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11. ABC Traders offered its warehouse as security for the loan. HFC Bank created a charge on the warehouse. Which form of security has been created and whether bank is required to get stock audit done of cash credit account of ABC Traders ?

Options

ASecurity created is Pledge and bank is required to get stock audit done of cash credit account of ABC Traders.
BSecurity created is Mortgage and bank is required to get stock audit done of cash credit account of ABC Traders.
CSecurity created is Pledge and bank is not mandatorily required to get stock audit done of cash credit account of ABC Traders.
DSecurity created is Mortgage and bank is not mandatorily required to get stock audit done of cash credit account of ABC Traders. (2 Marks)
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Correct Answer

✅ Option D — Security created is Mortgage and bank is not mandatorily required to get stock audit done of cash credit account of ABC Traders. (2 Marks)

All Options:

  • ASecurity created is Pledge and bank is required to get stock audit done of cash credit account of ABC Traders.
  • BSecurity created is Mortgage and bank is required to get stock audit done of cash credit account of ABC Traders.
  • CSecurity created is Pledge and bank is not mandatorily required to get stock audit done of cash credit account of ABC Traders.
  • DSecurity created is Mortgage and bank is not mandatorily required to get stock audit done of cash credit account of ABC Traders. (2 Marks) ✓

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Detailed Solution & Explanation

Correct Answer: Option **D**

Explanation:
As per banking regulations and practice:
1. **Form of Security**: The borrower, ABC Traders, offered its warehouse (which is an immovable property) as security. Under the Transfer of Property Act, 1882, the creation of security over immovable property to secure a loan is called a **Mortgage**. (In contrast, a pledge involves delivering possession of movable goods). Thus, the security created is a Mortgage.

2. **Stock Audit Requirement**: As per RBI guidelines and standard banking policies, stock audits are typically mandatory for cash credit/working capital accounts with credit limits of ` 5.00` Crores and above. In this case, ABC Traders was sanctioned a cash credit limit of ` 4.50` Crores, which is below the mandatory threshold of ` 5.00` Crores. Thus, the bank is not mandatorily required to get a stock audit done.

Combining these two points, the security created is a Mortgage, and the bank is not mandatorily required to get a stock audit done.

Hence, **Option D** is the correct answer.

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