Begin with the custody arrangement
Under section 148 of the Indian Contract Act, 1872, bailment involves delivery of goods for a purpose on terms that they will be returned or otherwise disposed of as directed when the purpose is accomplished. A customer-owned mould delivered to a contract manufacturer for a specific job may fit this framework. Check the agreement and evidence of delivery. Under section 149, delivery may occur through an act that puts the tools in the possession of the intended bailee or a person authorised to hold them on the bailee’s behalf.
Read the applicable text: Indian Contract Act, 1872, sections 148–154, 160–161 and 170.
Use an ordinary-prudence baseline
Section 151 requires the care an ordinarily prudent person would take of their own goods of similar bulk, quality and value under similar circumstances. Under section 152, absent a special contract, a bailee that takes that level of care is not responsible under that provision for loss, destruction or deterioration. Inventory counts alone do not establish care; preserve storage conditions, maintenance, access, movement and incident records.
Separate misuse from an ordinary custody incident
Section 153 lets the bailor avoid the bailment contract if the bailee does an act with the goods inconsistent with its conditions. Under section 154, the bailee must compensate the bailor for damage to the goods arising from or during unauthorised use. The statutory illustrations show that otherwise careful use does not excuse damage during that unauthorised use. A supplier must distinguish permitted production, subcontracting, test runs and any unauthorised work. Track the actual use window and incident facts.
Fix the return trigger and document tender
Section 160 requires return or delivery according to the bailor's directions without demand when the time expires or purpose is accomplished. Under section 161, if the goods are not returned, delivered or tendered on time because of the bailee’s default, the bailee is responsible to the bailor for loss, destruction or deterioration from that time. Record readiness, authorised destination, the actual offer or delivery, condition, and any disputed extension or refusal. A late inventory record is not itself proof of a valid tender.
Keep valuation separate from responsibility
Reconcile quantities and condition first, then support proposed repair costs, residual values and avoidable duplication. Check any special contract, release or tender separately. Section 170 may let a bailee retain the goods for unpaid remuneration for labour or skill actually applied to those goods in accordance with the bailment, absent a contract to the contrary. An unrelated unpaid invoice does not by itself establish that particular lien. An accounting reserve or insurer payment does not decide the underlying legal question.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Match the opening quantity
Twelve numbered tools were delivered, eight returned and three remain in storage. One tool is unaccounted for. Investigate the missing ID separately; a quantity gap alone does not decide the section 151 care issue.
Illustrative example 2: Trace damage to a use window
Four moulds were used in an unauthorised run and one was damaged. A supported repair quote is ₹46,000 plus ₹4,000 for necessary transport, or ₹50,000 before other adjustments. Keep proof of the use and damage rather than charging the full value of all four.
Illustrative example 3: Measure a custody discrepancy by batch
Two return crates should contain 36 and 24 items. Accepted counts are 35 and 22. The three-item shortfall is split one and two across the crates for further tracing.
Illustrative example 4: Separate deterioration periods
A tool's supported condition value falls from ₹3.2 lakh at the return deadline to ₹2.7 lakh after an incident during an assumed return default. The ₹0.5 lakh change belongs in the post-default evidence file, subject to valuation and liability analysis.
Illustrative example 5: Measure the tender gap
A contract fixes 10 August for return. A conforming tender first occurs on 14 August on the assumed facts. The elapsed gap is four calendar days; segregate a loss on 12 August from an event before the deadline.
Illustrative example 6: Avoid double counting a valuation claim
An assessment of total economic damage is ₹1.40 lakh and already includes a ₹0.45 lakh repair estimate. Adding the estimate again would present ₹1.85 lakh and overstate the working by ₹0.45 lakh.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm ownership and purpose | Signed tooling and manufacturing agreements |
| 2 | Identify each delivered item | Serial numbers and signed handover |
| 3 | Record condition on arrival | Photographs and incoming inspection |
| 4 | Define approved use and sites | Access records and subcontracting restrictions |
| 5 | Document reasonable storage and care | Inspection, maintenance and insurance files |
| 6 | Investigate incidents by time and location | Incident report and use logs |
| 7 | Identify the proper return trigger | Expiry date, completed job or instructions |
| 8 | Prove actual return or tender | Delivery record or dated conforming offer |
| 9 | Prepare an unduplicated loss schedule | Repair, valuation and recovery records |
| 10 | Resolve exceptions before closing custody | Signed reconciliation or disputed-item log |
Sixteen practitioner FAQs
1. Does customer ownership alone prove bailment?
No. Confirm delivery for a purpose and the agreed return or disposal.
2. Can physical custody matter without an asset on the supplier's balance sheet?
Yes. Custody duties are separate from accounting ownership.
3. Is every incident proof of lack of care?
No. Test the actual precautions and any special contract.
4. What comparison does section 151 use?
Ordinarily prudent care of one's own similar goods in comparable circumstances.
5. Do insurance proceeds determine liability?
No. Reconcile recovery and contractual liability separately.
6. Can a log show authorised use?
Yes, if tied to actual jobs, dates, tooling IDs and permissions.
7. Can sending tools to a subcontractor be assumed permissible?
No. Check the custody terms and customer authorisation.
8. What if damage occurs during unauthorised use?
Review section 154 and prove the relevant use and damage facts.
9. What if the purpose ends but no reminder arrives?
Section 160 can require return without demand.
10. Does booking transport prove tender?
No. Document an actual conforming return or tender.
11. What if the customer refuses collection?
Preserve the offer, its conformity and the refusal; assess the legal effect on the facts.
12. When does section 161 become relevant?
When the bailee defaults in returning, delivering or tendering at the proper time.
13. Does a disputed lien settle late-return responsibility?
No. Determine whether the lien exists and what it permits.
14. Should missing items be valued at new replacement cost automatically?
No. Substantiate the valuation and applicable measure of recovery.
15. What if a repair invoice is included in a loss report?
Keep one claim line for that cost to avoid duplication.
16. What closes the register?
Signed return or authorised disposal and an explicit resolution of any remaining dispute.
Official sources
Indian Contract Act, 1872, sections 148–154, 160–161 and 170