Mortgage and Hypothecation

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Ritu

Ritu (Querist)
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12 March 2009 What is mortgage and how it differ from hypothecation? How is hypothecation differ from pledge?

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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12 March 2009 Mortgage is defined in section 58 of the Transfer of property Act,1882.It is the transfer of an interest in specific immovable property for the purpose of securing payment of money advanced by way of loan.
Hypothecation is not defined in law. In commercial parlance, it refers to the creation of an equitable charge which is created in favour of the lender by executing an agreement in respect of the movable securities of the borrower.
Pledge is defined in section 172 of the Indian Contract Act,1872. It is the bailment of goods as security for payment of a debt or performance of a promise.The ownership of the goods remains with the pledger while the lender gets certain defined interest in the goods.

Sachidanand Singh

Sachidanand Singh (Expert)
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11 April 2009 Chakrapani has brought to fore the differences, I just wish to add that hypothecation stands defined in law for several years now.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act defines "Hypothecation means a charge in or upon any movable property, existing or future, created by a borrower in favour of a secured creditor without delivery of possession of the movable property to such creditor, as a security for financial assistance, and includes floating charge and crystallization into fixed charge on movable property.”

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Joy

Joy (Expert)
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08 August 2011 Dear Mr. Chakrapani and Mr. Sachidanand,

Good responses above.

I was wondering if you could enlighten us, as to what kind of property is a 'bank account'? Can it be mortgaged?

Thanks.

Joy

Sachidanand Singh

Sachidanand Singh (Expert)
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09 August 2011 Transfer of Properties Act (TPA) does not define "immovable property". Case laws define it as a property that cannot be moved without damaging the earth on which it situates. Bank account, which is a debt ( I take it that it is a deposit account), it would seem, is not an immovable property. Since mortgage is defined as transfer of some interest in an immovable property, I would conclude that a bank account cannot be mortgaged.

Joy

Joy (Expert)
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10 August 2011 Then how would you explain a Hypothecation of Bank Accounts?

This is usual for working capital loan and export finance, debenture issue, and other such transactions, where the bank will insist that all receivables AS WELL AS the bank account, where the receivables are deposited, shall be hypothecated to the bank.

Sachidanand Singh

Sachidanand Singh (Expert)
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10 August 2011 As Chakrapani has descibed above, in Hypothecation one creates a charge over movable properties. Bank accounts are movable properties and therefor lend themselves to be hypothecated.

Some time back I had blogged about mortgage, pledge, and hypothecation at https://sachasingh.blogspot.com/2009/04/securities-collaterals-and-guarantees.html

You may find fuller explations there (teh blog post is in three parts the URL is of the first part dealing with pledge)

Joy

Joy (Expert)
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10 August 2011 Thank you.

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