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Modes of Creating Charge in Credit

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13 views

Modes of Creating Charge in Credit

Uploaded by

Shruti Pathak
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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MODES OF CREATING

CHARGE IN CREDIT
WHAT IS CREATING CHARGE IN CREDIT?

 A charge is a right created by a borrower on their asset and properties in


favour of lender.
 Steps involved in creating charge in credit:
• Collateral Requirement
• Legal Documentation
• Registration
• Enforcement
• Release
MODES OF CREATING CHARGE IN CREDIT
MORTGAGE

 Mortgage is a legal agreement which deals with the transfer of the interest of
the immovable assets as a security for a loan.
 A “mortgagor” is a person or entity that borrows money to purchase a
property and pledges the property as collateral for the loan. The mortgagor is
responsible for repaying the loan.
 A “mortgagee”, on the other hand, is the lender who provides the funds to
the mortgagor. The mortgagee holds the legal right to the property until the
loan is fully repaid, at which point ownership transfers to the mortgagor.
HYPOTHECATION

 It refers to the practice of pledging on asset as collateral to secure a loan


without transferring ownership rights.
 The borrower who hypothecates the goods is known as ‘hypothecator’ and the
lender is termed as ‘hypothecate’.
 Hypothecation is resorted to such cases where transfer of possession of the
property from the borrower to the creditor is either impracticable or
inconvenient.
 For example, if the borrower wants to borrow on the security of motor
vehicle, which is being used as a taxi, it shall not be advisable to pledge the
vehicle with the bank, as it will deprive him of his livelihood.
PLEDGE

 It refers to an activity in which the borrower of fund uses securities as a form


of collateral to secure the funds it borrow.
 The borrower who pledges the property is called the ‘pledged’ or ‘pawnor’
and the person with whom the property is pledged is known as ‘pledgee’ or
‘Pawnee’.
 Essentials of pledge:
• Delivery of goods
• Transfer of ownership
• Rights in case of failure to repay
ASSIGNMENT

 Assignment means transfer of any existing or future right, property or debt by


one person to another person.
 The person who assigns the property is called assignor and the person to
whom it is transferred is called assignee.
 Usually assignment are made of actionable claims such as book debts,
insurance claims etc.
 In banking business, a borrower may assign to the banker:
• The book debts
• Money due from government department
• Insurance policies
FLOATING CHARGE

 This means a charge that is general and not specific. It is created on assets
which undergone change(stock).
 Floats over the present and future property of the Company, and it do not
attach any specific property.
 On happening of an event or contingency, it crystallizes as a fixed charge. It
means the Floating Charge becomes fixed when the company/firm ceases to
be a going concern or upon the commencement of winding up or on the
appointment of a receiver.
 A floating charge is an equitable charge which does not attach on any specific
property but covers the whole of the company’s property.
Floating Charges
Ex-
KEY POINTS

 Here are the key points regarding charge in credit:


• Mortgage: Uses immovable property as collateral.
• Hypothecation: Pledges movable assets without transferring ownership.
• Pledge: Involves transferring possession of movable assets as security.
• Assignment: Transfers rights or interests in assets to the lender.
• Floating Charge: Covers a class of assets whose value changes over time.
THANK YOU

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