Answer ... Various forms of security interest can be taken over immovable and movable property in India. With respect to immovable property, mortgages are the principal form of security interest and can take the following forms:
- Simple mortgage: Possession of property is not transferred to the mortgagee and in the event of failure to pay, the mortgaged property can be sold and the proceeds of sale applied to satisfy the mortgage.
- Mortgage by conditional sale: The mortgagor ostensibly sells the mortgaged property on condition that, on default of payment of the mortgage, the sale will become absolute.
- Usufructuary mortgage: The mortgagor delivers possession of the mortgaged property to the mortgagee until repayment of the loan.
- English mortgage: This differs from a usufructuary mortgage, in that the property is transferred to the mortgagee until repayment of the mortgage.
- Mortgage by deposit of title deeds (or equitable mortgage): The mortgagor delivers the title deeds of the property to the mortgagee in order to create security.
- Anomalous mortgage: This mortgage does not fall within any of the above categories, but is rather a mix of any two or more of the above types.
With respect to movable property, other than a mortgage, the following types of security can be created:
- Pledge: The bailment of goods as security for payment of a debt or performance of a promise.
- Hypothecation: A charge in or on any movable property, existing or future, where both title and possession of the property remain with the debtor.
- Charge: A right created by the debtor over its movable property in favour of the creditor for extending financial assistance.
- Lien: A security whereby actual or constructive possession of the property is usually retained by the creditor until the debt is paid.
With respect to intangibles and contractual rights, assignment is the principal form of security.
Answer ... The enforcement of a security interest depends on the nature of the security, the nature of the creditor and the terms of the security.
Certain types of security can be enforced without court intervention. For instance, a pledge can be invoked and power of sale can be exercised by the pledgee without court intervention. Similarly, in the case of an English mortgage over immovables, the mortgagee can sell the mortgaged property without court intervention, subject to certain notification requirements. However, for certain other forms of security – for instance, in the case of an equitable mortgage – the mortgagor must apply to the court for a decree to sell the mortgaged property for recovery of the debt.
In the case of security over movables, the rights and remedies of the creditor are regulated by the terms of the deed of hypothecation, which can be enforced by either compelling delivery of the moveable property or selling or obtaining a decree for sale or the appointment of a receiver to take possession of and sell the assets.
The security can also be enforced directly by the lender (by banks in India and certain recognised financial institutions) without court intervention under the provisions of, and following the procedure sect out in, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002.
In case of sale with court intervention, delays in the court process and the costs and duration of litigation serve as impediments to the enforcement of security. Even in case of sale without court intervention, the debtor may try to create an impediment by filing cases with courts or tribunals on one or other ground, which could result in a delay in enforcement.