CONCEPT OF RETAINER UNDER SECTION 173 OF INDIAN CONTRACT ACT, 1872.

CONCEPT OF RETAINER UNDER SECTION 173 OF INDIAN CONTRACT ACT, 1872.

This blog is written by Seval Jain, student of 2nd year of Chanakya National Law University, Patna. She has in great detail, with the help of various case laws analyzed Section 173 of the Indian Contract Act, 1872 which talks about the Pawnee’s right of retainer.

INTRODUCTION: The Indian Contract Act, 1872 is an act which governs the formation and enforcement of different kinds of contracts in the Indian Territory. Pertinently, the act goes beyond from just governing the sale and purchase contracts, it governs some special contracts like indemnity, bailment, guarantee and so on which find there mention from chapter VIII in the act.

PLEDGE: One such kind of special contract is pledge provisions to which are provided from section 172 to 179 in Chapter IX of the act. Pledge is a special kind of contract of bailment where the goods are transferred to the other party as a security either for the payment of loan by the creditor or as for discharging an obligation made under a promise. For instance, A borrows a sum of Rs 3000 from B and put his gold change in security to the borrowed amount, then the gold chain is Pledged property. The Bailor in this case is called Pawnor and the Bailee as Pawnee as has been defined under Section 172 of the act. Any document, goods, valuable things of personal nature can be pledged.

The Bailee under the contract does not become an owner, but having the possession of the property or having a right to possess, he is said to have a special property. The court in the case of Sunil Kumar Gupta v Punjab and Sind Bank[1] has held that the delivery of possession either actual or constructive is necessary, goods being pledged to the creditor and are in possession of the debtor could not have to be said pledged. It has also been held in the case of Blundell Liegh v Attenborough[2], that even if the possession of the property was not transferred while taking the loan, the pledge will still be remained valid.

RIGHTS OF PAWNEE:  When the property is transferred to the Pawnee, he gets no absolute ownership over the property, but he merely has the possession of the property, this property commonly known as special property. The Pawnee gets various rights regarding to the property being pledged to him:

  1. Right to retain ( Section 173)
  2. Right to retain for subsequent advances ( Section 174)
  3. Right to extraordinary circumstances ( Section 175)
  4. Right in case of default of payment ( Section 176)

SECTION 173, PAWNEE’S RIGHT TO RETAIN: The Pawnee does not hold an ownership over the property, but he has the right to retain the property i.e. to keep the property with himself until and unless the loan amount has been repaid, or the obligation under the promise has been fulfilled. He may also retain the goods pledged for the interest of the debt and all necessary expenses incurred by him in respect of the possession or for the preservation and protection of the pledged goods.

Thus a conclusion can be drawn for in which circumstances, Pawnee has the right to retain the pledged property i.e.:

  1. When the debt has remained unpaid or the obligation under the promise has not been fulfilled.
  2. For the payment of interest on debt.
  3. For the payment of any other expenses pertaining to the preservation of the pledged property.

The Pawnee cannot retain the property for the debt or promise other than that on which the property was pledged. But any subsequent advancement of debt made by the Pawnee, the pledged property will be considered as security and thus can be retained for the fulfillment of further Principal amount and interest. The rights of the Pawnee were summed up by the court of law in the case of Lallan Prasad vs. Rahmat Ali and another[3] .

LANDMARK JUDGEMENTS/ CASE LAWS:

  1. Bank of Bihar v State of Bihar[4]:

Facts: The bank (Pledgee) advanced loan to the Pledgor on the pledge of sugar bags whose delivery was to be made in form of giving the keys of the Godown where those were stored. However, the state of Bihar through district magistrate and rationing officer seized the bags. The bank thereafter, filed a suit for recovery of the sugar bags.

Held: It was held that the bank has a special property right over the sugar bags which cannot be extinguished unless the payment of debt has been made. So now, the state has the responsibility to reimburse the amount to the bank.

  1. Central Bank of India v Siriguppa Sugars and chemicals Ltd.[5]:

Facts: The sugar was pledged with the appellant bank for securing the loan and the loan was not repaid. The revenue recovery authority forcefully took the possession of sugar from the appellant bank. The High court ignored the bank’s right to retain the property and passed an interim order authorizing the revenue recovery authorities to sell the sugar and recover the revenue by the sugar growers which was challenged by the appellant bank in the apex court.

Held: The apex court held that the bank has the precedence of the claims over the cane commissioner and the workmen and the HC was wrongful in passing such interim orders. Both the Cane Commissioner and the workmen in the absence of a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights of the Pawnee of the goods.

  1. Bank of India v Lekhimoni Das[6]:

Facts: The Pawnor pledged the gold jewels with the bank as a security for the debt taken and reimbursed all the amount with complete interest and on time.

Held: It was held by the court that the bank should exercise its power in a reasonable manner and if he does not do so, he make himself a wrongdoer[7] in the eyes of law if he persists in holding the property after all the dues are tendered.

In the case of Roger v Kennay, it was held that “Where judgment has been obtained against the Pawnor of goods and execution has issued thereon, the sheriff cannot seize the goods pawned unless he satisfied the claim of the Pawnee”.

CONCLUSION: The very purpose of judiciary is to protect the violation of rights of any individual in the society. In the above research, it has been observed that the many a times, the authorities have tried to violate the right of Pawnee and judiciary has always protected it. But all rights come with a restriction like here it is that the Pawnee has to give the property back to the Pawnor once the payment of all dues is done.

[1] Sunil Kumar Gupta v Punjab and Sind Bank, AIR 2006 Utt 26.

[2] Blundell Leigh v Attenborough, 1921 1 KB 382.

[3] Lallan Prasad v Rahmat Ali and another, 1967 (2) SCR 233.

[4] Bank of Bihar v State of Bihar, (1972) 3 SCC 196.

[5] Central Bank of India v Siriguppa Sugars & Chemicals ltd., AIR 2007 SC 2804.

[6] Bank of India v Lekhimoni Das, (2000) 3 SCC 640.

[7] The Bank of New South Wales v O’ Connor, (1889) UKPC 10.

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