Modes of Creating Charge

Presented By:

Dr. Minakshi Duggal Mehta

Assistant Professor (Commerce) Hans Raj Mahila Maha Vidyalaya,

Jalandhar

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Discuss in detail the different modes of securing advances.

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Discuss in detail the different modes of creating charge on assets.

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INTRODUCTION

Security is considered as one of the most important factors which determines the banker’s willingness to lend money. The banker cannot take the risk of non recovery of money lent. In case of borrower’s inability to pay, the banker must have some tangible assets to fall back upon. The bankers therefore tries to get some charge created on the assets of borrower in his favour. Such charge makes the asset available to banker when needed in satisfaction of advance made by him.

MODES OF SECURING ADVANCES

LIEN

• It means the right of a person to retain property of another person until the demand of person holding the lien are satisfied.
• Banker is empowered to retain the property offered as security till the entire loan is repaid.

There are two types of lien

• Particular lien
• General lien

PLEDGE

It means bailment of goods as security for payment of a debt.

• Bailment of goods
• Redelivery to pledger
• Purpose of pledge should be securing loan
• Owner of property
• Agreement creating a charge

Rights of Pledgee

• Right of retainer
• Right to claim extraordinary expenses
• No right to retain in respect of other assets
• Right against third parties

Duties of Pledger

• Disclosure of material risk
• Reimbursement of expenses
• Title of goods

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HYPOTHECATION

• Neither ownership nor possession of goods is transferred to banker.

Precautions

• Should be allowed only when pledge is not possible.
• Financial soundness must be ensured
• Title of goods
• Letter of hypothecation

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MORTGAGE

It is a charge created by offering immovable property.

Types

• Simple mortgage
• Mortgage by conditional sale
• Usufructary mortgage
• Mortgage by deposit of title deeds
• English mortgage
• Anomalous mortgage

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ASSIGNMENT

• It means transfer of an existing or future right over property or money by one person to another
• The person transferring the right is called the “assignor” and the person to whom right is assigned is called the “assignee”.

Types

• Legal
• Equitable

SET-OFF

• It means total or partial merging of a claim of person against another in a counter claim by the latter against the former

Features

• Both debts must be for certain sum.
• No setting off in the account of guarantor till his liability is determined.
• This right cannot be exercises alongwith right of lien