M. Darshika – Principal Associate
Introduction
Historically speaking, the doctrine of bailment has operated as the legal backbone for relationships of custody, possession, and responsibility concerning tangible goods. However, with ever evolving technology and digitization, in today’s digitized commerce, intangible assets such as data, cloud files, crypto holdings, etc., have grown central to economic transactions. The intersection of digitization and bailment presents new questions relating to control, liability, and legal protection for users entrusting their assets to service providers and platforms. Against India’s backdrop as an emerging digital superpower, updating and reimagining bailment for modern needs is both timely and essential.
Historical Foundations of Bailment in Indian Law
The origin of bailment is deeply rooted in English Common Law, where it is defined as ‘possession delivered for a specific purpose without transfer of ownership’. The Indian Contract Act, 1872 (hereinafter referred to as “Act”), codifies bailment in Sections 148 to 181 adapting the principles of the English Common Law within the Indian context. Under the Indian Contract Act, the essential elements of bailment include the delivery (actual or constructive) of goods by the bailor to the bailee, for a specified purpose. While delivery must be consensual, actual knowledge by the bailee need not always be present; constructive delivery suffices if the bailee obtains control over the goods.
Further, under the Indian context (and under most of the common law jurisdictions), bailments may be gratuitous or non-gratuitous, exist for safekeeping, hire, or as pledges. Regardless of type, the entrustment of possession, and not ownership, remains the fulcrum of bailment law in India[1]. The clear demarcation of rights and obligations has enabled bailment to flourish in commercial contexts, protecting the interests of both bailors and bailees.
Rights, Duties, and Liabilities in Bailment
The doctrine of bailment under Indian law intricately weaves together the responsibilities and obligations shared by the bailor and the bailee, centring on the custody and control of goods. The dynamic of this relationship stems not from mere transfer of ownership but rather from the entrustment of possession for a specific purpose, where both parties are bound by statutory and contractual stipulations.
The bailee (the individual or entity to whom goods are delivered) assumes a duty of care that mirrors what an ordinarily prudent person would exercise over their own belongings. This standard of care requires vigilance against negligence and mandates that the bailee ensures the safety of the goods entrusted to them[2]. The Indian jurisprudence has consistently reinforced this principle of holding bailees liable for loss or damage resulting from even minor lapses in care. Notably, the principles were further elucidated in the seminal case of Kavita Trehan v. Balsara Hygiene Products Ltd.,[3] where the Delhi High Court underscored the bailee’s responsibility and established that deviation from prescribed usage, or failure to observe ordinary prudence, attracts liability.
The bailor, on the other hand, is not without obligations. The bailor’s foremost duty includes apprising the bailee of any known defects or faults in the goods, especially those capable of impairing the functionality or entailing risk for the bailee[4]. Should a bailor fail in this duty, they may be held liable for any injury or loss suffered by the bailee, giving the doctrine a broad compensatory reach. It is incumbent upon the bailor to compensate the bailee for all necessary expenditures related to the bailed property, particularly in instances of gratuitous bailment, which inherently lack consideration.
The issue of a bailee’s liability for unauthorized use or deviation from the stipulated purpose has been a matter of particular scrutiny. Section 154 of the Act states that if the bailee employs the goods outside the agreed terms, they are held strictly liable for any loss or damage, regardless of whether such damage was foreseeable. Several judicial interpretations have interpreted Section 154 to mean that the bailee’s responsibility in such instances is absolute, curtailing defences based on intention or lack of negligence.
Mixed bailment scenarios further complicate this legal regime. When the goods of multiple bailors are mixed together intentionally or otherwise without consent, the bailee must bear the risk and the cost of separation, unless a contrary agreement exists. Where such mixing destroys or alters the character of one bailor’s goods, the bailee may be liable to compensate fully for the loss, reflecting the robust consumer protection embedded in bailment law.
Termination of the bailment relationship is statutorily and judicially regulated. Bailment concludes with the fulfilment of its designated purpose but may also end upon the expiration of the agreed period, death of either party where the bailment’s foundation is personal skill or confidence, or by mutual consent. After termination, the bailee is required to redeliver the goods to the bailor or effect their disposal in accordance with the bailor’s directives.
