Types of Charges on Securities & Mortgages in Banking ⏳ Updated: Aug 2026 | 🎯 50 MCQs

Types of Charges on Securities & Mortgages in Banking: Real Estate

When we study the Types of Charges on Securities & Mortgages in Banking, real estate is the biggest topic. In the last section, we talked about movable items like cars. Now, we talk about immovable property. If you cannot easily pick it up and move it, the law calls it immovable. This includes land, houses, and factory buildings.

To lock down immovable property, banks use a specific legal tool. We call this tool a mortgage.

Section 58 of the Transfer of Property Act (TPA), 1882, creates the rules for mortgages. You can learn more about general banking law basics to see how this fits into the bigger picture. There are exactly six types of mortgages. Let us break them down simply.

The 6 Mortgages of the TPA 1882
 ├── Non-Possessory Mortgages
 │   ├── Simple Mortgage (Sec 58b)
 │   └── Equitable Mortgage (Sec 58f)
 ├── Possessory Mortgages
 │   └── Usufructuary Mortgage (Sec 58d)
 └── Ownership-Transfer Mortgages
     ├── English Mortgage (Sec 58e)
     ├── Conditional Sale (Sec 58c)
     └── Anomalous Mortgage (Sec 58g)

Simple vs. English Mortgages

Think of a Simple Mortgage like buying a family home today. You take a home loan. You live in the house. You keep the physical keys. If you stop paying, the bank must go to court to sell your house.

An English Mortgage is much harsher. You actually transfer the absolute ownership of the house to the bank on day one. The bank promises to transfer it back to you only after you pay off the final rupee.

The Power of Equitable Mortgages (Deposit of Title Deeds)

Every banker must understand these Types of Charges on Securities & Mortgages in Banking to pass their exams. But in the real world, banks use one specific mortgage 90% of the time. We call it the Equitable Mortgage, or Mortgage by Deposit of Title Deeds.

Think of an Equitable Mortgage like a VIP fast-pass at an amusement park.

Normally, the law forces you to officially register any mortgage above ₹100. Registration takes weeks. You must pay heavy stamp duties. You must wait in line at government offices.

An Equitable Mortgage skips all of this. You simply walk into a bank branch in a big city. You hand the manager your original, physical property papers. You sign a basic form. Boom! The law instantly creates a valid mortgage.

• An existing or future debt.
• The physical delivery of the original property documents.
• The transaction must happen in a specific town notified by the State Government (like Mumbai, Chennai, or Kolkata).

The Strange Mortgages: Usufructuary and Conditional

Sometimes, people do not want to take on personal debt. They use a Usufructuary Mortgage.

Think of a Usufructuary Mortgage like renting out your house to pay off a credit card. You give the bank the physical keys to your property. The bank rents it out to tenants. The bank keeps the monthly rent to pay down your loan. You bear zero personal liability. The bank can never sue you personally or auction your house. They just keep collecting rent until the debt hits zero.

A Mortgage by Conditional Sale is very different. It looks exactly like a normal real estate sale on paper.

The Catch-All: Anomalous Mortgage

India is a massive country. Different villages have different traditional loan customs. What happens if two people sign a mortgage contract that mixes a Simple Mortgage with a Usufructuary Mortgage?

We call this an Anomalous Mortgage. It is a hybrid. It catches any weird, custom-made contract that does not fit neatly into the first five categories. The rules of an Anomalous Mortgage depend entirely on whatever the two parties wrote down in their specific contract.

This section on Types of Charges on Securities & Mortgages in Banking covers the exact rules of the Transfer of Property Act. You now know the difference between keeping the keys (Simple) and handing over the keys (Usufructuary). Next, we will explore the secret weapons banks use to raid your savings accounts.

Types of Charges on Securities & Mortgages in Banking: Banker’s Rights

In the previous sections, we looked at how banks lock down cars and houses. But what if you never pledged a specific asset? What if you just have a basic savings account and an unpaid personal loan?

To understand the full Types of Charges on Securities & Mortgages in Banking, you must learn about special banker’s rights. The law gives banks hidden “superpowers.” They can grab your money or keep your documents without going to court. Let us break down how these secret tools work.

The Banker’s General Lien (Section 171)

Think of a general lien like a coat check at a restaurant. You hand the staff your expensive coat. At the end of the night, you try to get it back. But the manager says, “We are keeping your coat until you pay for your dinner.”

