Law Relating to Securities and Modes of Charge 2: Jaiib/DBF Paper 3 (Module B) Unit-12

Law Relating to Securities and Modes of Charge 2: Jaiib/DBF Paper 3 (Module B) Unit-12

Dear bankers,

As we all know that is Law Relating to Securities and Modes of Charge 2 for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are Law Relating to Securities and Modes of Charge- 2 (Unit-12), Legal Aspects of Banking Operations (Module B), Legal & Regulatory Aspects of Banking -Paper 3.

♦Pledge

Pledge means bailment of goods for purpose of providing security for payment of debt or performance of promise (as per the Section 172 of Contract Act 1872).

The Requirements are to be satisfied:

  • There must be bailment of goods (bailment means delivery of goods);
  • The bailment must be, by or on behalf of the debtor; and
  • The bailment, must be for the purpose of providing security for the payment of a debt or performance of promise.
  • Pawnor – The person whose goods are bailed
  • Pawnee – The person who takes the goods for security

Advantages of Pledge:

  • The goods are in the custody of the pawnee and, therefore, it is easy to sell in case of default. If the banker takes proper precautions, through periodical inspections, it will not be possible for the pawnor to create subsequent charges against the same goods.
  • Because of close supervision, it will not be possible for the pawnor to manipulate the stocks.
  • Even if the goods are lost, the banker can recover the amount under the insurance policy.
  • The formalities connected with the pledge are simpler then in the case of Mortgage.

♦Difference Between Hypothecation and Mortgage

BASIS FOR COMPARISON MORTGAGE HYPOTHECATION
Meaning Mortgage implies a legal process wherein the title of real estate property passes from the owner to the lender, as a collateral for the amount borrowed. Hypothecation refers to an arrangement, wherein a person borrows money from bank by collateralizing an asset, without transferring title and possession.
Applicable to Immovable asset Movable asset
Legal Document Mortgage deed Hypothecation agreement
Defined under Transfer of Property Act, 1882 SARFAESI Act, 2002
Indicates Transfer of interest in the asset. Security for payment of an amount.
Loan amount High Comparatively low
Tenure Long Comparatively short

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