The complex interplay between rights, duties, and liabilities in bailment preserves the reliability of commercial engagements beyond mere exchanges of ownership. It upholds trust and certainty, providing clear delineations of accountability, and becomes particularly significant as digital transactions redefine traditional notions of control and custody. This thematic foundation is essential as one explores the translation of bailment principles to the volatile and intangible world of digital assets, where the same responsibilities must be duly adapted to fit contemporary realities.
Bailment in Modern Commerce: Challenges in Digital Context
The rise of digital commerce, characterized by intangible assets and technology-driven transactions, tests the traditional paradigm of bailment. The issue arises whether digital files, data, or crypto tokens are capable of classification as ‘goods’ under the present legal framework? The statutory definition of goods under the Sale of Goods Act, 1930[5], is confined to movable property, conventionally interpreted as tangible assets. As a result, digital files, data, and crypto tokens frequently fall beyond this legal framework, generating uncertainty and leaving users without clearly articulated remedies.
Digital possession no longer implies physical holding but rather denotes control, specifically, the ability to access, modify, or transfer digital assets. The rise of Software-as-a-Service (SaaS), cloud computing, and smart contracts exemplifies how delivery and possession can exist entirely in virtual environments[6]. In such models, users entrust their data or digital assets to third-party service providers, who assume ongoing control over storage and management. This delegation of control also introduces questions of liability, security, and trust, as possession is redefined by technical and contractual arrangements rather than physical custody.
Cloud storage arrangements highlight the evolving nature of digital possession. When a business client uploads confidential or commercially sensitive data to a cloud provider, there is an expectation that the information will be securely stored and kept private. However, in cases of data breaches or unauthorized access, traditional legal doctrines such as bailment may not provide a clear framework for recourse. As a result, affected parties are often left to seek remedies under general contract or consumer protection laws, areas that may not be well-equipped to address the unique risks associated with digital environments. A comparable issue arises in the context of cryptocurrency exchanges, where users transfer control of their digital assets to a third-party platform, expecting the ability to retrieve or transact with those assets at will. Yet, in situations involving insolvency, fraud, or hacking, users may find themselves without adequate legal protection unless courts or legislators extend the concept of bailment to cover intangible assets like cryptocurrencies[7].
Indian Case Laws and Emerging Jurisprudence
Recent judicial developments indicate a cautious but noticeable trend toward extending bailment principles into the digital domain, though this evolution is far from consistent. Courts in India are gradually acknowledging that control and custody can apply not only to physical objects but also to digital assets, which, while intangible, may still be subject to possessory rights.
A significant example is the Supreme Court’s ruling in PTC India Financial Services Ltd. v. Venkateshwarlu Kari[8], where the Supreme Court held that dematerialized securities, though electronically maintained and non-physical in nature, could form the subject of a valid pledge under bailment law. This judgment marks a pivotal step in aligning legal definitions with technological realities, offering a degree of encouragement to those advocating for an expanded interpretation of ‘goods’ and ‘possession’ in digital settings, as the Court acknowledged that delivery of possession could be constructive in such cases.
The regulatory challenges posed by cryptocurrency platforms in India have further fuelled discussion on applying bailment frameworks to digital assets. A 2024 publication in the NUJS Law Review argues for categorizing user-platform relationships in crypto exchanges as bailments, emphasizing the practical implications for user protection in scenarios involving platform collapse, cyberattacks, or misappropriation[9]. Such a classification could pave the way for restitution and compensation under established bailment norms, while also inviting regulatory scrutiny. However, user agreements with digital platforms often feature heavily one-sided liability clauses, which frequently fall short of the safeguards available under Indian statutory law. This discrepancy is especially problematic when service providers operate outside Indian legal jurisdiction, compounding the difficulty of seeking legal redress.
