Section 38 : Consequences of pledging property without sufficient title as collateral or ‘deposit

1) In case anyone has obtained credit or work by pledging as collateral or depositing any property to which he/she has no title or ownership or any property received under a contract which is void under this Act, and the person obtaining such collateral or deposit has no knowledge about the matter, the latter may demand the property from the to which he/she has a title so as to be kept as collateral or deposit. In case the former fails to provide such collateral, the latter may cause the contract to be void.

2) In case any property received under a void contract has been pledged as collateral or deposit, and such contract had become void before furnishing such collateral or deposit or the party receiving the collateral or deposit knows that the concerned property did not belong to the person furnishing it as collateral or deposit, the person obtaining such property as collateral or deposit shall have no right to it and may realise the amount to be realised by him/her or have the work to be performed from the other property of the party furnishing the collateral or deposit.

3) In case the person furnishing the collateral or deposit has a partial or limited title to or ownership of the property pledged as collateral or deposit, the person accepting such property as collateral or deposit shall also have title to that property to the same extent.