Hypothecation - Definition - Law Dictionary Home Dictionary Definition hypothecation

Definition :

Hypothecation [fr. hypotheca, Civ. Law, a pledge in which the pledges retained possession of the thing pledged, as distinguished from pignus, where the possession was transferred to the pledge. See Sand. Just; Sith's dict. of Antiq., tit. 'Pignus'], the act of pledging a thing as security for a debt or demand without parting with the possession. There are few cases, if any, in our law where an hypothecation in the strict sense of the Roman Law exists. The nearest approaches, perhaps, are the cases of holders of bottomry bonds, and of seamen to whom wages are due in the merchant service, who have a claim against the ship in rem. But these are rather cases of liens or privileges than strict hypo-thecations. There are also cases where mortgages of chattels are held valid, without any actual possession by the mortgage, but they stand upon very peculiar grounds, and may be deemed exceptions to the general rule.

It 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 of such charge into fixed charge on movable property. [Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), s. 2 (1) (n)]

The pleading of something as security without delivering of titled possession, Black's Law Dictionary, 7th Edn., p. 747

Both ownership of the movable property and possession thereof, remain with the debtor. The creditor has an equitable charge over the property and is given a right to take possession and sell the hypothecated movables to recover his dues.

There is no 'entrustment of the property' or entrust-ment of dominion over the property by the hypo-thecatee (creditor) to the hypothecator (debtor) in an hypothecation, Indian Oil Corporation v. NEPC India Ltd., AIR 2006 SC 2780: (2006) 6 SCC 736: (2006) 6 JT 474: (2006) 7 SCALE 286: (2006) 6 Supreme 66: (2006) 5 SLT 475: (2006) 8 SCJD 370: (2006) 8 SRJ 449: (2006) 3 SCC (Cri) 188: (2006) 3 Crimes 182 (SC): (2006) 2 JCC 1190.