Taking custody creates duties
Under section 71 of the Indian Contract Act, 1872, a finder who takes another person’s goods into custody assumes the responsibilities of a bailee. At a warehouse, office or store, record what was found, its condition and who took custody. Under section 151, use the care an ordinarily prudent person would take with comparable goods of their own. Segregate the item, prevent unauthorised use and document transfer and return. Section 152 qualifies liability for loss, destruction or deterioration where the Section 151 standard was met, absent a special contract.
Read the applicable text: Indian Contract Act, 1872: sections 71, 151–152 and 168–169.
Separate custody costs, reward and sale
Section 168 distinguishes a right to retain the goods for qualifying compensation from a right to sue. The finder cannot sue for voluntarily incurred preservation and owner-search trouble and expense under that provision, but may retain the goods against the owner until compensation is received. If the owner offered a specific reward for return, the finder may sue for it and retain the goods until it is received. Avoid treating an internally set administrative fee as an established lawful charge.
Apply both parts of the sale test
Section 169 applies to lost goods of a kind commonly sold. First show that the owner cannot be found with reasonable diligence, or refuses to pay lawful charges upon demand. In addition, the goods must be in danger of perishing or losing the greater part of their value, or lawful charges must amount to two-thirds of value. Neither long custody nor a charge ratio by itself proves the right to sell. Support value, actual charges, owner search and physical risk before authorising disposal.
Keep the assets and the money separate
Lost goods are not ordinary saleable inventory merely because the company holds them. Use a custody register, restricted access and a separate proceeds reconciliation for any authorised sale. Check whether sectoral, police or other applicable requirements affect the proposed action, especially for regulated items or disputed ownership. Refer a doubtful sale or return to an authorised reviewer before taking an irreversible step.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Custody count
Four items are logged. One is returned against matching identification and a signed receipt. Three remain in custody and should match the physical count.
Illustrative example 2: Below two-thirds
Goods are worth ₹30,000 and documented lawful charges are ₹18,000. The ratio is 60%, below two-thirds. Without the separate deterioration basis, the charge limb is not met.
Illustrative example 3: At the threshold
Goods are worth ₹45,000 and documented lawful charges total ₹30,000. The ratio is exactly two-thirds. Confirm the owner-search or refusal condition and other prerequisites independently.
Illustrative example 4: Deterioration evidence
A commonly sold item now valued at ₹20,000 is forecast to fall to ₹7,000 if spoilage proceeds, based on supported evidence. The projected fall is ₹13,000 or 65%; verify that the statutory danger and owner-related conditions are satisfied.
Illustrative example 5: Separate a proposed charge
A ₹9,000 custody schedule includes ₹2,500 with no supporting basis. Excluding it leaves ₹6,500 for review; even that amount must still be tested for lawfulness.
Illustrative example 6: Sale reconciliation
An authorised sale produces ₹27,000 and the reviewed lawful-charge working is ₹9,000. The arithmetic residual is ₹18,000. This is a reconciliation, not a direction to deduct the charges or retain the proceeds. Record and safeguard the proceeds while confirming entitlement, the treatment of charges and any other applicable rules.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the object | Description, serial numbers, location and condition. |
| 2 | Record when custody began | Finder, date and handover. |
| 3 | Protect the goods | Storage, access and preservation log. |
| 4 | Search reasonably for the owner | Queries, notices and dated responses. |
| 5 | Verify a claimant | Proof matched to non-public identifying details. |
| 6 | Review charges and reward | Invoices, purpose and evidence of any specific reward. |
| 7 | Assess value and deterioration | Current evidence and observed risk. |
| 8 | Test section 169 separately | Both parts of the test and authorised review. |
| 9 | Reconcile any proceeds | Sale record, charges and residual held. |
| 10 | Close the register | Signed return, other lawful disposition or continued custody. |
Sixteen practitioner FAQs
1. Does finding an item transfer ownership?
No. Custody creates responsibilities.
2. When does section 71 apply?
When the finder takes the other person’s goods into custody.
3. What standard of care should be recorded?
Ordinarily prudent care for comparable goods under section 151.
4. Can the company mix the item with its own stock?
Keep it segregated and traceable rather than treating it as company inventory.
5. Can the finder sue for voluntary search expenses?
Section 168 distinguishes retention from suing for those amounts.
6. What if a specific reward was offered?
Section 168 addresses the finder’s right to sue for that reward.
7. Can the finder always sell unclaimed goods after waiting?
No. Check the actual section 169 tests.
8. Is age of custody a substitute for reasonable diligence?
No. Preserve what was done to identify and locate the owner.
9. What if the owner refuses to pay lawful charges?
Document the demand and refusal and still test the second part of section 169.
10. Is two-thirds based on acquisition cost?
The statutory comparison is to value; support that value on the facts.
11. Must an item actually spoil before sale can be considered?
The rule concerns danger of perishing or losing the greater part of value.
12. Can an unsupported internal fee count toward the threshold?
Do not assume it is a lawful charge.
13. What if ownership is disputed?
Keep the item secure and obtain an authorised decision before release.
14. Can proceeds be posted straight to income?
Determine entitlement first and maintain a separate reconciliation.
15. Does the procedure override sectoral requirements?
No. Check any special obligations applicable to the item.
16. What is enough to close the register?
Document the verified return or lawful disposal and any outstanding funds.