📚 JAIIB 2025 • PPB • Module B (Ch 5 of 20) • Unit 26

Different Modes of Charging Securities

7 types of charges: assignment, lien, set-off, hypothecation, pledge, mortgage, appropriation. ICA 1872: contract essentials. Agency = POA. Bailment = bailor-bailee. Hypothecation = movable, no possession (SARFAESI). Pledge = Sec 172, possession transfers. 6 mortgage types (TPA 1882). Registration with ROC (Companies Act 2013).

⏱ 18 min read🎯 High Exam Weightage🧠 5 Memory Tricks⚡ 8 Flash Cards

Banky Creates Charges! 🔗

A security is useless unless a proper CHARGE is created over it. The type of charge depends on the nature of the asset — pledge for gold, hypothecation for stock, mortgage for property. Each has different legal implications!

“Sir, for a vehicle loan do we take pledge or hypothecation? And what about property — is that mortgage or hypothecation?” 🔗

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Section 1 of 9

Why Read This Chapter?

Creating the right charge = legally enforceable security = bank protected in default

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What are the different ways to create a charge on security?

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7 types: (1) Assignment — transfer of rights/debt (LIC policy). (2) Lien — right to retain (banker’s lien = implied pledge). (3) Set-off — combine debit+credit accounts. (4) Hypothecation — movable property, NO possession transfer (stock, vehicle). (5) Pledge — movable, possession TRANSFERS to bank (gold, Sec 172). Pawnee can SELL if pawnor defaults. (6) Mortgage — immovable property, 6 types under TPA 1882. (7) Appropriation — Sec 59-61 ICA, debtor directs which debt to repay. Key: hypothecation ≠ pledge (possession is the difference!)

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Exam Marks

4-5 questions — agency = POA (exam PYQ!), pawnee CAN sell (exam PYQ!), bailee must return goods (exam PYQ!), charge under Companies Act includes mortgage (exam PYQ!), hypothecation = constructive possession (exam PYQ!), simple mortgage = written instrument. HIGHEST weightage!

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Career Growth

Creating proper charges prevents security becoming unenforceable — protecting millions in bank lending

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Real Life

When you pledge gold or mortgage your house, understanding the charge type protects your rights

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Section 2 of 9

How Will It Benefit You?

Real career advantages

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Give me a real scenario!

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🔗 Scenario: A manufacturer takes a CC against stock (hypothecation — no possession transfer, stock stays with borrower). He also pledges FD for additional security (lien/pledge — bank holds FD). And he mortgages his factory (equitable mortgage — deposits title deeds with bank). Three different charges for three different assets. Manager verifies: hypothecation deed ✅, FD lien letter ✅, title deeds deposited ✅. ‘Three charges, three protections — perfect documentation!’ 🌟

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Section 3 of 9

What Is This Chapter About?

30-second summary

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Quick version, sir!

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This chapter covers: Contract (ICA 1872): Contract = agreement + enforceability. Sec 2(h). Essentials: proposal+acceptance, free consent, competent parties, lawful consideration, lawful object, not void. Agency: Agent acts for principal. Usual form = POA (exam PYQ!). Banks as agents when collecting instruments. Bailment: Delivery of goods by bailor to bailee for a purpose. Bailee MUST return goods (exam PYQ! — cannot keep). Bailee’s lien for services rendered. Bankers have general lien (Sec 171). 7 Charges: (1) Assignment: transfer of actionable claim (Sec 130 TPA). LIC policies, book debts. Legal vs equitable. (2) Lien: right to retain. General (all debts) vs particular (specific). Banker’s lien = implied pledge. (3) Set-off: combine accounts. Auto on death/insolvency. Cannot use lien+set-off simultaneously. (4) Hypothecation: SARFAESI definition — charge on movable WITHOUT possession. Includes floating charge. Becomes pledge when possession given. Constructive possession (exam PYQ!). (5) Pledge (Sec 172 ICA): bailment for security. Possession transfers. Pawnee CAN sell (exam PYQ!). (6) Mortgage (TPA 1882): transfer of interest in immovable property. 6 types: simple (written instrument — exam PYQ!), conditional sale, usufructuary, English, equitable (deposit of title deeds), anomalous. (7) Appropriation: Sec 59-61 ICA. Debtor directs. Registration: Companies Act 2013 Sec 77 — all charges registered with ROC within 30 days (+60 days extension). Charge includes mortgage (exam PYQ!). Non-registration: charge void against liquidator/creditors in winding up. CERSAI for SARFAESI.

