Sample Deed of Hypothecation

A Deed of Hypothecation is a formal legal document used to establish a security interest in movable property without transferring its possession to the lender. This document is commonly used in financial transactions where a borrower requires a loan to purchase an asset, and the asset itself is hypothecated as collateral to secure the loan repayment.

This template serves as a comprehensive guide for drafting a Deed of Hypothecation, detailing the obligations, rights, and responsibilities of both the borrower and the creditor. The agreement ensures that both parties are legally protected and outlines the conditions for the loan, repayment schedule, asset hypothecation, and actions in case of default.

Key Elements of the Template

1. Parties Involved: Clearly identifies the Borrower (the person taking the loan) and the Creditor (the person or entity providing the loan).
2. Asset Details: Describes the asset being purchased and hypothecated, ensuring transparency about the property being used as collateral.
3. Loan and Interest Terms: Specifies the loan amount, repayment schedule, and applicable interest rates, ensuring clarity in financial obligations.
4. Hypothecation Clause: Establishes the legal charge over the asset, providing security to the creditor.
5. Borrower's Obligations: Details the borrower's responsibilities, such as timely repayment, insurance of the asset, and restrictions on asset movement.
6. Creditor's Rights: Defines the creditor's rights in case of default or other contingencies, ensuring legal protection.
7. Dispute Resolution: Includes an arbitration clause to address any disputes, ensuring a structured approach to conflict resolution.

Format for Deed of Hypothecation

DRAFT OF DEED OF HYPOTHECATION

This Deed of Hypothecation is executed at ________ on this the ___________ day of ___________ by and between:

1. Mr.________________, son of ________, aged about ___________ years, residing at ___________________, hereinafter referred to as the CREDITOR (which expression shall, unless repugnant to the context, include his legal representatives, executors, administrators, and assigns);
AND
**2. Mr.__________**, son of ____________, aged about ___________ years, residing at _____________________, hereinafter referred to as the BORROWER (which expression shall, unless repugnant to the context, include his legal representatives, executors, administrators, and assigns).

WHEREAS:

1. The BORROWER has placed an order for the purchase of a ___________, namely __________________, valued at Rs. ___________ (Rupees ____________), the details of which are set out in Schedule 'A' appended hereunder (hereinafter referred to as the "Asset"), with ________________, having its office at ________________.
2. The BORROWER has remitted an advance amount of Rs. ___________ (Rupees ____________), to the said manufacturer towards the sale consideration.
3. The BORROWER has approached the CREDITOR for a loan of Rs. ___________ (Rupees ____________), to pay the balance price of the Asset mentioned in Schedule 'A'.
4. The CREDITOR and the BORROWER have agreed that the CREDITOR shall finance the purchase of the Asset, provided the BORROWER hypothecates the Asset as security for the repayment of the loan.
5. Both parties have agreed to document the terms of their agreement in this Deed of Hypothecation.

NOW, THEREFORE, in consideration of the mutual obligations and undertakings contained herein, the parties agree as follows:

1. Payment by the CREDITOR

The CREDITOR shall pay Rs. ___________ (Rupees ____________), directly to the manufacturer on behalf of the BORROWER, towards the balance price of the Asset. The CREDITOR shall retain possession of the original invoice for the Asset until the BORROWER fully discharges the loan.

2. Hypothecation

The BORROWER hereby hypothecates and creates a charge over the Asset described in Schedule 'A' in favor of the CREDITOR as security for the repayment of the loan along with interest.

3. Obligations of the BORROWER

The BORROWER undertakes the following:

1. Repayment of Loan: The BORROWER shall repay the loan amount of Rs. ___________ within ______ months commencing from ___________.
2. Interest Payments: Interest at the rate of ___________ shall be paid on the principal, amounting to Rs. ___________ (Rupees ____________) per month. Principal and interest shall be paid in monthly instalments as specified in Schedule 'B'.
3. Insurance: The BORROWER shall insure the Asset against all risks and produce proof of insurance and receipts as required by the CREDITOR.
4. Asset Location: The BORROWER shall not remove or transfer the Asset outside the State without prior written intimation to the CREDITOR.

4. Rights of the CREDITOR

1. Default Penalty: In the event of default on any instalment, the overdue amount shall carry interest at the same rate as the principal.
2. Loan Recall: If the BORROWER fails to pay ______ consecutive instalments, the CREDITOR may demand immediate repayment of the entire outstanding principal and interest.
3. Inspection: The CREDITOR reserves the right to inspect the Asset to ensure compliance with the terms of this agreement.

5. Dispute Resolution

Any dispute arising under this Deed shall be resolved through arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996. The venue of arbitration shall be ___________.

IN WITNESS WHEREOF, the parties hereto affix their signatures on the day, month, and year mentioned above.

SCHEDULE 'A': Description of the Asset

(Provide detailed specifications of the hypothecated Asset)

SCHEDULE 'B': Repayment Schedule

(Provide the repayment schedule detailing instalment amounts and due dates)

SIGNED AND DELIVERED
CREDITOR: __________________________
BORROWER: __________________________

WITNESSES: