Indian Contract Act Section 176 — Pawnee’s right where pawnor makes default
CHAPTER IX OF BAILMENT — Bailments of Pledges
Commercial / Corporate
Summary
When the person who pledged goods as security fails to pay the debt or perform the promised obligation by the agreed time, the person holding the goods (the pawnee) has two options. They can file a lawsuit against the pledger to recover the debt or enforce the promise, while still keeping the pledged goods as backup security. Alternatively, they can sell the pledged goods, but only after giving the pledger reasonable notice of the sale.
If the money raised from selling the goods is less than what is owed, the pledger remains responsible for paying the remaining balance.
If the money raised from the sale is more than what is owed, the pawnee must give the extra amount to the pledger.
Official Text
If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.