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Section 4 of 9

Key Definitions — Banky Asks, Mentor Explains

Every term explained like you’re 10

Critical Term

Hypothecation vs Pledge

Hypothecation = movable, NO possession transfer. Pledge = movable, possession TRANSFERS to bank. Key difference = POSSESSION!

Possession!

Banky’s Understanding: Hypothecation (SARFAESI Sec 2): Charge on movable property WITHOUT delivery of possession. Borrower retains goods (stock, vehicle). Includes floating charge (crystallizes to fixed). Constructive possession only (exam PYQ!). Becomes pledge when possession actually given. Pledge (ICA Sec 172): Bailment of goods as security. Possession TRANSFERS to bank (gold, securities). Pawnor = borrower, pawnee = bank. Pawnee CAN sell if pawnor defaults (exam PYQ! — after reasonable notice). Key difference: POSSESSION — hypothecation=borrower keeps, pledge=bank keeps.

🧒 Analogy: Hypothecation = giving the bank a photo of your car as security (you keep driving it). Pledge = parking your car at the bank until you repay (bank keeps it). The car is the same — the difference is WHO HOLDS IT!

Critical Term

6 Types of Mortgage

Simple (written), conditional sale, usufructuary, English, equitable (title deeds deposit), anomalous — TPA 1882

6 types

Banky’s Understanding: 6 Mortgages (TPA 1882): (1) Simple: No possession transfer. Mortgagor binds to pay. Mortgagee can sell through court. Created by written instrument (exam PYQ!). (2) Conditional sale: Appears as sale, becomes void on repayment. (3) Usufructuary: Mortgagee takes possession and enjoys income (rents). (4) English: Mortgagor transfers property absolutely, reconveyed on repayment. (5) Equitable (deposit of title deeds): Deposit of title deeds with creditor in specified towns. No written document needed. Most common in banking. (6) Anomalous: Any mortgage not fitting above 5 types.

🧒 Analogy: 6 mortgages = 6 ways to use your house as collateral: Simple = promise to pay (bank can sell via court). Equitable = just hand over your title deeds (simplest for banks!). English = temporarily transfer ownership. Each has different legal procedures!

Critical Term

Contract Essentials (ICA 1872)

Contract = agreement + enforceability. Needs: proposal+acceptance, free consent, competent parties, lawful consideration+object

Sec 2(h)

Banky’s Understanding: Contract (Sec 2(h) ICA): Agreement enforceable by law. Contract = Agreement + Enforceability. All contracts are agreements but not all agreements are contracts. Essentials: (1) Proposal and acceptance. (2) Free consent (not by coercion/undue influence/fraud/misrepresentation/mistake). (3) Competent parties (age of majority, sound mind, not disqualified by law). (4) Lawful consideration. (5) Lawful object. (6) Not declared void. Minor’s contract = void ab initio (except for necessities).

🧒 Analogy: A contract is like a legal handshake: both parties must agree (proposal+acceptance), genuinely want it (free consent), be eligible (competent), exchange something valuable (consideration), for something legal (object). Miss any = handshake is invalid!

Critical Term

Agency & Bailment

Agency: agent acts for principal, usual form = POA. Bailment: delivery of goods, bailee MUST return (cannot keep!)

POA + Return

Banky’s Understanding: Agency: Agent employed to act for/represent principal. Usual form = Power of Attorney (exam PYQ!). Banks as agents when collecting cheques/instruments. Bailment: Delivery of goods by bailor to bailee for a purpose. Bailee MUST return goods to bailor (exam PYQ! — cannot keep). Bailee must use reasonable care. Bailee’s lien for services (can retain till paid). Banker’s general lien: Sec 171 ICA (bankers, factors, attorneys, policy brokers). Bailee must return accretions (cow+calf example).

🧒 Analogy: Agency = hiring a driver (agent) to drive your car (act for principal). The form is a driving licence (POA). Bailment = lending your car to a friend for a trip — the friend (bailee) MUST return it after the trip!