Section 171 of the Indian Contract Act, 1872 gives banks this automatic power. If you default on a loan, the bank can keep any shares, bonds, or checks you deposited in the ordinary course of business.

Here is exactly what a bank can and cannot keep under a general lien:

Items Subject to Banker's Lien
 ├── Allowed (Bank Keeps It)
 │   ├── Checks deposited for collection
 │   └── Bonds kept as general security
 └── Not Allowed (Bank Must Return)
     ├── Items in safe deposit lockers
     └── Money left for a specific purpose (like paying a tax bill)

Understanding the Right of Set-Off

Think of the Right of Set-Off like mixing two buckets of water. One bucket has a positive balance (your savings account). The other bucket has a negative balance (your unpaid loan). The bank simply pours your savings into your loan bucket to cancel out the debt.

However, banks face one strict rule. We call it the Rule of Mutuality. The bank can only combine accounts if the money belongs to you in the same legal capacity.

Appropriation of Payments and Clayton’s Rule

When you review the Types of Charges on Securities & Mortgages in Banking, you must study the rules of “Appropriation.” Appropriation simply means deciding which loan gets paid first.

Imagine you have three different loans with the same bank. You owe ₹10,000 on a car loan, ₹20,000 on a personal loan, and ₹30,000 on a home loan. You deposit exactly ₹5,000. Which loan does the ₹5,000 pay off?

• Step 1 (Section 59): You decide. The borrower has the first right to tell the bank exactly where to put the money.
• Step 2 (Section 60): If you say nothing, the bank decides. The bank can apply the money to any lawful debt they want.
• Step 3 (Section 61): If nobody decides, the law decides. The money pays the oldest debt first.

What is a Negative Lien?

Sometimes, companies borrow money without pledging any physical asset. The bank feels nervous. The bank asks the company to sign a special document.

We call this a Negative Lien. Do not let the name fool you. A negative lien is not an actual legal lien. It does not give the bank the power to seize any property. It is just a written promise. The borrower simply promises not to create any new mortgages without asking the bank first.

Learning these special banking rules helps you understand the hidden mechanics of finance. As you master the Types of Charges on Securities & Mortgages in Banking, you see how much power lenders truly hold. In our next phase, we will look at how companies use unpaid bills to get fast cash.

Types of Charges on Securities & Mortgages in Banking: Actionable Claims

Not all assets are physical. You cannot hold a debt in your hand. Sometimes, your biggest asset is simply a promise that someone will pay you money later. When we study the Types of Charges on Securities & Mortgages in Banking, we must talk about these invisible assets. The law calls them “Actionable Claims.”

What is an Actionable Claim?

Think of an actionable claim like a winning lottery ticket. The ticket itself is just a cheap piece of paper. But it represents a legal right to claim cash. If the lottery company refuses to pay, you can take them to civil court and sue them.

Section 3 of the Transfer of Property Act (TPA) defines this clearly. It explicitly excludes secured debts. If a debt already has a house or a car attached to it, it is a mortgage or a pledge, not an actionable claim.

Asset Classification (Section 3 TPA)
 ├── Valid Actionable Claims
 │   ├── Unpaid business invoices (Book Debts)
 │   ├── Life Insurance Policies
 │   └── Unpaid rent arrears
 └── NOT Actionable Claims
     ├── A car loan (Secured by Hypothecation)
     ├── A home loan (Secured by Mortgage)
     └── A cheque (Governed by NI Act instead)

How Assignment Works (Section 130 TPA)

You cannot physically hand over a debt to a bank manager. So, how do you use it as security? You “assign” it.

• You must write the transfer down on paper.
• The person transferring the claim must sign the document.
• You cannot just agree verbally. A verbal assignment is 100% void.

The Magic of Factoring (Factoring Act, 2011)

Factoring is a huge topic when learning the Types of Charges on Securities & Mortgages in Banking.

Imagine you build wooden chairs. You sell 100 chairs to a massive retail store. The store accepts the chairs but says, “We will pay you in 90 days.” You need cash right now to buy more wood. What do you do?

You take that unpaid invoice to a bank. The bank buys the invoice from you and hands you 90% of the cash immediately. You get fast money to run your business. In 90 days, the retail store pays the bank directly. The bank keeps a small fee for their trouble. This entire process is called Factoring.

