coat but he did not fulfil it.
So, disobedience caused by the waiter made him liable for the loss of the coat and he has to
return it.

CASELET (2.) SURYA INVESTMENT CO. VS STC AIR

FACTS:

STC hired a storage tank from the plaintiff. On account of a dispute, STC appointed a special
officer to take charge of the tank, who delivered the contents as per directions of STC. Thus, the
plaintiff lost his possession and with it, his right of lien. SC held that the plaintiff is entitled to the
charges even if he loses his right of lien because the bailor has enjoyed bailee’s services.

INFERENCE:

The bailor is responsible to the bailee for any loss which the bailee may sustain by reason that
the bailor was not entitled to make the bailment, or to receive back the goods, or to give
directions respecting them. This means that if the bailor had no right to bail the goods and if still
bails them, he will be responsible for any loss that the bailee may incur because of this.

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Illustrations:

Illustration 1: Mr. A gives his watch for repair to Mr. B., In this case, Mr. A is bailor, Mr. B is
Bailee and the goods bailed is watch.

Illustration 2: Harry bailed his bike to David for riding for himself to go to college. David used it
for racing purpose. Now David will be liable for unauthorized use of the bike bailed.

Illustration 3: Mr. X gave his cat to Mr. Y for looking after over some days. Cat in that while
gave birth to kittens. Now Mr. Y is liable to return the cat along the accretions.

Illustration 4: Mr. A bailed his carriage for Mr. B for hire for a few days. But there was a default
in the carriage of which Mr. A was not aware. And subsequently, Mr. B suffered injuries because
of the same. Now Mr. A is liable to pay damages to Mr. B.

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 CONTRACT OF PLEDGE

EVERY PLEDGE IS A BAILMENT BUT EVERY BAILMENT IS NOT A PLEDGE.

Meaning:

Pledge is a special kind of bailment. When the purpose of the bailment is to secure a loan or a
promise, it is called a pledge. Whenever the goods are being delivered with an object to provide
security for a loan for fulfilling an obligation. It is known as Pledge.

The bailor is called as Pawnor or the Pledger and the bailee is called as Pawnee or the
Pledgee.

1. Pawnor:
• The person who pledge the goods as security for payment of debts.
• This is also called as "pledger"
2. Pawnee:
• The person who received goods as security for payment of goods.
• This is also called "pledgee"

Who are entitled to Pledge the Goods?

1. Owner
2. Mercantile Agent
3. Pawnee
Following are the ESSENTIALS OF PLEDGE:

1. Delivery of possession:
• Delivery of possession is essential in pledge. Delivery of pledge may be actual
or constructive. Delivery of the key of the godown where goods are stored is the
constructive delivery of godown.
• Delivery of the documents of the title that enables the Pawnee to take
possession of the goods is equally effective to create a pledge.
• For example, car loans are example for this as the car or vehicle remains with
the Pawnor but the same is hypothecated to the bank/financer. In the case if the
Pawnor defaults, banks take possession of the vehicle after giving notice and
then sells the same and credit the proceeds to the loan account.

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2. Delivery of possession must be in return of a loan or a promise:
• The delivery must be in return of a loan or of acceptance of a promise to
perform something.
• Thus, is the person A gives his bicycle to B in friendship it will not be regarded
as a pledge, but as a simple bailment.
• However, if A gives his bicycle to B as a security for a debt of Rs. 100 it will be a
pledge.

3. In Pursuance of a contract:
• The delivery of the goods must be done under a contract though it is not
necessary that the delivery and the payment of the loan should be at the same
time. Delivery can also be made after the loan is received.

1) DUTIES OF PAWNOR/PLEDGER:
i. Disclose the faults: The pledger should disclose to the pledgee, the faults in the
goods pledged.
ii. To meet extraordinary expenses: The pledger should bear the extraordinary
expenses incurred by the pledgee.
iii. To indemnify the pledge: In case of defective goods, the pledger should
indemnify the pledgee.

2) RIGHTS OF PAWNOR/PLEDGER:
i. Right to receive notice of sale: The pledgee should inform the pledger about the
goods he is to sale in order to get the loan money.
ii. Right to receive the surplus: The pledger should always get the surplus
amount/thing that the pledger got in his absences.
E.g.: If the pledger pledged his cow to the pledgee it the duty of the pledgee and
right of the pledger to get the calf along with the cow.
iii. Receive any increase or profit: The pledge has the right to earn the profit of his
pledged goods when he repays the loan.

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 3) RIGHTS OF PAWNEE/PLEDGEE:
i. Right to Retain: The pledgee has the right to retain the goods if the pledger fails
to pay the loan amount.
ii. Right to compensation: The pledgee has the right to ask for compensation if the
pledged goods cause any harm to his property.
iii. To recover any extraordinary expense: The pledgee has the right to ask for the
cost incurred during the process.
iv. Security of debt: The pledgee has the right to ask for the security amount/goods
for the goods pledged by the pledger.

4) DUTIES OF PAWNEE/PLEDGEE:
i. To take responsible care: The pledgee should take care of the items pledged by
the pledger.
ii. Not to make any unauthorized use: It is the duty of the pledgee to see that the
goods are not used until stated by the pledger.
iii. Return on payment: The pledgee should return at the goods to the pledger after
the loan is repaid.
iv. Return any increase: The pledgee should return all the increased goods to the
pledger.

