Deed of Hypothecation HP

What is Deed of Hypothecation HP?

A deed of hypothecation is a legal document encapsulating a transaction between a lender and borrower, wherein the borrower offers a movable asset as collateral to secure a loan. Hypothecation of a movable asset does not include giving up any ownership rights such as title or possession. However, a deed of hypothecation grants the lender a right to seize the asset upon the borrower’s failure to meet the terms of the deed.

Why is Deed of Hypothecation HP required?

A deed of hypothecation is required to cement the terms upon which the borrower and lender agree to the hypothecation of a movable asset against a loan. The deed ensures that the parties are aware of their rights and liabilities and have a document which can be enforced in a court of law.

What should a Deed of Hypothecation HP cover?

A deed of hypothecation should include details of the parties, details of the asset offered as collateral and the terms upon which the loan has been advanced by the lender. The deed should include a recital regarding ownership of the movable asset by the borrower & should also lay down the respective rights and liabilities of both the parties.

Format for Deed of Hypothecation HP

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DRAFT OF DEED OF HYPOTHECATION





THIS DEED OF HYPOTHECATION executed at ________ on this the ___________ day of _________ between

Mr.________________, son of_____________, aged about ___________ years, residing at _____________________, hereinafter called the CREDITOR (which expression shall, unless it is repugnant to the context mean and include his legal representatives, executors, administrators, and assigns)

And

Mr.________________, son of_____________, aged about ___________ years, residing at _____________________, hereinafter called the BORROWER (which expression shall, unless it is repugnant to the context mean and include his legal representatives, executors, administrators and assigns);

WHEREAS

The BORROWER has placed an order for the purchase of, a ___________, namely________________, {valued at Rs.____________ (Rupees ____________), (Details of the same are set out in the schedule 'A' hereunder) (hereinafter referred to as the asset), with the ________________, namely ________________, having its office at __________, and has remitted an amount of Rs.______________(Rupees _____________only}, with the said _________________ as advance towards the sale consideration.

The BORROWER has approached the CREDITOR for a loan of Rs.______________, (Rupees _____________only), for the payment of the balance price of the schedule 'A' mentioned asset. The CREDITOR and BORROWER have agreed that the CREDITOR shall finance the purchase of the schedule 'A' mentioned asset, on the condition that the BORROWER hypothecates the schedule mentioned asset with the CREDITOR as security for the due repayment of the said loan. The parties have agreed to reduce their agreement to writing

NOW THEREFORE IN CONSIDERATION OF THE MUTUAL OBLIGATIONS AND UNDERTAKINGS CONTAINED HEREIN THIS AGREEMENT WITNESSETH AS FOLLOWS:

Payment by the CREDITOR

The CREDITOR shall pay to the said manufacturer, on behalf of the BORROWER, a sum of Rs. ____________/-, (Rupees _______), towards the balance price of the said asset and shall retain possession of the original invoice of the said asset till the debt is fully discharged by the BORROWER.

HYPOTHECATION

The BORROWER hereby hypothecates and creates a charge on the asset more fully described in the schedule 'A' hereunder to and in favour of the CREDITOR as security for the repayment of the loan with interest.

Obligations of the BORROWER

The BORROWER hereby undertakes to repay the loan amount within a period of ______ months commencing from________ along with interest. The BORROWER shall pay interest at the rate of ______________ on the principal per month, at Rs._____________/-, (Rupees ____________only). The Interest and principal are payable in monthly instalments as per schedule-B hereto.

Rights of the CREDITOR

If the BORROWER defaults in payment of the amount as per schedule-B hereto then such defaulted instalment will carry interest as if the defaulted instalment is the principal, until it is paid. If the BORROWER fails to pay any ______ instalments then the CREDITOR shall be entitled to claim the principal and interest amount due, and the same shall become payable forthwith, on the CREDITOR calling upon the BORROWER to make payment of such defaulted principal amount.

The BORROWER shall not remove or take the said asset, outside the State without prior intimation to the CREDITOR.

The BORROWER agrees and undertakes to insure the asset against all hazards, and shall produce the relevant receipts, and other documents, whenever called upon by the CREDITOR so to do.

Any dispute arising under this Deed or any matter incidental thereto, shall be submitted to arbitration as per the provisions of the Arbitration and Conciliation Act 1996 and the venue of the arbitration shall be at .........

IN WITNESS WHEREOF the parties hereto affixed their signatures on the day month and year mentioned hereinabove

SCHEDULE 'A'

(Describe the Asset)

SCHEDULE-B

(Describe the payment schedule)

CREDITOR

BORROWER

WITNESSES

1.

2.

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Documents Required for Deed of Hypothecation HP

There are no specific documents required in a deed of hypothecation. However, hypothecation deeds may require different documents depending upon the movable property forming subject matter of the hypothecation deed. For example, in case of a vehicle hypothecation, the documents required would include the registration certificate of the vehicle, two copies of form 34 required for endorsement of hypothecation, copy of insurance documents and pollution test, address and identity proof of the owner as also other required documents as per the prevailing law, depending upon applicability in each case.

Procedure for Deed of Hypothecation HP

The aid of a lawyer is required to have a deed of hypothecation drafted which may be enforced in a court of law. Both the parties must read the deed as drafted carefully, and make any necessary changes. It is required to be dated and signed by both parties. Thereafter, the deed of hypothecation may be required to be registered under the prevailing law depending upon its nature and purpose as per the provisions of the registration act or companies act as the case may be. 

Legal Considerations for Deed of Hypothecation HP

Parties entering a deed of hypothecation must ensure registration of the document as per prevailing law under the Registration Act or the Companies Act, as the case may be. Further, it is important to consider that the terms of the deed are in the best interests of both parties and not onerous. It is also important that no term of the deed is in conflict with provisions of the Indian Contract Act.

How can a lawyer help to draft Deed of Hypothecation HP?

Hiring a documentation lawyer is the most important step when a hypothecation deed is to be drafted. A lawyer has the requisite expertise in drafting such documents. He/She will be able to guide you and draft for you according to your particular situation -  the facts, circumstances, business risks and needs involved. A documentation lawyer is aware of good drafting technique and the clauses that must be included in your deed. Aid of a lawyer may be necessary to ensure that the terms of the deed are not in conflict with the prevailing law and forms a binding legal document enforceable in a court of law. A lawyer’s assistance may be required to get the document registered.

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