LOANS & ADVANCES

CHARGESONSECURITIES

PLEDGE
Pledge is defined in section 172 of Indian Contract Act
Pledge is the bailment of goods as a security for payment of a debt or performance of a promise.
Bailment is defined in Indian Contract Act.
Bailment means delivery of goods with some purpose and with the condition that when the purpose
is accomplished the goods will be delivered back to the.bailor.
Pledge can be only in respect of movable goods like stocks. On Railway receipt also charge is
created by pledge.
In the case of pledge, ownership remains with the borrower; only possession is transferred to the banker.
The bank as a pledgee must take care of the goods pledged as a person of ordinary prudence would
take of his own goods of the same value.
Bank can sell the goods without intervention of the court in case the pledgor fails to repay the bank
loan. But the sale can be done only after giving reasonable notice to the pledgor.
Bank as a pledgee has priority in right over the goods and Bank's right of sale under pledge cannot
be extinguished even by lawful seizure of goods pledged to it.
HYPOTHECATION
Hypothecation is defined in Section 2 of Sarfaesi Act.
Hypothecation is also done onmoveable property like stocks.
In case of hypothecation both ownership as well as possession remains with the borrower i.e. neither
ownership nor possession is transferred to the bank.
The charge created in Hypothecation is equitable charge.
When stocks are hypothecated to the bank, the charge is floating charge.
Basic difference between pledge and hypothecation is on account of possession.
ASSIGNMENT
Provisions relating to Assignment in section 130 of Transfer of Property Act.
Assignment is transfer of right or interest to recover the debt.
The transferor of claimis called as the assignor and the transferee is called the assignee.
Assignment is done on Book Debts, Supply Bills, L1C policy, fixed deposit etc.
Assignment is possible through writing only.
Acknowledgment required to be acknowledged by original debtor uis 131.
Assignor cannot give better title to the assignee than what assignor has.
In case of default, the assignee can recover the actionable claimamount fromthe original debtor without reference to
assignor.
MORTGAGE
Mortgage is defined in Section 58 of the Transfer of Property Act.
Mortgage is the transfer of interest in a specific immovable property, for the purpose of securing an
existing or future debt
The person creating the mortgage is called as the mortgagor and the person in whose favour mortgage
is created (bank) is called as the mortgagee.
Mortgage is created on immovable property like land and building.
Types ofMortgage: There are six types ofmortgages namely (i) SimpleMortgage (ii)Mortgage by Conditional Sale
(iii) UsufructuaryMortgage (iv) EnglishMortgage (v)Mortgage by Deposit of title Deeds (EquitableMortgage) and
(vi) AnamalousMortgage.Of these, allmortgages except EquitableMortgage require registration with the Registrar
of Assurances.
RegisteredMortgage: In the case of registeredmortgage (also called legalmortgage) first amortgage deed is written
which is stamped as per Stamp Act of the concerned state. The deed is then executed in the presence of two
witnesses. Thereafter, in terms of the Indian Registration Act 1908, it is to be registered with the Registrar of
Assurances (Sub Registrar) within 4months of the execution.
EquitableMortgage:
 EquitableMortgage is created bymere deposit of title deeds of property with intention to borrow.
 Title deedsmay be deposited by themortgagor himself or his agent.
 Title deeds should be deposited with the bank at Mumbai, Kolkatta and Chennai or any other town
notified by the State Government in this regard.
 Property may be situated anywhere in India. For property located in Lucknow, title deeds can be
deposited at Chennai.
 It is not necessary that the title deeds should be deposited with the branch or at the place where the loan is being
raised. These can be deposited anywhere in India at a notified place.
 The bank should not part with the title deeds even for a short duration at the request of themortgagor because if
some other creditor is induced to finance on the basis of title deeds, the bankmay lose priority over the
mortgaged property.
 EquitableMortgage does not require registration with Registrar of Assurances. But in case of a limited
company charge in respect of equitablemortgage under Section 125 of the Companies Act. 1956must be
registered with Registrar of Companies.
 All mortgages in favour of bank require registration with CERSAI (established under SARFAES1
Act) within 30 days.
Right of Foreclosure Available for Mortgage by Conditional Sale only
Personal liability of mortgager Not available for Mortgage by conditional sale
and usufructuary mortgage
Right to sale without court intervention English Mortgage.
Registration of mortgage with
Registrar of
Assurances not required in
Equitable Mortgage.a
There is absolute transfer of property English Mortgage
Loan is repaid out of income from the
mortgaged property
Usufructory mortgage
possession of property is with mortgagee Usufructory mortgage
VARIOUS KINDS OF CHARGES OVER SECURITIES Charge
immovable Property like land and building Mortgage
Actionable claims like Book debts, FDR. NSC, Life Policies Assignment
Movable property/_goods like Plant &machinery, stocks, vehicle, RIR Pledge or hypothecation
Paper securities like Shares, debentures, MF units, bonds Lien