ADVANTAGES OF PLEDGE:
To a creditor, pledge is perhaps the most satisfactory mode of creating a charge on goods. It
offers the following advantages:
• The goods are in possession of the creditor and therefore, in case the borrower
makes a default in payment, they can be disposed of after a reasonable notice.
• Stocks cannot be manipulated as they are under the lender’s possession and
control.
• In case of insolvency of the borrower, lender can sell the goods and prove for
the balance of debt, if any.
• There is hardly any possibility of the same goods being charged with some other
party if actual possession of the goods is taken by the lender.

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 CASELET .1. Lallan Prasad v. Rahmat Ali & Anr.

FACT:

The defendant borrowed Rs. 20000 from the plaintiff on a promissory note and gave him aero
scrapes worth Rs. 35000 as a security for the loan. The plaintiff sued for the repayment of the
loan but was unable to produce the security, having sold it. SC rejected his action. It was held
that if the Pawnee is not in the position to redeliver the goods he cannot have both the payment
of debt and also the goods. Where the value of the pledged property is less that debt and is in
suit for recovery of debt by the pledgee, the pledgee denies the pledge or is otherwise not in the
position to return the pledged goods he has to give credit for the value of the goods and would
be entitled then to recover only the balance.

INFERENCE:

In the above case states that the it was because of the Pawnee’s thoughtful-ness that the goods
were lost, and that the price of the pledged property is less than the goods that were kept as
security with the Pawnee. The liability of the Pawnor is reduced to the extent of the value of the
goods.

(2.) Revenue Authority v. Sudarsanam Pictures

FACTS:

A film producer borrowed a sum of money from a financer and agreed to deliver the final prints
of the film when ready. This was held that for a pawn either actual or constructive possession
must be delivered. A mere agreement to give possession cannot operate as a pledge because
there was no delivery of possession at the time of the agreement.

INFERENCE:

A firm borrowed sum money from financer in agreement of delivery of prints. It is not a pledge
as there is no transfer of actual or constructive possession at the time of agreement.

23
Difference between Pledge and Bailment:

Pledge
A pledge is a bailment done for a specific
type of purpose, which is to secure a loan or
performance of a promise.
A Pawnee has the right to sell the goods in
case of default.
A Pawnee gets rights of retainer and a
special interest in the goods, which is more
than just the lien.
The Pawnee has no right to use the goods.
Bailment
Bailment can be for many reasons ranging for
reward to gratuitous.
The bailee does not get the right to sell the
goods.
The bailee only get a right of lien over the
goods.
The bailee can use the goods.

ILLUSTRATIONS:

Illustration 1. Mark took a loan from the bank against a security of gold. In this case, Mark is a
pledger, the bank is a pledgee and gold is the pledged goods.

Illustration 2. Z pledged his goods with A. But now Z refuses to make the payment of the same.
A now can either sell his goods or can initiate a suit proceeding against Z.

24
 CONTRACT OF HYPOTHECATION

The word “HYPOTHECATION” is found under Section 3 of the Transfer of the Property Act,
1872 under “actionable claims”.

WHAT IS HYPOTHECATION?
Hypothecation occurs when an asset is pledged as collateral to secure a loan, without giving up
title, possession or ownership rights, such as income generated by the asset. However, the
lender can seize the asset if the terms of the agreement are not met.

Pledge is that species of hypothecation which is contracted by the delivery by the debtor to the
creditor of the thing hypothecated. Hypothecation, properly so called, is that which is contracted
without delivery of the thing hypothecated.

Hypothecation is pledging something as security without delivery of title or possession.

How Hypothecation Works?

Hypothecation occurs most commonly in mortgage lending. The borrower technically owns the
house, but as the house is pledged as collateral, the mortgage lender has the right to seize the
house if the borrower cannot meet the repayment terms of the loan agreement—which occurred
during the foreclosure crisis. Auto loans are similarly secured by the underlying vehicle.
Unsecured loans, on the other hand, do not work with hypothecation since there is no collateral
to claim in the event of default.

As hypothecation provides security to the lender because of the collateral pledged by the
borrower, it is easier to secure a loan, and the lender may offer a lower interest rate than on
unsecured loan.

DIFFERENCE BETWEEN HYPOTHECATION, PLEDGE AND MORTGAGE:

BASIS PLEDGE MORTGAGE HYPOTHECATION

POSSESSION With lender With borrower With borrower
FOR ASSETS All assets generally Non-movable assets Movable assets
EXAMPLE Gold loan Home loan Vehicle loan

25
ILLUSTRATIONS:

1. In the case of vehicle loans, the vehicle remains with the borrower but the same is
hypothecated with the bank/financer. If there is any default by the borrower, the bank
takes the possession of the vehicle after the giving notice and then sells the same.

2. In the case of EMI on Television, where the television remains with the borrower but the
same is hypothecated to the financer. If the borrower doesn’t pay the EMI within the
stipulated time, the financer has the right to take back the television.

DOCUMENTATION:

This activity usually requires an agreement to be made and is known as the Hypothecation
Deed.

