IN THE SUPREME COURT OF PAKISTAN 
(APPELLATE JURISDICTION) 
 
 
PRESENT: 
MR. JUSTICE EJAZ AFZAL KHAN 
MR. JUSTICE SARDAR TARIQ MASOOD 
MR. JUSTICE FAISAL ARAB 
 
CIVIL PETITION NO. 3729 OF 2015 
(On appeal against the judgment dated 27.10.2015 passed 
by the High Court of Sindh, Karachi in Ist Appeal No. 
79/2015) 
 
M/s World Trans Logistics etc  
 
 
… Petitioners 
VERSUS 
Silk Bank Limited and others  
 
 
… Respondents 
 
For the Petitioners: 
Syed Waqar Hussain Naqvi, ASC 
 
For the Respondents: 
N.R. 
 
Date of Hearing:  
29.01.2016 
 
 
JUDGMENT 
 
FAISAL ARAB, J.- In the year 2009, the petitioner No. 1 obtained 
finance facility from the respondent No. 1 Bank. The finance was 
secured by mortgage of immovable properties as well as by pledge of 
goods. Subsequently, the petitioner No. 1 committed default in the 
repayment of its financial obligations. This resulted in respondent 
Bank’s filing recovery suit bearing No. 263/2010 in the Banking 
Court No. IV, Karachi for a sum of Rs.47,575,218.75/- under the 
Financial Institutions (Recovery of Finances) Ordinance, 2001. The 
petitioner No. 1 filed application for grant of leave to defend the suit, 
which was dismissed. After considering the breakup statements, 
suit was decreed in a sum of Rs.42,242,625/- along with cost of 
funds to be determined by the executing court under the provisions 
of Section 3(2) of the Financial Institutions (Recovery of Finances) 
Ordinance, 2001. The petitioner No. 1 then filed appeal in the High 
Court. Before the High Court the only ground that was urged was 
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2
that as the goods were pledged with the respondent No. 1 Bank and 
the same have been misappropriated by its officials, therefore, the 
petitioner No. 1 is not liable to make payment. It was claimed that 
the value of the pledged goods at the relevant time was 
Rs.46,495,500/-. The petitioner No. 1 has also filed a separate 
Banking Suit bearing No. B-54/2010 which is pending decision in 
the High Court. It was prayed that until the petitioner No. 1’s suit is 
decided, the recovery proceedings may be stayed. However, the 
Division Bench of the High Court dismissed the appeal vide 
impugned order dated 27.10.2015, hence this petition.  
 
2. 
 
Before this Court the quantum of the decretal amount 
has not been called in question. The only ground that has been 
urged is that as the pledged goods went missing under the control of 
respondent No.1 in its capacity as pledgee, therefore, the 
responsibility to account for them entirely falls on respondent No.1. 
In this regard, learned counsel for the petitioners relied upon the 
cases of Lallan Prasad Vs. Rahmat Ali and another (AIR 1967 
Supreme Court 1322), M/s Ali Traders Rice Dealer Gujranwala 
through Sole Proprietor and another Vs. National Bank of Pakistan 
(2015 CLD 1), Askari Bank Limited Vs. Waleed Junaid Industries 
and others (2012 CLD 1681), Sardar Muhammad Vs. Muhammad 
Israr etc (1995 SCMR 1356), A.M. Burq and another Vs. Central 
Exchange Bank Ltd and others (PLD 1966 (W.P) Lahore 1) and 
Apollo Textile Mills Ltd and others Vs. Soneri Bank Ltd (2012 CLD 
337).  
 
3. 
 
We have examined the ‘letter of pledge’ that was 
executed by the petitioner No. 1 on 31.7.2009 in favour of the 
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3
respondent No. 1 Bank. From paragraph 3 of this letter of pledge, 
the petitioner No. 1 committed itself that it shall maintain a register 
with regard to the pledged goods wherein all particulars of the goods 
and the quantities consumed therefrom from time to time shall be 
recorded. It was also committed that on weekly basis, the petitioner 
No. 1 shall furnish statement showing all entries made in the 
register from time to time. In paragraph 4 of this document, the 
petitioner No. 1 further committed that it will hold the respondent 
No. 1 Bank harmless and indemnified against all loss, injury, 
damage or deterioration that may be caused to the pledged goods as 
a consequence of fire, storm, tempest, earthquake, rains, floods, 
riots, civil commotion, theft, misappropriation or embezzlement. 
From these terms of the contract, it is to be seen whether only the 
constructive possession of the pledged goods was delivered to the 
respondent No. 1 Bank or the actual possession was with the 
petitioner No. 1.  
 
4. 
 
