Gold held as collateral for loan; loan not repayed


This is a hypothetical query which a group of us have been discussing.

1: Man goes to bank for a loan. He uses Gold as collateral.

2: Bank has to physically move because armed conflict is likely.

3: Does the bank have (if it is able to) secure the gold at a safe location even if it is in another country?

4: Is it the banks duty to do so?

5: Would it be considered theft. if it do so?

6: In the event that the original loan is not repayed, does the gold become a property of the bank?

corporate lawyer

look according to hypothecation law of india

the property hypothecated as collateral will remain with the custody of the borrower until he fails to pay back the debt. so there is no question of bank's duty to secure gold in safe location.

it would be considered theft because the collataral property is supposed to remain in the custody of borrower. so bank will not even touch that property until borrower fails to pay loan.

if the loan is not repayed, then the gold will become the property of the bank.

so i hope you have your answers.


practicing advocate

If loanee failed to repay the loan bank has right on the collateral security, it can auction it to recover loan


Thank you gentlemen for some noteworthy replies.

My position in this hypothetical debate was as follows:

When armed conflicts are imminent, the bank has the responsibility to secure the gold even if it means removal to another country (for safe keeping) - because (as has been correctly stated by Arnab) the gold belongs to the borrower.

IF this gold is lost in the event of the bank being ransacked (which can happen) during or after the conflict, the bank would be responsible (liable) for the loss of the gold. And, in the case of 'ornaments' and other items of personal value, the $ value of liability could be immeasurable.

It was also the borrower's responsibility to repay the loan. Until such time, the bank would be right to "Hold" the gold as security.

Do I make sense?




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