Comparative Analysis: International Developments
Comparative legal developments offer valuable perspectives for India as it contemplates adapting bailment principles to the digital age. In the United Kingdom, courts have been reluctant to treat digital data as subject to bailment, largely due to its intangible nature. In Your Response Ltd v Datateam Business Media Ltd[10], the English Court of Appeal held that purely digital information did not qualify as “goods” under traditional bailment doctrine, given the absence of physical form. This decision highlighted a significant gap in the law, and in response, ongoing policy discussions and law reform proposals, such as those from the UK Law Commission and the enactment of the Electronic Trade Documents Act 2023, indicate a growing awareness of the need to modernize legal definitions to accommodate digital realities.
In a notable contrast, several jurisdictions within the United States have adopted a more definitive legislative approach to the custody of digital assets. Wyoming, for instance, serves as a leading example, having enacted specific statutes that formally recognize digital asset custodians[11]. Crucially, this legislation imposes statutory obligations upon these custodians that are analogous to the duties of a bailee under common law. These obligations often encompass a high standard of care, including the implementation of robust security safeguards, the maintenance of fiduciary responsibilities, and bearing liability for losses resulting from unauthorized access or breach of duty. Such a framework provides users with clear, structured remedies in events like cyberattacks, mishandling of assets, or custodial insolvency, thereby offering greater legal certainty and protection.
Meanwhile, the European Union’s General Data Protection Regulation (GDPR) does not invoke bailment terminology but establishes a functional equivalent. Under the GDPR, data controllers are entrusted with personal data and are held to high standards of care, including obligations to prevent breaches, notify affected parties, and provide compensation for harm caused by data mismanagement[12]. This regulatory framework emphasizes the core elements of custody, responsibility, and accountability, the key attributes also found in bailment relationships.
Taken together, these international models underscore the legal and conceptual challenges of extending traditional property doctrines to digital assets. Yet they also offer a roadmap for India to consider legal reforms that formally recognize the custodial nature of digital data and the duties it imposes on service providers.
Statutory Reforms: Need for Expansion and Clarity
India’s existing statutory framework does not adequately address the unique legal status of digital assets. Key legislation, such as the Indian Contract Act, 1872 and the Sale of Goods Act, 1930, continues to rely on definitions of “goods” and “possession” grounded in the tangible, physical world. As a result, digital representations whether data, tokens, or virtual assets fall outside the formal legal categories that underpin bailment, ownership, and transfer. Judicial efforts to extend traditional doctrines have been valuable, but they remain piecemeal and cannot substitute for comprehensive legislative reform.
To address this gap, targeted statutory amendments or the introduction of a new legal instrument such as a Digital Bailment Code (DBC) would offer greater clarity. A DBC could codify responsibilities of digital custodians, such as standards of care, breach notification obligations, liability presumptions, and accessible remedies for users in the event of data loss, theft, or misuse[13]. Importantly, such a code must align with India’s broader data governance architecture, including the Digital Personal Data Protection Act, 2023 (as and when the same is implemented) and existing provisions under the Information Technology Act, 2000, to ensure cohesive protection of digital and personal assets.
While the DPDP Act introduces a robust privacy framework, it stops short of recognizing custodial or possessory duties akin to bailment. Incorporating concepts of digital custody into privacy legislation such as statutory presumptions of liability for data fiduciaries could significantly strengthen consumer safeguards and institutional accountability. This would not only reflect the realities of digital asset management but also help harmonize India’s legal landscape with emerging international norms.
Legal Challenges and Future Trajectories
In the absence of a formal legal framework recognizing digital bailment, individuals and businesses affected by data breaches or mishandling of digital assets must rely on general contract law, consumer protection statutes, or tort-based claims such as negligence. These avenues, however, often fall short of delivering effective remedies, especially where terms of service limit liability or where proving fault becomes technically complex. Embedding bailment principles into the legal treatment of digital assets would help clarify the contours of liability, streamline compensation processes, and facilitate more predictable dispute resolution mechanisms[14].
Compounding the challenge is the inherently transnational nature of digital assets and cloud-based storage systems. Many digital service agreements are governed by foreign law, and disputes are often subject to arbitration clauses or foreign jurisdiction, leaving Indian users with limited recourse. To mitigate this imbalance, domestic legal reform must be accompanied by efforts to develop cross-border enforcement protocols, bilateral cooperation on data governance, and modernized rules for digital asset adjudication.
