In an era defined by digitalization, the legal doctrine of Bailment, rooted in centuries of common law, is undergoing a remarkable transformation. Traditionally, bailment referred to the delivery of tangible goods from one person called the bailor to another called the bailee for a specific purpose, under the condition that the goods would be returned or disposed of as per the bailor’s instructions. This ancient legal concept, codified under Section 148 of the Indian contract Act, 1872, has found unexpected relevance in the age of digital assets, where property often exists not in the physical form but as intangible data, files, or code.
The world we live in today is not just digitally inclines, it is digitally dependent. Consequently, the traditional understanding of bailment must evolve to encompass the bailment of digital assets, addressing the rights, responsibilities, and liabilities in the novel landscape.
Bailment in the Digital realm:
By the definition, Bailment is the transfer of possession, not ownership for a particular purpose. In the physical world, it can be understood as leaving your car with a friend or leaving your clothes at the drycleaners. Ownership remains with the bailor, while the bailee assumes responsibility for care and return.
In the digital realm, however, the nature of the assets itself change everything. Digital assets are intangible, often stored in decentralized systems, and vulnerable to threats like hacking, unauthorized access, or accidental deletion. This fundamentally alters how we approach the principles of care, control, and restitution in bailment agreements. The digital bailee is now tasked not with safeguarding a tangible object but with managing access rights, encryption keys, and secure cloud storage systems.
For example, if a person stores confidential files using a third-party cloud service, they effectively enter a bailment like relationship. The cloud provider becomes the bailee and the user becomes the bailor. However, since there is no physical transfer of possession, the legal system must reinterpret what “delivery” and “return” mean in digital terms.
Digital bailment manifests in several contemporary forms:
Digital Bailment today takes many forms. One common example is cloud storage, like when you upload files to Amazon Web Services. You expect them to keep your data safe and ready when you need it, but these services often have fine print that limits their responsibility if something goes wrong.
Another form is server hosting, where companies like Google store your emails, photos, and documents on their physical servers. Even though the data is digital, the trust you place in them to protect is similar to handing over physical goods.
Lastly, Blockchain and smart contracts have introduced a more automatic system. These are like digital agreements that work on their own, no legal professional needed. They make sure your digital property is used and returned exactly as promised and everything is recorded clearly and securely.
These forms depict how the traditional idea of bailment i.e. entrusting someone with goods are also applicable to the digital arena.
Rights and Duties of a Bailor and Bailee:
A Bailor, as per Section 150 has the Duty to disclose relevant information about Digital Asset. For example, if a sensitive file is uploaded then the service provider has to be made aware of the same. Additionally, there is another duty of the Bailor under Section 158 according to which a bailee is entitled to receives payment for services rendered, such as storage or protection of data.
However, there are certain Duties of the Bailee as well especially under Section 151 and 153. According to Section 151, the bailee must take reasonable care to prevent unauthorized access, hacking or data breaches. Section 153 prohibits the bailee from misusing or sharing digital assets without permission.
Both Bailee and Bailor have certain rights. The bailor has the right to demand adequate safety protocols and the bailor must be able to retrieve and control their digital property after the purpose of bailment is fulfilled. Whereas, Section 164 and 180 give the rights to the bailee. Section 164 allows the bailee to charge for their services and Section 180 allows the bailee to take legal action against third-party interference with the bailed assets.
Despite these adaptations, legal gaps still exist, the lack of comprehensive IP Protections and enforceable digital bailment laws especially in a country like India leaves the bailor vulnerable. Most users consent to complex service-level agreements (SLAs) without fully understanding them, often waiving critical rights in the process.
Doctrine of Constructive Possession
The Doctrine of Constructive Possession is particularly relevant to digital bailment, where physical possession is impossible. It refers to a legal situation where a person, though not physically holding an item, exercises sufficient control over it to be considered in possession.
In digital bailment, platforms like Google and AWS gain constructive possession when users upload their data, entrusting the service provider to store and protect it. Though intangible, the control exercised by the bailee creates a legal relationship similar to traditional bailment. This doctrine helps bridge the gap between conventional custody and digital control. The SC’s ruling in PTC India Financial Services v Venkateshwarlu Kari (2022) affirms this approach by recognizing pledges over dematerialized securities based on entries in digital records. It shows that constructive possession can extend to digital assets, allowing traditional bailment principles to evolve in line with modern technological realities.
Legal Developments over the years:
Recent legal developments sugg est a growing recognition of digital assets within traditional legal frameworks. In TATA Consultancy Services v. State of Andhra Pradesh (2004), the Supreme court of India ruled that software, although intangible, qualifies as “goods” when stored on a medium like a CD. This reasoning opens the door to treating digital data when it’s stored on cloud platforms or other retrievable formats as “goods” under Sales of Goods Act. If extended, this interpretation could allow for digital bailment relationships to fall within existing legal doctrines. However, simply classifying digital data as good does not sufficiently address issues like privacy, misuse, or the responsibilities of custodians. These gaps indicate the need for a more layered legal response.
In PTC India Financial Services Ltd. V. Venkateshwarlu Kari (2022), the Supreme court further expanded the legal imagination around digital assets by upholding pledges over defamiliarized securities. The court emphasized that even entries in a depository’s record could constitute evidence of possession, reinforcing the idea that constructive possession of digital property is legally valid. However, this judgment was narrowly rooted in the Depositories Act, and pledges form only a subset of Bailment. To accommodate a full spectrum of digital custodial relationships, a dual approach is needed. The dual approach would firstly include, expanding the meaning of “goods” under Sales of Goods Act and Indian Contract act and secondly, enacting a dedicated Digital bailment Code which would specifically deal with Bailment of Digital assets to address accountability, privacy and misuse in the digital age.
Conclusion Digital Bailment reflects the evolution of traditional legal concepts in response to modern technologies. By recognizing digital assets through doctrines like Constructive Possession and updating legal frameworks, we can ensure accountability, trust and protection of digital custodial relationships, making bailment relevant and robust in the digital age.
Contributed by Paridhi Bansal (Intern)