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CMA Foundation · Fundamentals of Business Laws and Business Communication · Meaning of Indemnity, Guarantee, Pledge, Agent

Anil delivers machinery parts to Bharat to hold as security for Anil's Rs 2,00,000 loan from Bharat. Which statement is correct as per the Act?

It is a pledge, with Anil as pawnor and Bharat as pawnee. Anil bails goods as security for a debt he owes, which fits the definition of pledge. No third person's liability is guaranteed, and no promise to save from loss exists.

  1. AThe arrangement is a guarantee because Anil is a surety
  2. BThe arrangement is an indemnity because Bharat promises to save Anil from loss
  3. CThe arrangement is a pledge, with Anil as pawnor and Bharat as pawneeCorrect
  4. DThe arrangement is a pledge, with Anil as pawnee and Bharat as pawnor

Explanation

Delivery of goods by a debtor as security for a debt is a bailment for security, hence a pledge under Section 172. The bailor, Anil, is the pawnor and the bailee, Bharat, is the pawnee. The last option reverses the roles. No third person's default is involved, so it is not a guarantee.

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