As India advances toward a digitally driven economy, the legal infrastructure must evolve in tandem. Adaptive regulatory tools such as regulatory sandboxes, coordinated sector-specific standards, and integrated oversight across data protection, consumer rights, and technology laws are essential for building legal resilience in the digital domain[15]. A harmonized framework will not only enhance user protection but also support innovation by providing legal clarity to service providers operating in complex digital ecosystems.
Toward a Digital Bailment Framework: Reform Directions and Closing Reflections
India’s evolving digital economy necessitates a reimagining of traditional legal constructs, particularly in the realm of bailment. The current statutory and judicial frameworks grounded in notions of tangible goods and physical custody do not adequately address the complexities surrounding digital assets. In response, a multi-pronged reform strategy is required:
- Amendments to Existing Statutes: Key legislations such as the Indian Contract Act, 1872 and the Sale of Goods Act, 1930 must be updated to expressly include digital assets within the scope of “goods” and to clarify how possession and custody apply in virtual environments.
- Creation of a Digital Bailment Code: A dedicated statutory framework should be introduced to define the obligations of digital custodians, outline standards of care, establish presumptive liabilities, and provide accessible remedies for breach or misuse of entrusted digital property.
- Judicial Expansion Through Interpretation: Courts can play a critical role by extending bailment doctrines to digital contexts through purposive interpretation, particularly where statutory gaps exist. This would reinforce user protections and guide legislative development.
- Regulatory Harmonization: Any reform effort must be synchronized with existing data protection, consumer rights, and cybercrime legislation including the Digital Personal Data Protection Act, 2023 to ensure comprehensive coverage and effective enforcement across legal domains.
Conclusion
India’s aspiration to be a global leader in digital innovation and governance must be matched by an equally agile legal system. As individuals and enterprises increasingly entrust data and digital assets to intermediaries, the law must offer robust mechanisms for custody, accountability, and redress. Recognizing digital bailment as a distinct and necessary legal category is no longer optional but imperative for protecting user rights, strengthening digital trust, and ensuring the enforceability of obligations in a dematerialized economy.
The development of a modern, integrated bailment regime capable of accommodating digital realities will reinforce India’s position at the forefront of tech-driven legal reform. Such a regime must be grounded in statutory clarity, judicial adaptability, and regulatory coherence. Only then can the legal system offer the certainty and protection required for secure, responsible, and inclusive digital transformation.
[1] Kavita Trehan v. Balsara Hygiene Prods. Ltd., AIR 1992 Del. 103 (India).
[2] The Indian Contract Act, 1872, §151.
[3] Kavita Trehan v. Balsara Hygiene Products Ltd, AIR 1992 Del 103.
[4] The Indian Contract Act, 1872, §150.
[5] The Sale of Goods Act, 1930, §2(7) (India).
[6] R. Brownsword, Law, Technology and Society: Reimagining the Regulatory Environment (Routledge 2019).
[7] Reconceptualizing Bailment in the Age of Cryptocurrency Exchanges, 16 NUJS L. REV. 215 (2024).
[8] PTC India Fin. Servs. Ltd. v. Venkateshwarlu Kari, (2022) 9 SCC 704 (India).
[9] Reconceptualizing Bailment in the Age of Cryptocurrency Exchanges, 16 NUJS L. REV. 215 (2024).
[10]Your Response Ltd v. Datateam Bus. Media Ltd, [2014] EWCA Civ 281 (Eng.).
[11] Wyo. Stat. Ann. § 34-29-104 (2019) (enacted under the Wyoming Utility Token Act).
[12] Regulation (EU) 2016/679, arts. 5, 25, 32–34, 82 (General Data Protection Regulation, 2016).
[13] S. Kapoor, Towards a Digital Bailment Framework in India, 19 Indian J.L. & Tech. 92 (2023).
[14] Reconceptualizing Bailment in the Age of Cryptocurrency Exchanges, 16 NUJS L. REV. 215 (2024).
[15] NITI Aayog, India’s Strategy for New India @ 75 (2018); Reserve Bank of India, Regulatory Sandbox Framework (2019).
