Lien and Pledge.pptx Characteristics-Types-Diffrence

Lien is the right of a bank or creditor to retain possession of a debtor’s property or goods until the debt or obligation is fully paid.It does not transfer ownership to the bank but gives the bank a legal right to hold the asset as security.

1. Lien & pledge DR JENIFER THANGAM J ASSISTANT PROFESSOR SRI RAMAKRISHNA COLLEGE OF ARTS & SCIENCE

2. Lien Meaning of Lien Lien is the right of a bank or creditor to retain possession of a debtor’s property or goods until the debt or obligation is fully paid. It does not transfer ownership to the bank but gives the bank a legal right to hold the asset as security.

3. Characteristics of Lien Possession is essential – The bank must have physical possession of the asset. Right to retain – Bank can retain the asset until the debt is cleared. No ownership transfer – Only a right to hold, not to sell (except in case of a statutory lien). Limited to lawful debt – Bank can claim lien only for debts owed to it.

4. Particular Lien General Lien Right to retain a specific goods until the specific debt relating to those goods is paid. Right to retain any goods or property of the debtor until all debts owed to the bank or creditor are paid. Example: Tailor retains clothes until payment for tailoring is made. Example: Bank retains a customer’s shares or securities to cover any outstanding loans. Types of Lien

5. Pledge Meaning of Pledge A pledge is a form of security where goods or movable property are delivered by the borrower (pledgor) to the lender (pledgee) to secure a debt or obligation. The pledgee gets possession, but ownership remains with the pledgor. If the debt is not repaid, the pledgee has the right to sell the pledged goods to recover the debt.

6. Essential Features of Pledge Movable property only – Can include goods, shares, or documents. Delivery of possession – Pledgor must hand over goods to pledgee. Existence of debt – Pledge is given for a specific debt or obligation. Ownership remains with pledgor – Only possession passes to pledgee. Right to sell – If debt is unpaid, pledgee can sell goods to recover debt. Return of goods – Once debt is repaid, goods must be returned to pledgor.

7. Parties Involved Pledgor – Person who owns the goods and delivers them as security. Pledgee – Person or bank who receives the goods and holds them as security. Principal debt or obligation – The loan or obligation secured by the pledge. Rights of Pledgee Right to retain goods until debt is repaid (similar to lien). Right to sell pledged goods if debt is not repaid after notice to pledgor. Right to recover expenses incurred for preserving the pledged goods. Duties of Pledgee Take reasonable care of the pledged goods. Return goods once the debt is repaid. Provide notice before sale of goods in case of default.

8. Feature Lien Pledge Possession Creditor may retain but doesn’t get right to sell (unless law allows) Creditor retains possession and has right to sell if debt unpaid Ownership Remains with debtor Remains with pledgor Security Type Passive Active Applicable Property Usually movable Movable goods or securities Debt Required May arise without debt Must be for a specific debt or obligation