Borrowing Against Property

Hypothecation

Pledge and Hypothecation

Mortgage
Hypothecation
Hypothecation is not statutory creation but is product or
trade usage.
It is kind of pledge where the pledged goods remain in
the possession of pledger for his use.
Exp : Auto loan and car loans
Hypothecator holds goods as agent and not as owner
Goods are liable to be returned to Hypothecatee under
the circumstance stated in contract
If hypothecator refuse other person can seek court help
in getting back the same
Hypothecatee grants right to use goods to Hypothecator
Where the charge is by way of Hypothecation
creditor cannot directly seize the goods by
entering premises.
He has to do so either with the consent of the
borrower or through a court order.
The creditor does not have right to enter the
premises and lock and seal the same.
A hypothecatee is not in actual possession of
goods. He grants right to use to the borrower.
Pledge and Hypothecation
Pledge
Pledged goods are stored in godown under the lock
and under bank supervision
- Exp Gold loan, Loan against FD shares NSC
No withdrawal or addition is possible without bank
permission
- Some times bank takes constructive possession and
they are allowed to be kept without lock at the
premises of the borrower.
- Borrower is bound to submit regular returns to bank
indicating increase or decrease
- Exp Loan against stock or book debts



Mortgage of Immovable property
Meaning
Transfer of an interest by pledging a property as
security against an advance as loan
It is transfer of limited interest of an immovable
property as security against a loan
Mortgagor Transferor
Mortgagee Transferee
Mortgage deed By which transfer effected

Elements of Mortgage
Transfer of Interest
Specific immovable property
Security
Consideration or purpose
Competence of party
Registration Is compulsory if value more than Rs
100.
Mortgage by deposit of title does not
registration.

Transfer of interest
Mortgagor transfer only interest in property not
ownership
Mortgage is only to secure the due payment of debt
In sale there is transfer of all rights attached to
property
But in mortgage Mortgagor has several rights to
property such as possession, right to sell , right to
enjoy.
Mortgagor transfer any one of right to mortgagee
Kinds of Mortgages
Sec 58 of Transfer of Property Act 1882
recognizes following 5 mortgages.
1. Simple Mortgage
2. Usufructuary Mortgage
3. Mortgage by condition sale
4. English Mortgage
5. Mortgage by deposit of title deeds

Documents for Company Applying for
Loan
Copy of board resolution
AOA Board resolution subject to AOA Limits
Personal Guarantee of director
Board resolution for Acknowledgement of Debt
Borrowing Limit Directors of Public company
cannot borrow in excess of paid up capital and free
reserves
MOA and AOA To be examined by bank
Registration of charges ( Sec 125 of companies Act )
Registration of charges
In case of all the companies some charges on their
assets have compulsorily to be registered with ROC
under section 125 of the Companies Act 1956
Some charges to be registered are
- Charge on immovable property
- Charge on book debts
- Charge on movable property
- Floating charge on undertaking and stock


Effects of non registration of charge
Particulars of charge with copies of documents have
to be filed for registration within 30 days from the
date of creation of charge
Failure to register the charges charge will be void
against liquidator any creditor of the company
In such case debt becomes unsecured and payable
immediately
Form 8, Form 10 and Form 17
Hire Purchase Agreements
It is contractual agreement under which the owner lets
his goods on hire to the hirer and offers an option to
purchase the goods in accordance with terms of contract.
The goods are delivered by the owner to a person on a
condition that the person receiving such goods should
pay the agreed amount in some timely installment
Property in goods transferred on payment of last
installment
The person has right to terminate the agreement before
property passes on

Elements of HP agreement
Hirer Person who acquire possession of
goods
Owner A person who delivers possession of
goods under hire purchase agreement
Hire Sum payable periodically by hirer as per
HP agreement
Hire purchase price Total Sum payable by
Hirer under HP agreement
Lease of Property
Lease of immovable property is a transfer of right of a right to
enjoy the possession for a limited period of time
It can be oral or perpetuity
Right of possession is essential part of lease.
Sec 105 to 117 Transfer of Property Act 1882 deals with lease
of immovable property
Sec 105 A lease of an immovable property is a transfer of a
right to enjoy such property made for certain time, express or
implied , or in perpetuity in consideration of a price paid or
promised or of money a share of crops, services of any other
thing of value to be rendered periodically or on specified
occasions to the transferor by transferee, who accepts
transfer of such terms.
Elements of lease agreement
Parties - To be competent to enter into contract. A
person can not grant lease to himself
Subject Matter - Subject matter is Immovable
property governed by TP Act .
Term Period - Date of commencement and
termination to be mentioned
Consideration or rent
Procedure for lease - A lease of immovable property
more than 1 year to be registered

Exchange / Gift
Sec 118 to 120 of TP Act deals with concept of
exchange
Exchange means the transfer of a thing for another
thing
Exchange of one property for another
Property may be movable or immovable


Exchange
Sec 118
When 2 person mutually transfer the
ownership of one thing for ownership of
another neither thing nor both the things
being money only, the transaction is called
exchange
Gift
A gift is the transfer of ownership of an existing movable
or immovable property voluntarily and gratuitously I e
without any consideration by the donor to the donee
To be valid gift donee acceptance of donee is essential
element.
The acceptance to be given during the life time of donor
Act recognizes gift between living person
Gift by will comes under Succession Act not TP Act
Gift of immovable property has to be through registered
deed signed by Donor and attested by 2 witnesses.
Sec 122 to 129 TP Act deals with Gift


Sec 122 Defines Gift As follows
Transfer of certain existing movable or immovable
property made voluntarily and without
consideration, by one person , called donor , to
another called donee and accepted by or behalf of
donee.
Such acceptance must be made during the lifetime
of the donor. If donee dies before acceptance, the
gift is void.
Minor cannot be the donor, but can be donee.
Property gifted must be in existence it cannot be for
future property.
Gift should be made to ascertainable person not to
general public.

Elements of Gift
Two parties - Donor and donee. Donor should be
competent party
Intention to Donate
Tangible subject matter. TP Act does not deal with
intangibles
No consideration It should be without consideration
Free consent It should not obtained from coercion,
undue influence , fraud and misrepresentation
Acceptance by donee unconditionally
Delivery of gift property