Critical Term

Registration of Charges

Companies Act 2013 Sec 77 — register with ROC within 30+60 days — charge includes mortgage — non-registration = void in winding up

30+60 days

Banky’s Understanding: Registration (Companies Act 2013 Sec 77): All charges by companies must be registered with ROC. Within 30 days of creation (+60 days extension on additional fees). Charge includes: mortgage (exam PYQ!), debenture charge, floating charge, charge on book debts, immovable property, movable property (not pledge), goodwill, patents, copyrights. Forms: CHG-1 (general), CHG-9 (debentures), CHG-5 (satisfaction). Non-registration: Charge void against liquidator and creditors in winding up. But valid against company itself while not in liquidation. CERSAI: SARFAESI Act registration. Registration Act 1908: Mortgage deeds registered with Registrar of Assurances (except equitable mortgage).

🧒 Analogy: Registering a charge is like registering a car — if you don’t register, it is still YOUR car (valid against company), but if there is an accident/dispute (winding up), you have no legal proof of ownership!

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Section 5 of 9

Chapter Explained in Simple Stories

So easy even Banky’s nephew understands

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Sir, explain this like a story!

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Three bite-sized stories coming up — impossible to forget! 🚀

🔗 Block 1: 7 Charges & Key Differences

7 charges: Assignment, Lien, Set-off, Hypothecation, Pledge, Mortgage, Appropriation.

Hypothecation: Movable, NO possession (stock, vehicle). Pledge: Movable, possession TRANSFERS (gold). Pawnee CAN sell (exam PYQ!).

Mortgage: Immovable, 6 types. Simple = written instrument (exam PYQ!). Equitable = deposit title deeds (most common in banking).

Agency = POA (exam PYQ!). Bailee must return goods (exam PYQ!).

Key Term

Hypo ≠ Pledge = Possession

The KEY difference between hypothecation and pledge is POSSESSION. Hypothecation = borrower keeps goods. Pledge = bank keeps goods. Everything else flows from this distinction.

🧑‍💼 Banky: “Hypo=no possession, pledge=possession+can sell, mortgage=6 types, agency=POA! 🔗”

📋 Block 2: Contract, Registration & Set-off

Contract (ICA Sec 2h): Agreement + enforceability. Essentials: consent, competent, consideration, object.

Set-off: Combine accounts. Auto on death/insolvency/garnishee. Cannot use lien+set-off together.

Appropriation: Sec 59-61 ICA. Debtor directs which debt to repay.

Registration: ROC within 30+60 days. Charge includes mortgage (exam PYQ!). Non-registration = void in winding up. CERSAI for SARFAESI.

Key Term

Charge = Mortgage (ROC)

Under Companies Act 2013, the definition of ‘charge’ includes a mortgage. So when a company creates a mortgage, it must be registered with ROC.

🧑‍💼 Banky: “Contract=agreement+enforceability, ROC 30+60 days, charge includes mortgage, CERSAI! 📋”

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Section 6 of 9

Exam Angle — Every Testable Point

All facts, numbers, definitions JAIIB tests

✅ Must-Know Facts — Highest Probability

Agency usual form = Power of Attorney — exam PYQ!
Pawnee CAN sell goods if pawnor fails to pay — exam PYQ! (True)
Bailee must return goods to bailor — exam PYQ! (cannot keep = False)
Charge under Companies Act includes mortgage — exam PYQ!
Hypothecation = constructive possession of goods — exam PYQ!
Simple mortgage created by written instrument — exam PYQ!
7 charges: assignment, lien, set-off, hypothecation, pledge, mortgage, appropriation
Hypothecation = movable, no possession | Pledge = movable, possession transfers
6 mortgages: simple, conditional sale, usufructuary, English, equitable (title deeds), anomalous
Equitable mortgage = deposit of title deeds — most common in banking
Contract = agreement + enforceability (Sec 2h ICA)
Set-off: auto on death/insolvency/garnishee | Cannot use with lien simultaneously
Registration with ROC: 30 days + 60 days extension | Non-registration = void in winding up
Assignment: transfer of actionable claim (Sec 130 TPA) — LIC, book debts
Appropriation: Sec 59-61 ICA — debtor directs which debt to repay first

📝 Previous Year Questions

Q: Usual form of agency:

A: (a) Power of attorney ✅

Q: Pawnee can sell if pawnor fails:

A: (b) True ✅

Q: Bailee can keep goods:

A: (a) False ✅ (must return!)

