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negotiable instrument

negotiable instrument

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Published by Momna Amjad

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Published by: Momna Amjad on Apr 30, 2011
Copyright:Attribution Non-commercial


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A sound banking is based on safety of funds lent by a banker to
his customer. The first and the most important criterion to judge safety
of funds is the capacity of the borrower himself to repay the amount of
loan. Secured advances provide absolute safety to the banker by means
of a charge created on the tangible assets of the borrower in favour of the
banker. The modes of creating charge include lien, pledge, hypothecation
and mortgage.


The right of general lien empowers the banker to retain all
securities of the customer in respect of the general balance due from
him. The banker is, however, not entitled to realise his ….. from the said
assets of the customer. Under pledge, the banker as a pledgee has the
right to retain the goods pledged for the payment of the debt or the
performance of the promise. The pledgee can also claim any extra-
ordinary expenses incurred by him for the preservation of the security.
The pledgee has the duty to return the goods on payment of debt and is
also responsible to the pledger for any loss of goods, if the goods are not
returned by him at the proper time.

Hypothecation, which is another method of creating a charge over
the moveable assets, neither transfer ownership nor possession of good
to the creditor but an equitable charge is created in favour of the latter.
The goods remain in the possession of the borrower, who binds himself,
under an agreement, to give the possession of the goods to the banker,
whenever the latter requires him to do so. Another mode of creating
change is mortgage. The right of a banker as mortgagee is to obtain from
the court a decree that the mortgager (borrower) shall be absolutely
debarred of his right to redeem the property or a decree that the property
be sold.

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