DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name :Sreenivasa Rao B.
Designation :Lecturer in CCP
Branch :Commercial and Computer Practice
Institute :S.U.V.R&S.R GPW,Ethamukkala
Semester :VI SEMESTER
Subject name :Banking II
Subject code :CCP 604 (B)
Major topic :Loans and Advances – Short Term
& Long Term
Duration :50 minutes
Sub topic :Various Modes of Creating Charge.
Teaching aids :PPT
CCP604(B).15 1
Objectives :

On completion of this period you would be

able to

 Define pledge.

 Explain the features of pledge.

 List the advantages of pledge.

 Explain the precautions to be taken for pledge.

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Recap
 So far we have learned

 Meaning of mode of creating charge

 Definition of lien– the right to return the property
of a customer given as security till the loan is
repaid
 The circumstances for exercising lien and kinds
of lien

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Pledge - Definition

 According to section 172 of the Indian Contract

Act defines pledge as “The bailment of goods as
security for payment of a debt or performance of
a promise”.

 The person who pledges the property is called

the pledger or bailor or pawner.

 The person to whom the property is bailed is

called the pledgee or bailee or pawnee.
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Essential Features of a Pledge
ii. Delivery of Goods:
 Without the delivery of goods, there cannot be
any pledge at all. It means that, the securities
should have been delivered to the banker, at
the time of getting an advance.
 The delivery may be actual or physical or
symbolic delivery means anything having a
legal effect of putting the goods in the
possession of the baliee
Ex:-Delivering the keys of the lock of
a godown to the banker
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ii) Transfer of Possession:

 Under pledge, the pledger transfers only the

possession of goods, subject to a charge, and not
his ownership to the goods.

 The pledger always remains the owner of the

security.

 The possession vests with the pledgee till the

loan is repaid.

 Pledge is lost when possession

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iii) Existing Goods only:
 A Pledge can be created only in respect of
existing goods, which are in the possession of
the pledgee.

iv) Right Of Sale :

 The most important feature of pledge is that the
pledgee has a right to sell the security, in case,
the pledger fails to repay the loan within the
specified period.
 The pledgee can exercise this right, only after
giving a reasonable period of notice.
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v) Agreement
 An agreement in writing between the pledger and
the pledgee for creating a charge is essential.

vi) Right of Lien:

 So long as the loan together with the accrued
interest thereon is not paid, the pledger has a
right to retain the possession of the goods
pledged.

vii) Redelivery of Goods:

 Once the loan is repaid, the goods under pledge
must be redelivered to the borrower.
CCP604(B).15 8
Advantages of Pledge:
i) Simple Formality :

 The formalities connected with the creation of a

pledge are simpler than that of a mortgage.

ii) Easy to Sell:

 Since the pledged goods are in the custody of the

banker as a pledge, he can easily sell them in the
market, in case of any default.

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iii) No Double Financing:
 It will not be possible for the plledger to pledge
the same goods and get another loan from
another bank.
 Even if the pledged goods are in the hands of the
pledger, on behalf of the pledgee, it will not be
possible to create subsequent pledge in respect
of the same goods, because, the banker
exercises much care and diligence over the
goods, through periodical inspection. Thus,
double financing is avoided.

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i) No Manipulation of Stock:

 Manipulation of stock becomes a difficult affair,

since, the pledged goods are under the full
possession and control of the banker or they are
subject to strict supervision.

iii) Protection from Loss:

 In case of any loss or damage to the pledged

property, the banker can recover the amount from
the insurance company.
CCP604(B).15 11
Precautions:

Though pledge is the most satisfactory method of

creating a charge, a banker has to take the
following precautions:
 Ensure Ownership
 Take Reasonable Care
 Exercise Full Control
 No Unauthorized Use
 Put up Signboards
 Draft the agreement carefully.

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Summary

1. A pledge is a method of charging which can be

created only in respect of movable properties
such as goods, documents of title to goods, stock
exchange securities etc.,

2. The person who pledges the property is called

the pledger or bailer or pawner.

3. The person to whom the property is bailed is

called the pledgee or bailee or pawnee.

CCP604(B).15 13
Summary
1. To constitute a valid pledge, delivery of goods,
transfer of possession, existing goods,
agreement etc.,

2. There are several advantages of pledge like

easy to sell, no double financing, no
manipulation of stock, protection of loss, simple
formality etc,

3. A banker has to take certain precautions like put

up signboards,ensure ownership, no
unauthorized use etc.
CCP604(B).15 14
Quiz

Pledge is suitable to :

2. Immovable properties

3. Movable properties

4. Securities

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Frequently Asked Questions

1. Define pledge.

2. What are the features of pledge.

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