Morvi Mercantile Bank Ltd. v. Union of India (1965): Key Case on Pledge Rights

The Morvi Mercantile Bank Ltd. v. Union of India case is a landmark judgment under the Indian Contract Act, 1872, explaining the rights of a pledgee and its role in commercial transactions.

Case Background

Morvi Mercantile Bank Ltd. received certain goods as pledge security for a loan.
While the goods were in transit, they were lost or misused by the railway authorities, controlled by the Union of India.
The bank sued the Union of India, claiming that as a pledgee, it had a special property interest in the pledged goods and was entitled to recover compensation.

Key Legal Questions

Can a pledgee (pawnee) sue for damages if the pledged goods are lost or mishandled?
Does the pledgee’s right to claim damages depend on ownership of the goods?

Court’s Ruling

The Supreme Court ruled that under Section 172 of the Indian Contract Act, 1872, a pledgee has a special property interest in the goods, even though the ownership stays with the pledgor.
It confirmed that the pledgee can sue third parties (like the railway authorities) for loss or damage to the pledged goods.
The court highlighted that the pledgee’s rights go beyond possession—they also have the right to legally protect the pledged goods from wrongful acts.

Why This Case Matters

This ruling reinforced the legal rights of pledgees, ensuring they can take action to protect goods given as collateral for loans.
It strengthened the position of banks and financial institutions, which often rely on pledged goods as security.
The case is a cornerstone in commercial law, helping secure transactions and defining the role of pledge agreements.

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