The Notice Rule (Section 131 TPA)

If you sell your invoice to a bank, someone needs to tell the buyer! If nobody tells the buyer, they will just pay you instead of the bank.

Let us compare the Types of Charges on Securities & Mortgages in Banking side-by-side to lock in your memory.

Understanding how invisible assets work makes you a much sharper banker. In our next phase, we will shift focus to massive corporations, exploring Fixed Charges, Floating Charges, and the strict rules of ROC registration.

Types of Charges on Securities & Mortgages in Banking: Corporate Assets

When regular people borrow money, they pledge a house or a car. But what happens when a massive corporation borrows ₹500 Crores? Corporations have factories, warehouses, and thousands of boxes of inventory. To handle this, banking law created special corporate charges.

As you study the Types of Charges on Securities & Mortgages in Banking, you must understand two massive concepts: Floating Charges and Public Registration. Let us break them down.

Fixed Charges vs. Floating Charges

Think of a Fixed Charge like a heavy boat anchor. You drop the anchor on a specific factory building. The building cannot move. The company cannot sell it without the bank’s permission.

Now, think of a Floating Charge like a giant fishing net hovering over a school of fish. The fish represent a company’s daily inventory (like shoes in a warehouse). The company can freely sell the old shoes and buy new ones. The fish swim in and out of the net. The business keeps running normally.

• Companies need to sell their daily inventory to survive.
• If a bank locked down every single shoe (Fixed Charge), the business would instantly freeze.
• The floating charge hovers above the inventory, letting the company buy and sell freely.

The Magic of Crystallization

What happens if the company stops paying the loan? The bank drops the hovering net! The net traps whatever fish are inside at that exact moment.

Once the charge crystallizes, the company can no longer sell its inventory. The bank locks the doors and seizes the remaining goods.

The Strict Rules of ROC Registration

If a bank takes a charge over a massive corporate factory, they must tell the world. They do this by registering the charge with the Registrar of Companies (ROC).

Section 77 of the Companies Act, 2013 governs this rule. You must register any charge on a company’s assets within exactly 30 days. This includes assets inside India and assets located completely outside India.

CERSAI: The Ultimate Public Database

ROC handles corporate charges. But what about normal people taking home loans? The government created CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest).

Think of CERSAI like a giant public bulletin board for the entire country.

CERSAI Registration Rules (SARFAESI Act)
 ├── Timeline
 │   └── Must register strictly within 30 days.
 ├── Legal Effect (Section 26B)
 │   └── Acts as "Deemed Public Notice" to the whole world.
 └── Enforcement Bar (Section 26D)
     └── You cannot seize property under SARFAESI if you fail to register.

If a bank fails to register the mortgage on CERSAI, they face a severe fine of ₹1,000 per day of delay. Even worse, the bank loses their special SARFAESI powers to seize the house directly.

Understanding these giant public databases is a critical part of mastering the Types of Charges on Securities & Mortgages in Banking. Banks rely heavily on CERSAI to ensure their collateral is safe.

If you understand how CERSAI gives notice to the world, you are ready for the next big step. In Phase 7, we will explore the terrifying enforcement powers of the SARFAESI Act, showing exactly how banks bypass the courts entirely.

Types of Charges on Securities & Mortgages in Banking: The SARFAESI Act

Going to a civil court in India takes decades. Imagine a bank waiting 20 years just to sell a defaulted house. The bank would go bankrupt. To fix this, the government created a legal “fast-pass” called the SARFAESI Act of 2002.

If you want to understand the modern Types of Charges on Securities & Mortgages in Banking, you must understand SARFAESI. It gives banks the terrifying power to seize property without ever talking to a judge.

How Banks Seize Property (Section 13)

Think of Section 13 like a ticking time bomb. When a borrower stops paying, the bank starts a strict countdown. The bank cannot just break down your door on day one. They must follow a rigid timeline.

• The bank sends a demand notice. The borrower gets exactly 60 days to pay the full debt.
• The borrower can send a written objection to the bank.
• The bank must reply to this objection within 15 days.
• If 60 days pass without payment, the bank legally seizes the asset.

The SARFAESI Section 13 Timeline
 ├── Day 1: Demand Notice Issued
 │   └── Borrower has 60 days to pay.
 ├── Borrower Objects (Optional)
 │   └── Bank has 15 days to reply.
 └── Day 61: The Deadline Expires
     └── Bank takes physical possession and sells the asset.