• The hypothecation deed is an agreement which contains standard features and rules;
which covers the following points.
i. Definitions
ii. Insurance (to ensure good condition of the asset).
iii. Inspection rules.
iv. Rights and remedies of each party.
v. Security details marked for hypothecation.
vi. Sale realization.
vii. Insurance proceeds.
viii. Liability of each party.
ix. Jurisdiction prevailing.
x. Marking of the assets
• This deed protects the right of both the parties to the contract

In what context are the terms Pledge and Hypothecation use:

The terms are used for creating a charge on the assets which is given by the borrower to the
lender as security for any loan. Thus, one of these terms will be normally used whenever an
individual or a business firm avails any loan and the banks keeps some assets as a security, so
that it will be able to sell the same in case that individual or the firm defaults in repayments.

26
PLEDGE AND HYPOTHECATION UNDER INDIAN LAW:

PLEDGE: Section 172 of the Indian Contract Act defines pledge as “The bailment of goods as a
security for the payment of the debt or performance of a promise”. The bailor in this case is
called Pawnor and the bailee is called as Pawnee.

To create a valid pledge in the eyes of the law, the three important points needs to be noted:
a) Delivery of Possession: As in bailment, in pledge too delivery of possession is
required. For example, in Revenue Authority vs Sundarsanam Pictures, AIR 1968, it
was held NOT to be pledge because the film producer borrowed a sum of money from a
financier and agreed to deliver the final prints of the film when ready. Thus, there was
no delivery of the goods at the time of agreement.
b) Delivery is in return of a loan or promise to perform something. Therefore, if your
friend gives you his Motor-cycle to go to college, it is not pledge but can be called
simple bailment.
c) It should be in pursuance of a contract: The delivery must be done under a contract
(oral or written). However, it is not necessary that delivery and loan take place at the
same time. Delivery can be made even after the loan is received.

HYPOTHECATION:

It not defined under Indian Law for long time and was used more on the basis of
practice. However, now under the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, hypothecation is defined as "a charge in or upon any
movable property, existing or future, created by a borrower in favor of a secured creditor without
delivery of possession of the movable property to such creditor, as a security for financial
assistance, and includes floating charge and crystallization into fixed charge on movable
property".

27
Benefits of Hypothecation:

In this, borrower has many advantages. Let’s have a look at them one by one –
Ownership: This is a much better option for an individual who has just been starting out in
business or career. Of course, there are terms and conditions that need to be followed, but one
of the most important advantages is ownership. As a borrower, you can keep the ownership of
your movable property and at the same time, you will get assistance from the bank for the loan.
The only condition is you need to pay the due amount on time.
Lower interest rate: Since there is an option of possessing the movable property if the money
isn’t paid on time, the bank/financier charges less interest rate. Two reasons are responsible for
charging lower rates. Firstly, the option of possessing the vehicle offers the lender a sense of
security that the money would be paid back. Secondly, it is not an unsecured loan as there
would be the signed hypothecation agreement between two parties.
Small loans: Unlike a mortgage, this is done for the small amount of loans. As a result, it’s easy
to use and easy to pay off. As a business owner, it’s a great opportunity and often this is used
more than mortgage loans.

EXAMPLE:
1. You have decided to take a vehicle loan for your business. This would be used for your
business. So, you went ahead and approached a bank. The bank said that they will offer
you a loan, but you need to take the loan under hypothecation. The bank further
explained that the vehicle that you want to take would be used by and owned by you
only. The bank will help you will assist in the loan. But the vehicle that you own would be
hypothecated and if you aren’t able to pay the amount due to the bank within a certain
period of time, the vehicle would be possessed by the bank. You agreed to the proposal
of the bank and the bank has offered you a loan. The hypothecation agreement between
the borrower and the lender isn’t done in verbal agreement. Rather it is done through a
document called hypothecation deed.

2. The RTO attached the bus (hypothecated to the Bank) for passenger tax and motor
vehicle tax under the Motor Vehicle Taxation Act. The Madhya Pradesh High Court held
that though the action taken by the RTO was legal, yet because of special lien and
hypothecation the Bank being a secured creditor it has first charge was entitled to sell
the bus and appropriate the sale proceeds towards its dues first.

28
DIFFERENCE BETWEEN PLEDGE AND HYPOTHECATION:

BASIS FOR
PLEDGE HYPOTHECATION
COMPARISON

Meaning Bailment of goods as security Hypothecation is the pledging of

against the debt for the goods, against the debt without
performance of the obligation or delivering them to the lender.
the payment thereon, is known
as the pledge.

Defined in Section172 of Indian Contract Section 2 of Securitization and

Act, 1872 Reconstruction of Financial Assets
and Enforcement of Security
Interest Act, 2002

Legal Document --- Hypothecation Deed

Possession of Remains with the creditor Remains with the debtor

property

Parties Pawnor and Pawnee Hypothecator and Hypothecated

Rights of lender in To sale out the goods in his To take the possession of the asset
exceptional possession to adjust the debt. first, then sell it out to recover the
circumstances debt.

29
 CASE STUDIES

CASE STUDY 1 BAILMENT

The Trustees of The Port of Bombay v. The Premier Automobiles Ltd.

