Legal Regulation of Pledge in Uzbekistan

The institution of pledge is one of the fundamental mechanisms for securing the fulfillment of obligations in civil law relations. Its legal regulation in Uzbekistan is established by the Law “On Pledge” (new edition of May 1, 1998), which represents a comprehensive legislative act regulating both general provisions on pledge and specific forms such as pawn, mortgage, pledge of property rights, and securities.

The significance of this institution lies in ensuring the stability of civil turnover, increasing credit activity, and protecting creditors’ interests in the event of a debtor’s default.

According to Article 1 of the Law, a pledge is the transfer of property or property rights by the debtor (or a third party) to the creditor as security for the fulfillment of an obligation. In case of non-fulfillment or improper fulfillment of the obligation, the creditor has a preferential right to satisfy his claims at the expense of the pledged property.

Thus, the pledge combines security and incentive functions: the debtor is motivated to fulfill the obligation, while the creditor receives an additional guarantee of debt repayment.

Types of Pledge

The Law distinguishes several types of pledge:

• Pawn — property is transferred into the possession of the creditor;
• Mortgage — property remains with the debtor but is encumbered with the creditor’s rights;
• Pledge of property rights — secured by claims;
• Pledge of securities.

A special place is occupied by the pledge of goods in circulation, where the debtor retains the right to use and replace the pledged items, provided that their total value is maintained.

Subject of Pledge

The subject of a pledge may include things, property rights, and claims, except for:

• property withdrawn from circulation;
• claims inextricably linked to the creditor’s personality (e.g., alimony, compensation for harm to life and health);
• objects prohibited by law (e.g., cultural valuables or strategic assets of the state).

Thus, the legislator seeks to balance the interests of the creditor and public interests.

Creation and Formalization of the Pledge

A pledge arises on the basis of a contract or by law. In cases where notarization or state registration is required (e.g., mortgage), the creditor’s rights arise from the moment of performing such legally significant actions.

The Law clearly defines the contents of a pledge agreement: the subject, its value, the obligation secured by the pledge, the term of performance, and identifying data of the parties.

Rights and Obligations of the Parties

The Pledgee has the right to:

• demand preservation of the pledged property;
• satisfy his claims from its value;
• inspect the condition of the property;
• in the case of a pawn — retain the property until full performance of the obligation.

The Pledgor has the right to:

• use the pledged property (in case of mortgage);
• replace it with the creditor’s consent;
• terminate enforcement by early fulfillment of the obligation.

The balance of interests is also ensured through the obligation to insure the pledged property.

Enforcement on the Pledged Property

The creditor may enforce the pledge if the obligation is not fulfilled. This may occur:

• by court decision, or
• extrajudicially, if stipulated in the contract and notarized.

The Law separately regulates the sale of pledged property via electronic online auctions, ensuring transparency and competitiveness.

Termination of the Pledge

A pledge is terminated in cases of:

• fulfillment of the secured obligation;
• destruction of the pledged property;
• its realization (sale);
• transfer of the obligation to another debtor without the pledgor’s consent;
• and other grounds provided by law.

The institution of pledge in Uzbekistan combines classical legal constructions with modern mechanisms for protecting the parties’ interests. Special attention is paid to publicity, mandatory registration, and the possibility of realization through electronic auctions.

Thus, the pledge legislation serves as a key legal instrument ensuring the stability of credit relations and the development of the national economy.

Rights and Obligations of the Pledgee and the Pledgor

Criterion	Pledgee	Pledgor
Main Rights	• Priority satisfaction of claims from pledged property. • Enforcement on the pledged asset. • Transfer of rights under the pledge agreement to another person. • Control over the property’s condition; demand for insurance. • Receive insurance compensation in case of loss or damage to the property. • Use the property (in case of pawn) with reporting. • In case of pledged rights — demand their transfer.	• Early performance of obligation and termination of enforcement. • Replacement of pledged property (with creditor’s consent). • Possession, use, and receipt of income from the property (in case of mortgage, goods in circulation). • Lease or gratuitous use (with creditor’s consent). • Right to inherit and bequeath the property. • Demand termination of the pledge if the creditor violates his duties.
Obligations	• Preserve the property (if in possession). • Return it after termination of the obligation. • File documents for deregistration of the pledge. • Compensate losses in case of damage or loss.	• Use the property within the contract terms. • Inform about other pledges. • Maintain and insure the property (if required). • Avoid actions reducing its value. • Notify the creditor of third-party claims or property changes. • Ensure validity of the pledged right (if it’s a claim right).
Guarantees of Interests	• Demand early fulfillment if the pledgor violates conditions. • Priority right to insurance compensation.	• May stop enforcement by early payment. • Demand early termination of pledge if creditor grossly violates his duties.

This table illustrates the balance of protection:

• the pledgee is safeguarded in terms of credit repayment and property preservation;
• the pledgor — in terms of property use and protection from creditor abuse.

 

Enforcement Procedure on the Pledged Property

Stage	Description	Notes and Features
1. Grounds for enforcement	• Non-fulfillment of obligation. • Improper performance. • Liquidation or reorganization of the pledgor (legal entity). • Other cases under law or contract.	The violation must be material. Minor violations (amount <15% of pledge value and delay ≤3 months) do not justify enforcement.
2. Forms of enforcement	• Judicial procedure. • Extrajudicial procedure (per contract and notarized agreement).	Extrajudicial enforcement is allowed only with notarization and may be challenged by third parties in court.
3. Judicial procedure	• Enforcement through a court decision. • The court determines the scope of claims and method of realization.	Mandatory in certain cases (e.g., cultural assets or property requiring state approval).
4. Extrajudicial procedure	• Creditor and debtor may agree on realization without court. • The agreement must be notarized and made after grounds for enforcement arise.	Protects creditor rights but retains the debtor’s and third parties’ right to appeal.
5. Realization of property	• Sale via electronic online auctions (main form). • Alternatives: direct sale, credit, leasing, rent, installment.	Auction ensures publicity and fair market pricing.
6. Determination of price	• Parties agree on initial price. • In dispute — independent appraisal. • Expenses borne by the initiator.	Initial price must reflect market value.
7. Deficit/Surplus of proceeds	• If proceeds < debt — creditor may collect remainder from other property (without pledge privilege). • If proceeds > debt — difference returned to debtor.	Ensures fair distribution.
8. Failed auction	• Creditor may take property at starting price. • If repeated auction fails — may take property at 25% discount.	If creditor fails to act within a month → pledge terminates.
9. Realization of property rights	• Via assignment of claim to creditor. • Possible court application to transfer right.	Applies to pledge of receivables and intangible assets.
10. Distribution of proceeds	• Creditor’s claims satisfied first. • If multiple creditors — distribution according to statutory priority.	Ensures priority of secured obligations.

A well-structured enforcement procedure allows:

• the creditor — to guarantee debt recovery;
• the debtor — to be protected from excessive sanctions in minor breaches;
• the state — to ensure transparency and control over the circulation of pledged assets.

The pledge institution in Uzbekistan integrates traditional legal principles with modern digital mechanisms, ensuring both creditor protection and fair treatment of debtors. It serves as a cornerstone of the country’s financial and legal stability.