Pledge

Indian Contract Act, 1872 — Sections 172–179; SARFAESI Act, 2002

The delivery of movable goods (shares, FDRs, gold, commodities) by a borrower (pledgor) to a lender (pledgee) as security, retaining ownership but giving possession to the lender. Upon default, the pledgee can sell the pledged goods without court intervention under Section 176 of the Indian Contract Act. More secure than hypothecation because possession is with the bank.

A pledge gives a lender the cleanest self-help remedy in Indian secured lending because possession sits with the lender. In practice, when shares, fixed-deposit receipts, gold or commodities are delivered to the bank as a pledge, the bank holds possession while the borrower retains ownership, and on default it may sell the pledged goods under Section 176 of the Indian Contract Act after reasonable notice, without going to court. This is why a pledge is more secure than hypothecation, where goods stay with the borrower and can be dissipated. The practical discipline is in the notice and the sale: an absence of reasonable notice, or a sale at an undervalue, exposes the pledgee to a claim for the surplus or for damages, and the pledgor retains a right of redemption until sale. For lenders, perfecting the pledge through actual or constructive delivery is essential. Well-advised pledgees serve clear notice and conduct a fair sale before appropriating proceeds.