FACTS:

The respondents (R) had imported some machinery, which upon its landing on the Bombay port
was taken charge of by the Board (Appellants, A). While being transported by the Board’s
employees to one of the sheds in the docks by trolley the case fell and machinery was badly
damaged. After finding the damage in the machinery, R claimed a large sum as damages.
Invoking the provisions of S.87[1], of the Bombay Port Trust Act the Board (A) denied all liability
for the damage caused to the machinery alleging that the machinery was already in a broken
condition and due to the damaged condition of the case that it slipped and fell from the trolley
accidentally.

ISSUES:

1. Whether the liability of the Board was that of a bailee?

2. Whether the employee who were with the trolley at the time of the accident, were
appointed under the Act?

CONTENTIONS:

• Board: The persons accompanying its trolley were employees under the Act and S.87
applicable.
• Respondent: They were employees as well as agents of the Board.

30
HELD:

High Court:

1. There was an element of negligence on the part of Board’s employee (Board admitted it).
Since a master is always liable for the torts committed by his servants in the course of the
employment the Board was responsible for the damage caused to the machinery by its
employees in the course of their employment.
2. (w.r.t 1st & 2nd issue) YES
3. (w.r.t S.87) The Provision related to a totally different subject with which section
61B[2] was not concerned and, therefore, S.87 not attracted.

SUPREME COURT: (Shinghal, J.) (Board’s Appeal allowed)

1. The responsibility of the Board was clearly that of a bailee subject to the reservations
provided by the section. Since the claim was not based upon a mere breach of statutory
duty under section 61B but was based on the Board’s liability as bailee, it was an action in
tort. However, the liability of the master for the acts of his servants would not possibly
arise in a case where the statute intervenes.
2. (w.r.t S.87) As per S.87 the Board is made responsible for the misfeasance, malfeasance
or nonfeasance of only those of its employees who have not been “appointed under this
Act” which means that the protection does not extend to any tortious act if it has been
committed by an employee who has not been appointed under the Act. Both the sections
(87&61B) are interconnected and have to be read together as a whole.
3. (w.r.t HC’s 3rd observation) This runs counter to the clear provisions of the two sections if
read together and is wholly unsustainable. It is section 61B which makes the responsibility
of the Board for the goods of which it has taken possession subject to the other provisions
of the Act.
4. (w.r.t 2nd issue & HC’s stand on it) If those employees “were appointed under the said Act”
it means that the Board was entitled to be absolved of its liability for the acts of those
employees by virtue of paragraph 2 of section 87.

31
LAW POINTS

The essence of bailment is possession. A bailment may arise, as in this case, even when the
owner of the goods has not consented to the possession by the bailee at all. A bailment is not
therefore technically and essentially subject to the limitations of an agreement and the notion of
privity need not be introduced in an area where it is unnecessary. It is sufficient if that
possession is within the knowledge of the person concerned. So a bailment may very well exist
without the creation of a contract.

[1] provided that the Board will not be responsible for any misfeasance, malfeasance and
nonfeasance of any employee appointed under this Act

[2] provides that the responsibility of the Board for loss, destruction or deterioration of goods of
which it has taken charge shall, subject to the other provisions of the Act, be that of a bailee
under sections 151, 152 and 161 of the Contract Act, 1872 omitting the words “in the absence of
any special contract”, in section 151 of the Contract Act.

INFERENCE OF THE ABOVE CASE:

In Trustees of the port of Bombay v. Premier Automobiles Ltd., the Premier Automobiles
machinery was being imported from Italy, the charge of which was taken by the Board of the
Port Trust of Bombay. While being transported on the trolley, it fell down due to the negligence
of the port employees and the Premier Automobiles, sued for damages. According to the
Bombay Port Trust Act that the Bailment is in possession even if the goods came into
possession of the Board without any contract of the Owner.

It was observed that the Bailment, therefore exist without the creation of the contract between
the parties and may give rise to remedies which in substance may not be in contract.

32
CASE STUDY 1 PLEDGE

Lallan Prasad v. Rahmat Ali & Anr.

FACTS:

The appellant advanced Rs. 20,000 to the first respondent against a promissory note
and a ‘receipt. The first respondent executed an agreement whereby he agreed to
pledge as security-for the debt aeroscapes, to deliver them to the appellant, and to keep
them in the appellant’s custody.

The appellant filed a suit on the promissory note claiming that the first respondent failed
to deliver the goods, that the agreement therefore did not ripen into a pledge, and that
consequently, he was entitled to recover the amount advanced by him. It was found on
the evidence that the goods were delivered to the appellant, and that he was it pledgee
thereof.

HELD:

Trial Court: favored the appellants

High Court: favored the respondents

SUPREME COURT ISSUES:

1. Whether the first respondent pledged aero scraps and delivered possession
thereof to the appellant?
2. Whether the appellant was entitled to any relief when his case was that the first
respondent never delivered to him the said goods and the said agreement never
ripened into a pledge?
3. Whether the custody of the said goods after they were stored at the aforesaid
place was with A or R?

33
Contention(s):

Appellant- Even if the said delivery was made, s.176 entitles the appellants to maintain
the suit on the promissory note.

SHELAT, J.