Under the Contract Act, a pledge is ordinarily construed 
to mean delivery of an article to the pledgee by the pledgor as 
security for a debt or for carrying out some engagement that has 
been committed by the pledgor with the pledgee. An article owned 
by the pledgor is physically delivered to be kept by the pledge as 
security until the commitment of the pledgor with the pledgee is 
honoured. However, in mercantile practice another form of pledge 
has also developed. Under this form, the actual delivery of goods is 
not entrusted to the pledgee as only constructive possession of the 
pledged goods is handed over. In this manner, the pledgor is allowed 
to utilize the pledged goods in his ordinary course of business. 
Examples of such form of pledge are pledge of raw materials and 
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stocks-in-trade of an industrial or commercial enterprise which 
need to be consumed on regular basis in the ordinary course of 
business. On account of such use continuous change takes place in 
the inventory. The inventory is to be replenished by the pledgor. 
Hence entire current inventory stands covered under the contract of 
pledge on which the pledgee can exercise his right to takeover in the 
event of breach of the contract by the pledgee. This form of pledge 
attaches certain conditions on the pledgor. Some of which, as an 
example, are enumerated below:-  
 
(i) 
maintain a register to record the particulars of the pledged 
goods and their time to time utilization and communicate 
to the pledgee changes in the level of inventory on weekly 
or fortnightly or monthly basis; 
 
(ii) 
The value of the inventory of the pledged goods is to be 
maintained to a level which meets the value of the security 
provided under the contract of pledge. 
  
(iii) 
hold the pledgee harmless against any loss, damage or 
deterioration caused to the pledged goods for any 
conceivable reason; and,   
 
(iv) 
obtain insurance cover against any loss, damage or 
deterioration that may be caused to the pledged goods; 
 
5. 
 
Thus in the above discussed form of pledge, the pledgor 
wears two hats, one that of a pledgor and the other that of a person 
authorized by the pledgee to hold the pledged goods in trust for the 
pledgee with the freedom to deal with them in the ordinary course of 
business. On account of enjoying such freedom, the pledgor is 
obligated to ensure that while dealing with the pledged goods, the 
security provided for the debt is not diluted or destroyed to the 
disadvantage of the pledgee. Furthermore, as the actual possession 
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5
of the goods under pledge is entrusted to the pledgor, the standard 
of care in relation to pledged goods, as envisaged under Section 151 
& 152 of the Contract Act, purely falls on the pledgor. If freedom to 
utilize the pledged goods is not made available to the pledgor 
engaged in some industrial or commercial enterprise and physical 
possession is retained by the pledgee then this would immobilize the 
pledgor from utilizing such goods in ordinary course of his business. 
The whole purpose of obtaining the finance under this type of pledge 
against raw materials or stocks-in-trade would thus stand 
frustrated.   
 
6. 
 
From the above discussion it is evident that a valid 
pledge can be created not only by actual delivery of articles but also 
by handing over constructive possession only. The pledgee retains a 
mere right to take possession of the pledged goods in case the 
pledgor commits default in discharge of his obligation. The 
character of pledge is not lost merely because actual physical 
possession of the pledged goods was not delivered to the pledgee. 
This is exactly what has been done in the transaction that is subject 
matter of the present proceedings.  From paragraph 3 and 4 of the 
letter of pledge, it can be seen that the petitioner No.1 was permitted 
by respondent No. 1 Bank to deal with the pledged goods. As the 
petitioner No. 1 was at liberty to deal with the pledged goods in his 
ordinary course of business, it was required under paragraph 3 of 
the letter of pledge that the petitioner No. 1 shall maintain a register 
for recording changes in the inventory of pledged goods that occur 
on account of petitioner No. 1’s consumption of the goods from time 
to time. Furthermore, paragraph 4 of the letter of pledge also 
provides that in case any loss or damage or deterioration in the 
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value of goods is caused that shall be borne by the petitioner No. 1 
without any responsibility whatsoever on the respondent No. 1 
Bank. So it is apparent that only constructive possession was 
delivered to the respondent No. 1 Bank and actual possession of the 
pledged goods was with petitioner No.1. Hence it was for the 
petitioner No.1 to take care of the goods as a man of ordinary 
prudence would take of his own goods and in case any loss, damage 
or deterioration is caused to the pledged goods, the respondent No. 
1 Bank cannot be held accountable. In the present case as the 
respondent No.1 Bank in terms of paragraphs of 3 of the letter of 
pledge dated 31.7.2009 was only having constructive possession of 
the pledged goods therefore it is not liable to account for the alleged 
theft or misappropriation of the pledged goods. In view of the 
different nature of pledge, the case law cited by learned counsel of 
the petitioners has no application to the present case.  
 
7. 
 
For what has been discussed above, we find no legal 
infirmity in the impugned judgment. This petition is, therefore, 
dismissed and leave is refused.   
 
 
JUDGE 
 
 
JUDGE 
 
 
 
JUDGE 
Islamabad, the 
29th of January, 2016 
Approved For Reporting 
Khurram