Q: Charge under Companies Act includes:

A: (a) Mortgage ✅

Q: Hypothecation involves:

A: (c) Constructive possession of goods ✅

Q: Simple mortgage created by:

A: (d) Written instrument ✅

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Section 7 of 9

Memory Tricks That STICK

Lock every fact permanently

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Too many facts! Help! 🤯

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These tricks will lock everything in forever! 🧲

🧠 Trick 1 — Hypo vs Pledge = Possession

#1 distinction

HYPOTHECATION = borrower KEEPS goods (Stock in godown, car with you) PLEDGE = bank KEEPS goods (Gold in vault, FD with bank) Difference = WHO HAS POSSESSION!

The fundamental difference is possession. In hypothecation, goods stay with borrower. In pledge, goods go to the bank.

🧠 Trick 2 — Pawnee Can Sell

Pledge power

PAWNEE (bank) CAN SELL! If pawnor (borrower) defaults After reasonable notice (More powerful than just holding!)

Unlike a mere lien where the bank can only retain, in a pledge the pawnee (bank) has the right to SELL the goods after giving reasonable notice.

🧠 Trick 3 — 6 Mortgages

TPA 1882

6 Mortgages = SCUEA+A: Simple (written!) Conditional sale Usufructuary (income) English (absolute transfer) Equitable (title deeds – banks love!) Anomalous (others)

Six types of mortgage under TPA 1882. Simple requires written instrument. Equitable (title deed deposit) is most common in banking.

🧠 Trick 4 — Agency = POA

Usual form

AGENCY usual form = POA! (Not indemnity bond!) (Not guarantee bond!) POA = Power of Attorney!

The usual/standard form of contract of agency is a Power of Attorney. The exam gives indemnity bond, guarantee bond as distractors.

🧠 Trick 5 — ROC Registration

30+60 days

Register charge with ROC: 30 DAYS from creation +60 days extension (extra fee) Non-registration = void in winding up (But valid against company itself!)

Company charges must be registered with ROC within 30 days (extendable by 60 days). If not registered, the charge is void against liquidator and creditors in winding up.

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Section 8 of 9

Visual Summary — Chapter Map

Entire chapter in one diagram

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Section 9 of 9

Flash Revision — Last-Minute Cards

Read these 10 minutes before exam

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EXAM IN 15 MINUTES! 😰

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8 cards — read twice, you’ll get every question right! 💪

Hypothecation

Movable | NO possession transfer

Stock, vehicle | SARFAESI definition | Constructive possession

Pledge

Movable | Possession TRANSFERS to bank

Gold, securities | Sec 172 ICA | Pawnee can SELL

Mortgage

Immovable | 6 types under TPA 1882

Simple=written | Equitable=title deeds (banking favorite)

Assignment

Transfer of rights/debt | LIC, book debts

Sec 130 TPA | Legal vs equitable

Agency

Agent for principal | Usual form = POA

Banks as agents for collection

Bailment

Bailor→Bailee | Must return goods!

Cannot keep | Lien for services rendered

Set-off

Combine debit+credit accounts

Auto on death/insolvency | Cannot use with lien

Registration

ROC: 30+60 days | Charge = includes mortgage

Non-registration = void in winding up | CERSAI for SARFAESI

⚡ Chapter 26 Complete — Different Modes of Charging Securities

7 charges: assignment, lien, set-off, hypothecation, pledge, mortgage, appropriation
Hypo vs Pledge: possession is the key — hypo=borrower keeps, pledge=bank keeps (can sell!)
6 mortgages: simple (written), conditional sale, usufructuary, English, equitable (title deeds), anomalous
Agency=POA, bailee must return, ROC 30+60 days, charge includes mortgage

Banky says: “Hypo=no possession, pledge=possession+sell, mortgage=6 types, agency=POA, ROC 30+60!” 🎉🔗

You now understand all 7 modes of charging securities. The right charge on the right asset = legally enforceable security! 💪

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