1. (w.r.t.1stissue) The goods were under the control and custody of the appellant.
Some of the evidences apart from oral evidences are-
• The appellant showed indifference about the delivery.
• Considering the huge amount that had been advanced he could not ordinarily
be content merely with a promissory note.
• The appellant was to permit the first respondent to remove and sell part of
the said goods provided he paid to the appellant 3/4th of the sale proceeds.
• The letter of surety from the second respondent itself stated that the goods
were pledged with the appellant, that the appellant was not allowing the first
respondent to remove them for sale.
• Appellant continued to pay the salaries of the watchmen, though their
services were no longer required by him.
• The first respondent removed part of the said goods but did so after paying
to the appellant.
• Amrit Lal directly gave the cheque to the appellant w.r.t 100 mounds of the
said aero scraps that he purchased from A.
2. (w.r.t.2nd issue) The appellant would not be entitled to a decree on the promissory
note and also retain the goods found to have been delivered to him and to be in
his Custody. So long, however, as the sale does not take place, the Pawnor is
entitled to redeem the goods on payment of the debit. Therefore, the right to sue
on the debt assumes that Pawnee is in a position to redeliver the goods on
payment of the debt, and if by denying the pledge or otherwise, he has put himself
in a position whereby he is not able to redeliver the goods, he cannot obtain a
decree.

34
LAW POINTS

Section 176 of the Indian Contract Act, 1872, deals with the rights of a Pawnee and
provides that in case of default by the pawner the Pawnee has (1) the right to sue upon
the debt and to retain the goods as collateral security, and (2) the right to-sell the goods
after reasonable notice of the intended sale to the pawner.

INFERENCE OF THE ABOVE STUDY:

The appellant advanced ₹ 20,000. The respondent led both documentary and oral
evidence, certain notices were sent to the respondent by the appellant also certain
receipt were issued by the appellant in respect to the payments to the appellant against
the sales by him of part of the said goods. The trial court however rejected the
respondent case stating that there was no complete contract of pledge as the first
respondent had failed to deliver the goods and that the second respondent had agreed
to become surety for payment of the second loan and that the appellant did not insist on
the possession of the said goods being given to him and that he was entitled to maintain
the suit.

Under section 172, a pledge is a bailment of goods as security for payment of a debt or
performance or promise.

35
CASE STUDY 1 AGENCY:

Harshad J. Shah & Anr v. L.I.C. of India & Ors.

FACTS:

A bearer-cheque, with the name of agent on it, towards the payment of premium was handed
over to a general agent (R3) of the LIC (R1). (This payment was being made after the lapse of
the grace period). The agent encased the cheque and deposited it with the LIC. However, the
insured meanwhile met an accident and died (Aug 9) the day before actual deposition took
place (Aug 10). The widow of the insured (A2), (as the nominee under the policies), submitted a
claim to the LIC in Gujarat State Consumer Disputes Redressal Commission. LIC refused to pay
claiming a default in payment of premium.

ISSUES:

1. Whether payment of premium by the insured to the general agent of the LIC can be
regarded as payment to the insurer so as to constitute a discharge of liability of the
insured?
2. Whether the LIC can be held liable on the basis of the doctrine of apparent authority?

JUDGEMENT(S):

State Commission (Maharashtra State Consumer Disputes Redressal Commission[1])

Contentions

• Appellant: The amount of premium collected by R3 from the insured was collected by him
on behalf of the LIC.
• LIC: The amount of premium collected by the General Agent cannot be said to have been
received by the LIC as it was stated that the agents are not authorized to collect the
premium amount.

36
HELD:

In order to collect more business the agents of the LIC collect the premiums from the
policyholders either in cash or by cheque and then deposit the money so collected in the office
of the LIC and that this practice had been going on directly within the knowledge of the LIC
administration despite the departmental instructions that the agents are not authorized to collect
the premiums. It implies that LIC was negligent in its service towards the policyholder and was
hence liable.

• Appeals were filed against the said judgment of the state commission by the appellants
(not satisfied with the damage awarded) as well as by respondents (1&2).

National Commission (The National Consumer Disputes Redressal Commission)

1. It dismissed the appeals filed by the appellants and allowed the appeal filed by R1&2.
2. It held that the R3 w.r.t this act was not acting as the Agent of the LIC nor could it be
deemed that the LIC had received the premium on the date the bearer cheque was
received by R3.

• Appellants filed appeals in the SC.

SUPREME COURT:

Contentions

Appellants (Naresh S. Mathur)

1. Since the payment had already been made to R3, the policies did not lapse on account of
non-payment of the premium and that in any event that said policies could be revived on
payment of the interest payable for the delayed payment of the premium amount.
2. Since the agents receive commission on the amount of premium, the said act of R3 was
within the scope of their authority and the limitation imposed (by regulon and appoint
letter) cannot be binding as against third parties viz., the policyholders.
3. Since, LIC by its conduct induced the policyholders to believe in the authority of the agent
w.r.t the said act; LIC was liable under S.237[2] of the ICA.

37
 4. Since LIC is ‘state’ under Article 12 of the Constitution it has a duty to act fairly in view of
the mandate contained in Article 14 of the Constitution. (LIC of India and Anr. v.
Consumer Education & Research center and Ors.)

INFERENCE OF THE ABOVE CASE:

According to the judgement of the supreme court, “when an agent has, without
authority, done acts or incurred obligations to the third party/person on behalf of his
principle, the principle is bound by such acts or obligations, if he has by his words or
conduct induced such third person to believe the fact that such acts and obligations
were within scope of the agent’s authority” as written in section 237 of ICA, 1872.

