COLLATERAL LOANSEXPLAINED

Key Features:

• • No transfer of possession to lender
• • Borrower retains ownership and possession
• • Personal covenant for payment
• • Right to sell property on default
• • Most common form of mortgage
• • Suitable for home loans

Legal Implications:

• • Compulsory registration required
• • Creates charge on property
• • Lender can enforce through court
• • Sale proceeds used for debt recovery
• • Surplus returned to borrower
• • Deficiency remains borrower's liability

Structure:

• • Ostensible sale with condition
• • Sale becomes absolute on default
• • Borrower retains possession
• • Right to reconvey on payment
• • Higher security for lender
• • Complex documentation required

Advantages & Risks:

• • Immediate title transfer on default
• • No court intervention needed
• • Risk of unfair terms
• • Potential for exploitation
• • Requires careful drafting
• • Higher stamp duty implications

Mechanism:

• • Possession transferred to lender
• • Lender enjoys income from property
• • No personal covenant for payment
• • Income adjusts against debt
• • Property returned when debt cleared
• • Common in agricultural lending

Considerations:

• • Suitable for income-generating property
• • Lender responsible for maintenance
• • Risk of property deterioration
• • Complex income accounting
• • Limited commercial application
• • Regulatory restrictions may apply

Mandatory Steps:

• • Document preparation and vetting
• • Stamp duty payment
• • Registration fee payment
• • Biometric verification
• • Document registration
• • Certified copy collection

Key Considerations:

• • Registration within 4 months
• • Proper stamp duty calculation
• • All parties must be present
• • Valid identity proofs required
• • Witness requirements compliance
• • Penalty for delayed registration

Definition & Scope:

• • Charge on movable property
• • Borrower retains possession
• • No transfer of ownership
• • Contractual security arrangement
• • Covers present and future assets
• • Floating charge mechanism

Common Applications:

• • Vehicle financing (cars, trucks)
• • Machinery and equipment loans
• • Inventory financing
• • Stock and book debt
• • Working capital facilities
• • Trade finance arrangements

Documentation:

• • Hypothecation agreement
• • Vehicle registration certificate
• • Insurance policy assignment
• • Loan agreement
• • Delivery receipt
• • RTO endorsement

Legal Framework:

• • Motor Vehicles Act compliance
• • RTO registration of charge
• • Lender's name on RC
• • NOC required for transfer
• • Repossession rights
• • Sale and recovery procedures

Floating Charge Features:

• • Covers changing inventory
• • Allows normal business operations
• • Crystallizes on default
• • Priority over unsecured creditors
• • Requires periodic reporting
• • Stock audit requirements

Monitoring Mechanisms:

• • Monthly stock statements
• • Physical verification
• • Insurance coverage maintenance
• • Margin requirements
• • Drawing power calculations
• • Compliance certificates

Scope & Application:

• • General lien on customer's securities
• • Covers all debts to the bank
• • Automatic creation by law
• • No specific agreement required
• • Applies to negotiable instruments
• • Extends to safe deposit contents

Limitations & Exceptions:

• • Only on securities in possession
• • Excludes trust properties
• • Cannot cover illegal debts
• • Subject to prior charges
• • Limited to banking business
• • Waiver by conduct possible

Legal Remedies:

• • Suit for sale of mortgaged property
• • Suit for foreclosure
• • Suit for personal decree
• • Appointment of receiver
• • Possession and management
• • SARFAESI Act proceedings

Procedural Requirements:

• • Notice to borrower (60/90 days)
• • Valuation by approved valuers
• • Public auction procedures
• • Court confirmation (if required)
• • Surplus distribution
• • Deficiency recovery rights

Repossession Rights:

• • Right to take possession
• • Sale without court intervention
• • Private treaty sale
• • Auction sale procedures
• • Recovery of expenses
• • Surplus return obligation

Limitations & Safeguards:

• • Reasonable notice requirement
• • Peaceful repossession only
• • Fair market value sale
• • Account of sale proceeds
• • Right to cure default
• • Consumer protection laws

Rights & Powers:

• • Right to retain possession
• • Refuse delivery until payment
• • Claim for expenses
• • Interest on outstanding amount
• • Set-off against other debts
• • Transfer of lien rights

Limitations:

• • Cannot sell the property
• • Must maintain property
• • Reasonable care obligation
• • Loss of lien on delivery
• • Waiver by conduct
• • Time limitations