TAMIL NADU NATIONAL LAW UNIVERSITY, TIRUCHIRAPPALLI

Submitted for the internal assessment of course of

B. Com LL. B (Hons)- Third Semester
Academic Session- 2021-2022

Subject- Law of Contracts- II

Understanding the Procedure of Sale of Pledged Securities

Course Faculty: Ms. K. Shanthi Samandha Submitted By: Ms. Kaumudi Deshpande
Assistant Professor (Law),                                                             (BC0200019)
 UNDERSTANDING THE PROCEDURE OF SALE OF PLEDGED
SECURITIES
Introduction
Pledging refers to a process or an activity which involves a borrower/pledgor of funds using
their securities as a collateral in order to secure the funds they borrow from the lender or the
pledgee. It basically means that the securities are temporarily moved from the pledgor’s
account to the pledgee’s account to facilitate a debt and this security acts as a form of
collateral. When the securities are pledged, the pledgee takes care of the possessions. The
pledgor doesn’t have full ownership of these securities till the pledgor fails to return the debt
on time.
The terms and conditions of the sale of a pledged security are written in the guidelines given
by the Securities and Exchange Board of India, they are framed as per the clarifications in the
Indian Contract Act, 1872. This paper will discuss the procedure of sale of pledged securities
and the changes in the procedure after the coronavirus pandemic. It will also talk about the
legality of the such sales through various important case-laws. Finally, it will elaborate on the
distinctions present in bailments and pledges in context of their sales.
Statement of Problem
Often pledged shares are misinterpreted as securities and thus, this paper will try to address if
pledged securities and pledged shares are identical to each other. (think better)
Research Objectives
 To understand the process of the sale of a pledged security
 To elucidate the changes made in the procedure after the Covid-19 Pandemic
 To discuss the conditions which leads to a sale
 To differentiate between bailment and pledge in terms of a sale
Research Questions
1) What is counted as a pledged security and its types?
2) How is a pledged security sold and what is the legal process for it?
3) Were there any changes made after the Covid-19 pandemic to the procedure of sale of
pledged security? If yes, what were they?
Hypothesis
The conditions under which a sale for a pledged security is made is not violative to the
pledgee’s rights.
Review of Literature
1) Indian Contract Act, 1872
The Indian Contract Act of 1872 is an official document which lays, defines and
amends laws related to contracts in India. Sections 172 to 179 discusses the various
 aspects of pledge contracts including pledged securities and the sale of such
securities.

2) Securities and Exchange Board guidelines

The Securities and Exchange Board of India, founded in 1992 is a regulatory body for
securities and commodity market in India which is under the jurisdiction of the
Ministry of Finance, Government of India. SEBI lays down rules and regulations
about the procedure of sale of a pledged security and it even made amendments in the
procedure after the world was hit by the coronavirus pandemic.

3) Singh, Avtar. Law of Contract. India, Eastern Book Company, 1980.

This book makes deliberate effort to breakdown the complexities of the contract law.
This book also includes some of the never discussed areas of law in great detail. The
principles of general and specific contracts have been considerably dealt with for a
comprehensive understanding. The authors have tried to include many modern issues
and dealt with them in an easy manner to reduce the difficulty that might arise while
reading a legal authoritarian book.

4) Mulla, Dinshah Fardunji, and Pollock, Frederick. The Indian Contract ACT:

With a Commentary, Critical and Explanatory. N.p., Creative Media Partners,
LLC, 2018.
The authors of this book have discussed various interpretations and English
authorities in a very comprehensive manner for better understanding of the legality
involved. Indian Contract Act of 1872, has been critically evaluated to deliberated
upon for the understanding of the framework and the interpretations in this Act. The
authors have also made references to relevant statues and sections of other Acts to
provide an overall view of the Indian Contract Act and their comparisons. This book
also mentions the most ground-breaking and relevant case laws for consideration.