The state commission held that in order to collect more business the agent of the LIC
collects the premium of the policy holders either in cash or cheque and then deposits
the money in the office of LIC administration, even after given that the LIC agents are
not allowed to collect premiums.

So accordingly, to section 237 of ICA 1872, that principal is allowed for every act of his
agent, which the principal is expecting his agents to carry out the act and the third party
has no involvement with the agent and that the agent is not authorized by the third
party.

38
CASE STUDY 1 HYPOTICATION

SYNDICATE BANK… V. OFFICIAL LIQUIDATOR, M/S. PRASHANT ENGG. CO. (P) LTD.….

By this application under Rule 9 of the Company Court Rules, 1959, Syndicate Bank, who
claims to be a secured creditor of Prashant Engineering Company (P) Ltd., in liquidation, and has
secured a simple money decree of Rs. 2,11,897-20 together with costs and future interest against
the Company, prays that the Official Liquidator be directed to pay to the bank sale proceeds of
Rs. 85,500/- in respect of a diesel generating set towards part satisfaction of the decree and to
hand over the other hypothecated machines belonging to the Company that may be held by the
Official Liquidator to the Bank on the allegations that all the machines installed in the factory of
the Company, including the generating set aforesaid, were hypothecated by the Company in
favour of the Bank as security for the money advanced by the Bank to the Company, which formed
subject-matter of the Suit and the decree. It is claimed that the aforesaid generating set was
disposed of by the Official Liquidator without notice to the Bank.

2. The claim of the Bank is resisted by the Official Liquidator, who has denied any knowledge of
the hypothecation. It is submitted that no diesel generating set was taken into possession or sold
by the Official Liquidator. It is, however, admitted that certain items of machinery belonging to the
Company were sold under the orders of this Court for about Rs. 90,000/-. It is further urged that
the claims for the proceeds of sale of any assets of the Company is misconceived and untenable
as the Bank obtained a simple money decree and could only rank as an unsecured creditor along
with others and that the claim of the Bank against the Company under the decree would be dealt
with in accordance with law. It is further claimed that the rights of the Bank under the alleged
hypothecation could not be enforced against the proceeds of sale of the assets of the Company
as the decree was obtained long after the sale and that the rights of the Bank, if any, under the
hypothecation agreement merged in the decree and that the Bank could only prove its claim when
claims are invited in the course of winding up. It is denied that the Official Liquidator was under
any obligation to give notice to the Bank of the proposed sale of the assets of the Company, that
came into the possession of the Official Liquidator in the course of winding up.

3. In its rejoinder, the Bank, by and large, reiterated the allegations made in the application and
alleged that the factum of hypothecation was mentioned by the Bank in the Suit, which led to the
decree. It was further claimed that the official liquidator having sold the hypothecated assets of
the Company, was bound to reimburse the sale proceeds to the Bank, who was a secured

39
creditor, and that in the course of the proceedings of the Suit, a receiver was appointed to make
an inventory of the various machines and the receiver had submitted his report to the Court seized
of the Suit. The right of the Official Liquidator to dispose of the hypothecated assets of the
Company was also challenged.

4. On the pleadings of the parties, following issue was framed:

“Is the petitioner entitled to payment of Rs. 90,500/-”

5. In support of their respective cases, parties were allowed to produce evidence by affidavits. On
behalf of the Bank, affidavit of its Manager was filed and on behalf of the Company, the affidavit
of the Official Liquidator was filed The Bank also filed a copy of the agreement of hypothecation,
a copy of the plaint in the suit, a copy of the judgment of this Court on the Original Side, decreeing
the suit, and a copy of the Report of the Commissioner appointed in the proceedings of the suit.
The two affidavits are, by and large, a re-affirmation of the respective cases of the parties as set
out in the pleadings.

6. I have heard learned Counsel for the parties.

7. The winding up order was made on September 26, 1980. Pursuant to the winding up order, the
Official Liquidator took possession of the entire assets of the Company. The suit was filed by the
Bank on March 18, 1981, without impleading the Official Liquidator although the winding up order
had already been made apparently because the Bank was not aware of the fact that the Company
was in winding up. In the suit, the Bank sought a simple money decree even though the factum
of the hypothecation agreement was mentioned in para-8 of the plaint. For reasons which are not
clear, no relief was sought in the suit with regard to the security. The Bank, no doubt, sought the
appointment of a Commissioner to visit the factory and submit a report “as to whether the factory
was lying closed and, if so, since, when and whether it was in charge of any person or was actually
running”. The Commissioner submitted his report on March 24, 1981 and this report mentions
that the factory was closed and there were locks on the shutter and “was under seal”, but there is
no mention that the property was in the possession of the Official Liquidator. The Bank apparently
came to know of the winding up order in 1982 because by its application, C.A.3/82, it sought from
this Court leave u/s. 446 of the Companies Act to continue the suit, which was allowed on
February 11, 1982.

