Section 28 of GSA : Section 28: Pledge, Hypothecation Or Lien

Explanation using Example

Imagine that Mr. Sharma has a government bond worth INR 500,000 which he wants to use as collateral for a loan from a bank. Under Section 28(1) of The Government Securities Act, 2006, Mr. Sharma can legally create a pledge of this government bond in favor of the bank. This means he can offer the bond as security against the loan.

Once Mr. Sharma notifies his bank where the government bond is held, as per Section 28(2), the bank will make an entry in its records to indicate that the bond is now pledged to the lending bank. This entry serves as proof of the pledge, and the lending bank can use this as evidence of their interest in the bond should Mr. Sharma default on his loan.