Point of Law: under Section 176 of the Contract Act, the pawnor, if not otherwise liable for the debt as a borrower or as a guarantor or otherwise, does not merely from the act of making a pledge, become liable to the creditor/pawnee, for anything more than the value of the goods pledged.

JUDGMENT :

RAJIV SAHAI ENDLAW, J.

1. The legal question arising for consideration, in this writ petition under Article 226 of the Constitution of India, is, whether by virtue of Section 176 of the Indian Contract Act, 1872 as under:-

“Section 176 -Pawnee's right where pawnor makes default. – 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.”

the pawnor, even if different from borrower or the principal debtor, becomes liable for payment of entire debt, even if has not furnished any guarantee for repayment of the entire debt i.e. over and above the value of the pawned goods.

2. The aforesaid legal question has arisen in the following facts and circumstances.

3. The respondent no.1 Barclays Bank filed OA No.60/2011 before the Debt Recovery Tribunal (DRT), Delhi, under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT Act), for recovery of Rs.11,23,81,505.06/-along with pendente lite and future interest, jointly and severally from the respondent no.2 ORG Informatics Ltd. and the petitioner, inter alia pleading that, (i) the respondent no.2 Company was engaged in the business inter alia of Information Technology Services; at the relevant time, the petitioner was the Managing Director of the respondent no.2 Company; (ii) the respondent no.1 Bank, on the request of the petitioner and the respondent no.2 Company, had sanctioned credit facilities aggregating Rs.15,00,00,000/-, in favour of the respondent no.2 Company and the petitioner had agreed to pledge 2,00,000 shares held by him in the respondent no.2 Company as a collateral security for repayment of the said credit facilities to be granted by the respondent no.1 Bank to the respondent no.2 Company; (iii) the respondent no.2 Company had executed a Multi-Option Facility Agreement dated 15th January, 2008, besides Demand Promissory Note, Take Delivery Letter, Letter of Continuing Security, and the petitioner and the respondent no.2 Company had also executed a Share Pledge Agreement; (iv) as per the terms of sanction and terms of the Multi-Option Facility Agreement, the said credit facilities were to be secured by a pari passu charge on the current assets of the respondent no.2 Company, within six months from the date of first disbursement; (v) the respondent no.2 Company availed the Short Term Loan Facility of Rs. 7,50,00,000/-, but did not utilise the remaining credit facilities; (vi) the respondent no.2 Company, from time to time, had been requesting the respondent no.1 Bank to roll over the Short Term Loan Facility; (vii) the respondent no.2 Company also did not create the stipulated security of pari passu charge upon its current assets in favour of the respondent no.1 Bank; (viii) the respondent no.2 Company did not adhere to the financial discipline and committed a breach of conditions agreed with the respondent no.1 Bank; (ix) the respondent no.1 Bank, vide its letter dated 23rd March, 2010 called upon the respondent no.2 Company to repay the outstanding dues of Rs.9,44,58,836/-along with future interest, and informed the respondent no.2 Company that upon failure of the respondent no.2 Company, the respondent no.1 Bank would be constrained to sell the pledged shares and appropriate the sale proceeds thereof towards its dues;

(x) however the pledged shares could not be sold, as the shares of the respondent no.2 Company were delisted from the Bombay Stock Exchange/National Stock Excha