8. Unlike a mortgage, a pledge or hypothecation does not have the effect of transferring any
“interest” in the property in favour of the pledgee or the hypothecatee. The pledge and
hypothecation, however, create a special property in the goods in favour of the pledgee or the

40
hypothecatee. In the case of pledge, the special property is to keep possession of the pledged
goods and to dispose them of for the realisation of the debt for which it is held as security. In the
case of hypothecation, possession remains with the hypothecator but the hypothecatee has the
right to take possession of the hypothecated property and to sell it for the realisation of the debt
secured by hypothecation. It was open to the Bank to take possession of the hypothecated
property on its own or through the Court, but it failed to do so. It was also open to the Bank to
enforce the security by the suit that it filed but there again the Bank chose to seek a simple money
decree. Mere mention of hypothecation in the suit was not sufficient. The Bank would, therefore,
be deemed to have waived its right as hypothecatee and was satisfied with a simple money
decree. The Bank having filed a suit for the recovery of money and having failed to make a claim
on the security, any claim on the security or the sale proceeds thereof would now be barred
under Order 2 Rule 2 of the Code with the result that the Bank has no subsisting claim on the
machinery or any part of the sale proceeds thereof and must rank as an unsecured creditor along
with the other creditors of the Company, and prove its claim before the official liquidator at the
appropriate time. See AIR 1933 Bom 51 and AIR 1933 Bom 437. The Bank is itself to blame for
the course that it chose to adopt.

9. The claim of the Bank accordingly fails and the application is hereby dismissed, leaving the
parties to bear their respective costs.

INFERENCE OF THE ABOVE CASE:

The claim of the bank is resisted by the official liquidation, who has denied any
knowledge of hypothecation

It was further claimed that the rights of the bank under the alleged hypothecation could
not be enforced against the proceeds of sale of the assets of the company as a decree
was obtained long after the sale and that the rights of the bank if any under the
hypothecation agreement merged in the decree and that the bank could only prove its
claim when the claims are made in the course of winding up

The assets were sold by the liquidator before the bank could claim the asset under the
suit the bank was not aware of the winding up of the company the suit was filed by the
bank on march 1981, without impeding the official liquidator although the winding up had
begun.

41
 STATISTICAL DATA
CONTRACT OF AGENCY
STATE NO.
BOMBAY 84
ALLAHABAD 32
PUNJAB-HARYANA 16
MADRAS 68
KARNATAKA 17
DELHI 68
KERALA 14
PATNA 15
CALCUTTA 15
ANDRA 10
ORRISA 10
GUJARAT 15
JHARKHAND 10
MADHYA PRADESH 10
CONSUMER COURT 11
SUPREME COURT 57
CUSTOME-EXCISE DEPARTMENT OF INDIA 30
LAW COMMISSION OF INDIA 55
INCOME TAX DEPARMENT OF INDIA 47
CENTRAL GOVERNMENT 21
CENTRAL TRIBUNAL 25

CONTRACT OF AGENCY NO. OF CASE

84
90
80 68 68
70 57 55
60 47
50
40 32 30
21 25
30 16 17 14 15 15 15
20 10 10 10 10 11
10
0

INFERENCE: From the above table and graph we observe that the highest number of cases are
recorded in Bombay i.e. 84. And the lowest number of cases are recorded in the state of Andra,
Orissa, Jharkhand and Madhya Pradesh i.e. 10. Total number of cases are 630.

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 CONTRACT OF BAILMENT
STATE NO.
ALLAHABAD 37
GUJARAT 19
CHENNAI 81
PUNJAB 12
DELHI 237
BOMBAY 136
RAJASTHAN 35
GAUHATI 40
KARNATAKA 16
TELENGANA 65
MADRAS 37
CHATTISGARH 45
MADHYA PRADESH 41
ANDRA 38
PATNA 15
CALCUTTA 15
SUPREME COURT 21
LAW COMMISSION OF INDIA 50
COMPETITION COMMISSION OF INDIA 50
INCOME TAX DEPARTMENT OF INDIA 49

CONTRACT OF BAILMENT NO. OF CASE

237
250
200
136
150
100 81
65
37 40 37 45 41 38 50 50 49
35 21
50 19 12 16 15 15
0

INFERENCE: From the above table and graph we observe that the highest number of cases are
recorded in Delhi i.e. 237. And the lowest number of cases recorded are in Punjab i.e. 12. Total
number of cases are 1039.
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 CONTRACT OF PLEDGE
STATE NO.
BOMBAY 116
MADRAS 55
DELHI 104
ANDRA 20
KERALA 13
ORISSA 6
GUJARAT 18
KARNATAKA 15
CALCUTTA 50
UTTRAKHAND 53
PUNJAB 25
MADHYA PRADESH 25
HIMACHAL PRADESH 35
PATNA 40
INCOME TAX DEPARTMENT OF INDIA 65
LAW COMMISSION OF INDIA 50
CENTRAL GOVERNMENT 53
SUPREME COURT 54

CONTRACT OF PLEDGE NO. OF CASE

140 116
120 104
100
80 65
55 50 53 50 53 54
60 35 40
40 20 18 25 25
13 15
20 6
0

INFERENCE: From the above table and graph we observe that the highest number of cases are
recorded in Bombay i.e. 116. And the lowest number of cases recorded are in Orissa i.e. 6. Total
number of cases are 797.

