Blog

INTRODUCTION

One party lends any property or amount of money to the other party is called the borrower and eventually builds a relationship of trust. All the transactions taken place involve a matter of trust. To avoid breach of trust, there has to be an obligation between the parties so that there is no breach of the contract. For the purpose of security, a personal property of the borrower is kept with the lender to prevent loss. If the borrower breaches the contract, the lender can recover the loss through the respective secured property.

PLEDGE

Pledge is a bailment for mutual benefit of both the parties arising out of contract. The creditor conveys a possessory title of property which is owned by the debtor to the creditor for the purpose of an obligation for the security of the repayment of the said debt. This creates a security for both the parties. Pledge is restricted to movable property and if immovable property is involved, it becomes a mortgage. In pledge, the party who transfers the possession of the property with respect to debt is called the ‘pawnor’ and the party who takes the possession of the property who is the creditor is called the ‘pawnee’. Pledge can be in the following ways:

1. Deposit
2. Pledged goods in pawnshop
3. Pledge of rights
4. Pledge of goods in commerce, monetary assets
5. Mortgage

Rights of Pawnor

1. Right of receiving the goods back – After payment of the debt by the pawnor, the pawnor has the right to take back the property and its possession from the pawnee. The basic motive of security is terminated once the debt is repaid and thus no right is left with the pawnee of the transferred property, and hence have to be transferred and returned back.
2. Right to claim for loss and damages – If the pawnor’s property which is in possession of the pawnee is damaged during that period which could cause loss to the pawnee due to expenses of restoring the damaged condition of the property, right to claim for those damages is present with the pawnor.

Rights of Pawnee

1. Pawnee has the right to retain the goods/property of the pawnor until and unless the entire debt is repaid by the pawnor and the underlying principle of security is established.
2. A pawnee has the right to file a suit for recovery of the debt with the property which has been pledged under security.
3. If any extraordinary expenses are incurred during the period of possession of the pledged property, the pawnee has the right to reimburse the said expenses from the pawnor.
4. If the debt is not repaid by the pawnor and the pawnor is still unable to pay the dues even after giving such reasonable notice to the pawnor, the pawnee has the right to sell the property and reimburse his dues left unpaid by the pawnor.

LIEN

Lien is recognized as a right of the party with whom the possession of the property is present and can be withheld till the demands are met by the other party in relation with the respective transaction. The lien is a right developed which is established by the procedure of the law instead of a contract unlike pledge or mortgage. It is imposed by the law of common courts and it was identified not as a remedy but as a right instead. It is valid only till the demands are met and the lien-holder only has possessory rights on the property. Lien is applicable on movable and immovable property.

Lien could be of two types –

Particular lien and General lien

1. Particular lien – In this type of lien, the party has possessory rights of the property till the required demands are met from the opposite party.
2. General lien – In general lien, the party has possessory rights but the rights are held only for the sake of incomplete monetary payments and it is not necessary that the incomplete transaction by the other party is in respect with the possessed property by lien-holder only. It is mostly practiced by service providers because everyone can hold of goods of one and another.

Importance of lien is as follows –

1. Protection of buyer – It allows the buyer to study the dues on the property and can thus can avoid the risk of repossession by the previous party which can put the buyer in loss and distress.
2. Recovery of seller – Seller can protect himself if his demands or payment is not completed by the buyer and keep the buyer’s commodity in his own possession until and unless he receives his entire demanded sum.
3. Recovery of miscellaneous expenses – If the lien-holder spends from his own pocket for the extra care to be taken of a property during his possession belonging to the opposite party, the lien-holder has the right to reimburse the extra expenses costed to him during the possessory period which could be binding on the opposite party.

Difference Between Pledge and Lien

PLEDGE	LIEN
Transfer of possession is involved which originally belongs to the opposite party.	Lien can be practiced till the property is in possession of the party belonging to opposite party.
The pledged property can be sold.	Only possessory rights are present which does not allow selling.
Pledging is carried out by contracting.	Lien is carried to meet the demands without any contract as it is a right.
Example: ‘A’ takes loan from ‘B’ and as a security of debt gives a property which costs similar to the loan amount to ‘B’ in case ‘A’ is unable to pay the debt.	Example: ‘A’ orders a gold ring from ‘B’ which ‘B’ makes according to requirement of ‘A’ but ‘A’ is not agreeing to pay the extra amount required which thus allows ‘B’ to retain the property until the amount is paid.

CONCLUSION

It can be concluded that pledge is a transfer of possession through a contract with respect to repayment of debt. Whereas, lien is a non-transfer of ideal possession to the opposite party where it should originally belong in which the lien-holder doesn’t transfer in the interest of recovery of pending dues from the opposite party. Motive of both the concepts is identical where there is a recovery of the said sum and the possession won’t be transferred till the demands are met. The highlighted difference is that in case of pledge, the mortgaged property can be sold if the required dues are not paid within a reasonable time whereas in lien, the possessed property can only be possessed until the dues are paid by the opposite party and doesn’t have any other right with respect to property with the lien-holder. Section 170 and 171 of Indian Contracts Act, 1872 deals with the interpretation in-depth of lien whereas Section 172 to Section 179 of the same, deal with bailment of pledges showing detailed interpretations in the act.

Article by Mr. Saurabh Pawar in April, 2021 while interning at the Chambers of Advocate Shankarlal Raheja.

Disclaimer: The views herein are personal and while careful attention has been given to ensure that the information is accurate the author assumes no liability or responsibility for any reliance thereon. This article is merely an information-sharing activity and is not a substitute for legal advice. It must be noted that we shall not be liable for any loss or damage caused due to any reliance thereof.