Hypothecation is generally a security created by the Borrower or the Debtor in favour of the lender for the repayment of advances or loan borrowed. The concept of the Hypothecation does not have the force of statutory law though it is recognised by the Courts on equitable grounds of justice, equity and good conscience.
Practically, in hypothecation a moveable property is secured against such advances or loan with the possession thereof remaining with the borrower. Hypothecation Agreement is a document containing the terms and conditions, powers and provisions, to safeguard the interest of the creditor/lender who is entitled to take possession of the movable property in case of default is committed by the borrower. With the execution of the deed of hypothecation a charge is created upon the movable property.
Pledge differs from Hypothecation. Pledge entails the delivery of movable property to the creditor/lender as security for payment of debt or performance of a promise. Unlike the hypothecation, the pledge enjoys the force of law as codified in the Indian Contract Act 1872.
Deed of Pledge contains the rights of the creditor/lender to retain the possession of the movable property until the debt is repaid or the promise is performed; to get reimbursed, to file suit for recovery of debt; to sell the goods; etc.
- Hypothecation of goods to secure cash credit facility.
- Hypothecation of goods to be imported.
- Deed of Hypothecation of a vehicle.
- Agreement to Pledge.