Q4. Explain different types of charges with examples.
Ans.
Creation of charges by the debtors on various kinds of securities/assets means creation of right in favour of the creditors, to get payment of the loan amount, out of the security charged. By creation of charge, the ownership is not transferred in favour of the creditor (except in few transactions such as an English mortgage).
Fixed Charge: It is created on properties such as land and buildings, plant and machinery, whose identity does not change. The debtor has no right to dispose of the assets after creation of charge without the consent of the creditor. The debtor retains the ownership and possession of the assets and he can deal with them, subject to priority created by the charge.
Floating Charge: It is created in assets which undergo change(stocks). It is also an equitable charge in the assets of a going concern e.g. cash credit against hypothecation of stocks. In such a charge, the security is allowed to be used in the ordinary course of business until the charge crystalises.
Pari Passu Charge: It is created in favour of several creditors, with the condition that they have equal priority, subject to maximum of their share in the security linked to the amount of their loan. It is generally created in case of consortium accounts.
Exclusive Charge: This refers to a case where only one creditor has the charge on the assets without intervention of any other creditor, e.g. stocks charged only to BCA Bank for cash credit.
• 1st Charge: Where the asset is charged to a creditor on first basis, that creditor has the 1st Charge.
• 2nd Charge: Where asset is already charged to a creditor to a creditor on first basis and subsequently charge is created in favour of another creditor, the 2nd creditor is called to have the 2nd Charge. The rights of the 2nd charge holder are subject to the rights of the 1st charge holder.
Bank charge over properties confines itself to one or more of the following six types of charges.
Ans.
Creation of charges by the debtors on various kinds of securities/assets means creation of right in favour of the creditors, to get payment of the loan amount, out of the security charged. By creation of charge, the ownership is not transferred in favour of the creditor (except in few transactions such as an English mortgage).
Fixed Charge: It is created on properties such as land and buildings, plant and machinery, whose identity does not change. The debtor has no right to dispose of the assets after creation of charge without the consent of the creditor. The debtor retains the ownership and possession of the assets and he can deal with them, subject to priority created by the charge.
Floating Charge: It is created in assets which undergo change(stocks). It is also an equitable charge in the assets of a going concern e.g. cash credit against hypothecation of stocks. In such a charge, the security is allowed to be used in the ordinary course of business until the charge crystalises.
Pari Passu Charge: It is created in favour of several creditors, with the condition that they have equal priority, subject to maximum of their share in the security linked to the amount of their loan. It is generally created in case of consortium accounts.
Exclusive Charge: This refers to a case where only one creditor has the charge on the assets without intervention of any other creditor, e.g. stocks charged only to BCA Bank for cash credit.
• 1st Charge: Where the asset is charged to a creditor on first basis, that creditor has the 1st Charge.
• 2nd Charge: Where asset is already charged to a creditor to a creditor on first basis and subsequently charge is created in favour of another creditor, the 2nd creditor is called to have the 2nd Charge. The rights of the 2nd charge holder are subject to the rights of the 1st charge holder.
Bank charge over properties confines itself to one or more of the following six types of charges.
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