1️⃣ Lien
Meaning
Right of a lender to retain possession of a borrower’s goods until the debt is paid.
Key Features
- Only right to retain, not to sell (except banker’s lien allows sale).
- Possession with lender.
- No transfer of ownership.
Example
Bank keeps gold ornaments until the customer repays loan.
2️⃣ Pledge
Meaning
Bailment of goods as security for repayment of a loan.
Key Features
- Possession is given to lender.
- Ownership remains with borrower.
- Lender can sell the goods if default occurs (after notice).
Example
Gold loan, where customer hands over gold to bank.
3️⃣ Hypothecation
Meaning
Charge on movable assets where possession remains with borrower, but lender has rights over the asset.
Key Features
- Possession not with lender.
- Used for vehicles, stock, inventory.
- If borrower defaults → lender can seize assets, often through court.
Example
Car loan where car remains with customer.
4️⃣ Mortgage
Meaning
Transfer of interest in immovable property (land/house) as security.
Key Features
- Only immovable property.
- Ownership stays with borrower (except English mortgage).
- Registered document required for large amounts.
Example
Home loan secured by property.
5️⃣ Assignment
Meaning
Transfer of rights or benefits from one person to another.
Two Types
- Legal Assignment – full and written transfer of rights.
- Equitable Assignment – when transfer is partial or not written.
Used In
- Life insurance policies
- Book debts/receivables
- LIC assignment to banks
Example
Customer assigns an insurance policy to the bank.
6️⃣ Charge
Meaning
A security created on assets without transferring ownership or possession.
Types
- Fixed Charge: On specific asset (e.g., land, machinery).
- Floating Charge: On changing assets (e.g., stock, inventory).
Example
Charge on company machinery for a term loan.
7️⃣ Set-off
Right of bank to adjust customer’s credit balance against his loan.
Example: Bank adjusts savings account balance against overdue loan.
8️⃣ Right of Appropriation
Bank can decide how to apply payment if customer doesn’t specify.
9️⃣ Right of Subrogation
After repayment of another party’s debt, lender gets its rights.
Example: Guarantor pays borrower’s loan → guarantor gets lender’s rights.
🔟 Guarantee
A contract where a third person promises to pay if borrower defaults.
- Person giving guarantee = Guarantor
- Guarantee provides additional security