Section 587: Rights of the person who obtains collateral or deposit

1) If a debt has been taken having pledged any goods as a collateral or deposit for its payment and makes a default in payment of the debt or interest of the debt, if any, within the specified period, the person who has taken the collateral may initiate the right to take legal action to recover the debt in accordance with law, by selling or auctioning the collateral so given at the prevailing market price or transfer the ownership of such security in his or her name subject to law, if such sale or auction cannot be made.

2) If the goods pledged as collateral are sold at a price lesser than the amount recoverable by the person who has taken the collateral from the borrower under sub-section (1), such a person shall be entitled to recover the shortfall amount from the other assets of the borrower, and the collateral is sold at a price higher than the amount to be recovered, the excess amount shall be returned to the borrower.

3) Notwithstanding anything contained in sub-sections (1) and (2), the person who has given the goods as collateral may take back his or her goods at any time by paying the debt and interest thereon and other amounts, if any, due and payable prior to the sale of the pledged goods or the transfer of ownership thereof.

Provided that the person who has given the collateral shall also be liable to bear additional liability arising to the goods pledged from his or her failure to pay the amount within the specified period.

4) If a deposit is taken as security for the performance of a promise and the promise is not performed or completed within the specified time, the goods pledged as a deposit may be used for the performance of the promise, or the expenses incurred in such performance may be recovered from such goods.

5) If the promise cannot be performed from the goods pledged as a deposit, such shortfall amount may be recovered from the other assets of the borrower.