Getting Police Help (Section 14)

What happens if the borrower locks the gate and refuses to leave? The bank cannot use illegal violence. Instead, they use Section 14.

The bank writes a letter to the local District Magistrate (DM) or Chief Metropolitan Magistrate (CMM). The magistrate then orders the local police to help the bank take the property.

Who Gets Paid First? (Section 26E)

Imagine a sinking ship. The ship only has one lifeboat. Who gets a seat?

In banking, when a company goes bankrupt, everyone wants money. The tax department wants unpaid taxes. The workers want unpaid salaries. The bank wants its loan money back. Who wins?

However, there is one major exception. You must memorize this for your exams.

The Strict Limits of SARFAESI (Section 31 and 36)

SARFAESI is an incredibly powerful tool. But as you study the Types of Charges on Securities & Mortgages in Banking, you learn that the law creates boundaries. Banks cannot just do whatever they want.

The biggest boundary is time. Section 36 links SARFAESI to the Limitation Act, 1963.

Think of a debt like a carton of milk. It has an expiration date. For a real estate mortgage, the expiration date is 12 years. For a movable asset (hypothecation), it is 3 years.

When dealing with different Types of Charges on Securities & Mortgages in Banking, the SARFAESI Act acts as the ultimate enforcer. It gives lenders confidence. In our final phase, we will look at guarantees, subrogation, and how multiple banks split a single asset.

Types of Charges on Securities & Mortgages in Banking: Guarantees & Doctrines

As we wrap up our study of the Types of Charges on Securities & Mortgages in Banking, we must look at how multiple parties share risk. What happens when a third person promises to pay your loan? What happens when two different banks lend money on the exact same property?

To solve these complex problems, the law uses special doctrines. Let us break them down using simple analogies.

The Contract of Guarantee (Section 126)

Think of a guarantee like a safety net under a tightrope walker. The bank (creditor) watches the borrower (principal debtor) walk the tightrope. If the borrower slips, the guarantor (surety) catches the fall and pays the bank.

• The Creditor: The bank lending the money.
• The Principal Debtor: The person borrowing the money.
• The Surety: The backup person who guarantees the repayment.

Hierarchy of Liability in a Guarantee
 ├── Primary Liability
 │   └── The Principal Debtor (They must pay first).
 └── Secondary Liability
     └── The Surety (They only pay if the debtor fails).

Co-Extensive Liability and Discharge

Even though the surety is a backup, the bank holds massive power. Section 128 of the Indian Contract Act states that the surety’s liability is “co-extensive” with the debtor. This means the bank does not have to sue the borrower first! The bank can immediately sue the surety for the full amount on day one of the default.

However, the law protects the surety from sneaky banks. We call this the “Discharge of Surety.”

The Magic of Subrogation (Section 140 & Section 92)

Think of subrogation like stepping into someone else’s magic shoes. If you put on the shoes, you get all their superpowers.

Subrogation also happens between banks. If a borrower mortgages a house to Bank A, and later mortgages the same house to Bank B, Bank B has a huge problem. If the borrower defaults, Bank A will sell the house. To stop this, Bank B can use its own money to pay off Bank A completely. Bank B then steps into Bank A’s shoes and takes over the VIP first-priority slot.

The Doctrine of Marshalling (Section 81)

Understanding the Types of Charges on Securities & Mortgages in Banking helps you see how lenders share risk fairly. The Doctrine of Marshalling is the ultimate rule of fairness.

Think of Marshalling like two thirsty men. Alpha Bank has two buckets of water. Beta Bank only has one bucket. Alpha Bank can legally drink from either bucket. To be fair, the law forces Alpha Bank to drink from its exclusive bucket first, leaving the shared bucket for Beta Bank.

Pari Passu and Consortium Lending

Sometimes, multiple banks lend to one giant corporation. Instead of fighting over priority, they agree to share the collateral equally. We call this a Pari Passu charge. Pari Passu is Latin for “on equal footing.”

If the company collapses, the liquidator sells the factory. The banks split the cash strictly based on the exact proportion of their loan size. If Bank X lent 60% of the money, Bank X gets exactly 60% of the sale cash. This ensures massive consortium loans remain fair.

You now master all the Types of Charges on Securities & Mortgages in Banking for your exams. You know how to register a charge on CERSAI. You know how to seize a factory under SARFAESI. And you know how to lock down a debt using subrogation.