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 CONCLUSION

It has been observed that the agent plays an important role in the contract. The agent has to
step in the shoes of the principal and carry out the tasks in his regards. A agent has the
authority to create contractual relationship between the principal and the third party. The agent
has the right to retain if the principal doesn't pay his expenses and is not obligated by the rules
of the principal. The agent has to give every accounts of the proceedings when asked by the
principal and avoid conflict I'm respect to the principal. The agent can be held for any
misunderstanding and fraud caused by him to the principal or to the party. A agent can work for
various principal at the same time.
For the above Case study and illustration of contract of agent we can conclude that :
1. The agent can be sued if he causes any harm to the principal or the third party.
2. The agent has no right to steal any goods that the principal has lend him.

It has been observed that the bailee has to perform according to the obligation laid down by the
contract of Bailment. If he is found doing negligent toward his duties would make him liable
under various provision of the law. These obligations are the essence of Bailment contract. It
the bailees responsibility towards the goods bailed can be increased by way of providing
provisions in that regard but it cannot be lowered down, i.e., he cannot repudiate his
responsibility. A bailment for the mutual benefit of the parties is created when there is an
exchange of performances between the parties (e.g. a bailment for the repair of an item when
the owner is paying to have the repair accomplished). A bailor receives the sole benefit from a
bailment when a bailee acts gratuitously.
A bailment is created for the sole benefit of the bailee when a bailor acts gratuitously. The
termination of Bailment can be done under certain conditions.
For the above Case study and illustration of contract of Bailment we can conclude that:
1. If the bailee take the responsibility of securing particular goods and causes harm to the goods
it is liable on the bailee to return the goods to the bailor.
2. The bailee has to return surplus of the goods to the bailor (if any)
3. The bailee has the right to retain the goods if the bailor fails to pay the debts.

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Pledge is a kind of Bailment where the goods are kept as security for the repayment of debts or
performance of any promise. Delivery of the possession to the Pawnee may be actual delivery
or constructive delivery. Ownership of the pledged article does not pass to the pledgee. The
Pawnee has the right to retain goods till the payment, of the debt, any interest on the debt, and
any other necessary expenses incurred for preservation of the goods. Where Pawnee incur any
other extraordinary expenses on goods for preservation, he is entitled of the same from pawnor.
In case of the default of the Pawnor, in the debt or performance, the Pawnee has the right to sell
the goods pledged. The pawnor has also the right to redeem the goods before the actual sale,
but after the payment of the debt or performance of promise and any other expenses which
have arisen from his default. Essential of Pledge are Delivery of possession, Delivery of
possession must be in return of a loan or promise, In Pursuance of a contract. The Pawnee has
no rights to use the goods.
From the above Case study and illustration of contact of Pledge we can conclude that:
1. The Pawnee can sell the goods that the pawnor pledged if the pawnor fails to return the
debts.
2. The Pawnee may face loss if by his fault losses the goods pledged, and if the value of the
pledged goods is less than that of the goods that were kept as a security by the PFraud:
then the Pawnee has no rights to charge him extra that the amount that was to be returned by
the Pawnor.

Hypothecation is a route by which borrower can raise funds by providing security (movable) as
collateral and still get to use it since the possession remains with the borrower. This source of
loan is given by the bank/ financer at a rate lower than the unsecured loan as it provides the
sense of security to the lender.

The lender runs a risk as there may be instances where the borrower sells off the hypothecated
asset without the knowledge of the lender; however periodic checks and proper clauses in this
deed can provide protection to a large extent to both, the borrower and the lender. For the
Hypothecation to take place the parties have to sign the Hypothecation Deed Agreement.
Hypothecation Deed is an agreement which contains standard features and rules, which covers
the following points:
Definition, Insurance, Inspection rules, rights and remedies of each parties, etc., Hypothecation
can only be done on movable goods. Hypothecation was not defined under the Indian Law is

46
was later added under the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act. The Benefits of Hypothecation are : Ownership, low
interest rate and Small loans.

From the above statistical data, we even conclude that there have been various criminal cases
with respect to contracts such as Agency, Bailment and Pledge in India. We have the data
according to the state and how many cases have been filed till date. It shows that most of the
cases have been filed for the contract of bailment in the Capital of India named Delhi. These are
also called the criminal cases that is crime of cheating people for money. We have also found
that there are may cases with respect to government. There are few states where there are
least number of cases. Overall, we found that some of the states in India have cases and are
much more in numbers. Total number of cases recorded are mentioned below the contracts.

Objectives achieved:

• Report has covered all the essential concept of the Contract Act(s).
• It helped us to understand the working of the special contract act(s).
• The report helped us to understand the above contract act in depth. It comprises of various
types of case studies, case-lets and examples which makes the topics clearer.
• The report includes various “Rights and Duties” that the entity of the particular Act has to
carry out.
• The case studies helped us to understand how the Contract Act(s) work and its
implementations.

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 BIBLOGRAPHY

https://indiancaselaws.wordpress.com/

https://indiankanoon.org/

https://www.casemine.com/

https://www.lawctopus.com/

https://www.scribd.com/

https://blog.ipleaders.in/

https://www.toppr.com/

BOOK REFERENCE:

Book Name: Law of Contract

Author: Prof. (Dr.) Rajni Malhotra Dhingra.

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