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Section 163: Bailor entitled to increase or profit from goods bailed

Indian Contract Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1872
Section 162 All 266 Sections of Indian Contract Act Section 164

Legal Commentary & Landmark Judgments: Section 163

Section 163 establishes the bailor's statutory entitlement to all natural increments, accessions, dividends, or profits that accrue from the bailed goods during the period of bailment, in the absence of any contract to the contrary.

  • Presumption in Favor of Bailor: In the absence of a specific contract to the contrary, all natural, civil, and financial accretions generated by the bailed property belong exclusively to the bailor.
  • Scope of Increase or Profit: Encompasses biological progeny (such as offspring born to bailed livestock), financial accretions (such as bonus shares, dividends, and rights issues accruing on pledged shares), and civil fruits (such as rents, yields, and interest).
  • Bailee's Duty of Fiduciary Delivery: The bailee is bound to redeliver the original chattel along with every accrued accession; retaining or appropriating the increase constitutes civil conversion and criminal breach of trust.
Key Landmark Precedents:
  • Standard Chartered Bank v. Custodian (2000) 6 SCC 427: The Supreme Court held that dividends and bonus shares accruing on pledged or bailed shares belong to the owner/pledgor, subject only to the pledgee's security interest, affirming the principle under Section 163.
  • Motilal v. Kerr (1900) 2 Bom LR 518: The Bombay High Court held that any offspring born to bailed livestock or profits derived from the use of bailed property must be accounted for and delivered to the bailor upon conclusion of the bailment.
Courtroom Practice & Strategic Litigation Guidance:

In commercial finance and share pledge litigation, always examine whether bonus shares, dividends, or interest coupons were retained by the bailee/pledgee. Draft the prayer in the plaint to explicitly claim not only the principal securities but also 'all accessions, bonus shares, dividend warrants, and accrued interest pursuant to Section 163 of the Indian Contract Act, 1872'.

Section 162 All 266 Sections of Indian Contract Act Section 164