Law Relating to Securities and Modes of Charge- 1: Jaiib/DBF Paper 3 (Module B) Unit-11

Law Relating to Securities and Modes of Charge- 1: Jaiib/DBF Paper 3 (Module B) Unit-11

Dear bankers,

As we all know that is Law Relating to Securities and Modes of Charge- 1 for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are Law Relating to Securities and Modes of Charge- 1 (Unit-11), Legal Aspects of Banking Operations (Module B), Legal & Regulatory Aspects of Banking -Paper 3.

♦Mortgage

  • Section 58 of the Transfer of Property Act, 1882 defines “ A mortgage is the transfer of interest in specific immoveable property, for the purpose of securing the payment of money advanced or to be advanced by way of loan, on existing of future debt or the performance of an engagement which may give rise to a pecuniary liability”.
  • The transferor is called the “mortgagor” and the transferee a “mortgagee”. The principal money and interest of which payment is secured is called “mortgage money” and the instrument by which the transfer is effected is called “mortgage deed”.

♦Six Different kinds of mortgage

  1. Simple Mortgage: Section 58(B) Transfer of Property Act
  • The mortgagee has no power to sale without Court Intervention
  • No right to get any payments out of the rents
  • Not in possession of the property
  • Registration is mandatory.
  1. Mortgage by conditional sale: Section 58 (c) Transfer of Property Act
  • The sale is ostensible and not real
  • If the money is not paid on the agreed date, the ostensible sale will become absolute upon the mortgagor applying to the court and getting a decree in his favour.
  • The mortgagee can sue for foreclosure, but not for sale of the property.
  • There is no personal covenant for repayment of the debt and therefore bankers do not prefer this type of the mortgage.
  1. Usufructuary Mortgage: Section 58(d) Transfer of Property Act
  • The mortgagee is put in possession of the mortgaged property. Here by possession means legal possession not a physical possession.
  • The mortgagee has the right to received rents and profits accruing from the property.
  • He mortgagee cannot sue the mortgagor for repayment of the debt., sale or foreclosure of the mortgaged property.
  • If the mortgagor fails to bring a suit for redemption within 30 years, the mortgagee becomes absolute owner of the property.
  • Banker do not prefer this form of mortgage for the following reasons
  • There is no personal covenant to repay the debt.
  • It will take very long time to recovery money through this process
  1. English Mortgage : Section 58(e) Transfer of Property Act
  • It provides personal covenant to pay on a specified date notwithstanding the absolute transfer of the property to the mortgagee.
  • There is an absolute transfer of the property in favour of the mortgagee. Property shall be re-conveyed to the mortgagor in the event of repayment of mortgage money.
  • The mortgagee can sue the mortgagor for the recovery of the money and can obtain a decree for sale.
  1. Mortgage by deposit of title deeds / Equitable Mortgage: Section 58(f) Transfer of Property Act
  • Where a person in any of the towns notified by the govt. concerned may, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title deeds.
  1. Anomalous Mortgage – Section 58(g) Transfer of Property Act
  • A mortgage which is not a simple mortgage, a mortgage by conditional sale and unufructuary mortgage and English mortgage or a mortgage by deposit of title deeds within the meaning of this section, is called an “Anomalous Mortgage”.
  • It is negatively defined and should not be anyone of the mortgages listed above.
  • It is combination of two mortgages: Simple and usufructuary mortgage
  • usufructuary mortgage accompanied by conditional sale

♦Difference between Equitable Mortgage and Pledge

Pledge Mortgage
Pledgee acquires only a limited interest in the property and ownership remains with the pledger. Here the legal ownership passes to mortgagee of course, subject to the mortgagor to redeem the property.
The Pawnee has ‘special property’ in the goods pledged and can sell the same in the event of default by the pledger, of course, after giving reasonable notice. The mortgagee, as a rule, takes decree of a Court of Law before having recourse against the property mortgaged.
Pawnee has no right foreclosure. He can only sell the property to realize his dues. In certain cases, the mortgagee can foreclose the property.

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