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.
Legal Commentary & Landmark Judgments: Section 176
Upon default by the pawnor in the payment of the debt or performance of the promise, the pawnee possesses two distinct, concurrent statutory remedies: they may either bring a suit against the pawnor upon the debt while retaining the pledged goods as collateral security, or they may sell the pledged goods upon giving reasonable notice of the sale to the pawnor. The statutory requirement of reasonable notice before sale is mandatory and non-waivable.
If the sale proceeds fall short of the secured debt, the pawnor remains liable for the deficiency; if a surplus is realized, the pawnee must immediately remit the balance to the pawnor.
In commercial loan agreements against shares or gold, lenders often insert clauses stating 'the lender may sell the pledged collateral without any notice to the borrower'. Under Section 176 and settled Supreme Court law, any such waiver clause is void. A sale conducted without prior reasonable notice makes the lender liable for conversion.