Hypothecation Agreement Template for India

A Hypothecation Agreement lets borrowers keep using their assets while pledging them as collateral for loans. It's commonly used in Indian banking when taking vehicle loans, machinery financing, or working capital credit - the borrower maintains possession of the asset but can't sell or transfer it without the lender's approval.

Under Indian contract law, hypothecation differs from a mortgage since no actual property transfer occurs. Banks and NBFCs rely heavily on these agreements, which must be stamped and registered according to state rules. The agreement specifies the asset details, loan terms, and the lender's rights to seize the property if the borrower defaults.

Use a Hypothecation Agreement when securing business loans without giving up possession of valuable assets. This approach works particularly well for Indian manufacturers needing machinery loans, transport companies financing vehicle fleets, or businesses seeking working capital against inventory or receivables.

The agreement becomes essential when dealing with RBI-regulated banks or NBFCs, who require proper documentation of collateral arrangements. It helps both parties by clearly defining their rights - the borrower keeps using the assets for business operations while the lender maintains a legal claim as security. This protection makes loans more accessible and often leads to better interest rates.

• Vehicle Loan Hypothecation: Used for auto loans and fleet financing, these agreements detail specific vehicle identification numbers and registration details.
• Stock Hypothecation: Common in manufacturing and trading, covers inventory and raw materials as collateral, with rotating asset schedules.
• Plant & Machinery: Tailored for industrial equipment financing, includes detailed asset descriptions and maintenance requirements.
• Book Debts Hypothecation: Secures working capital against accounts receivable, with periodic reporting of debt schedules.
• Multiple Asset: Combines various asset types under one agreement, often used for composite loans with cross-collateralization terms.

• Banks & NBFCs: Act as lenders, draft the core agreement, and hold security interest in the hypothecated assets
• Corporate Borrowers: Manufacturing companies, traders, and businesses seeking secured loans while retaining asset possession
• Legal Counsel: Review and customize Hypothecation Agreements, ensure RBI compliance, and protect client interests
• Company Directors: Sign agreements on behalf of borrowing entities and personally guarantee larger corporate loans
• Valuation Experts: Assess asset worth and provide mandatory valuation certificates for the hypothecated property

• Asset Details: Compile complete descriptions, valuations, and ownership documents of all items being hypothecated
• Loan Terms: Gather sanctioned loan amount, interest rates, repayment schedule, and security margin requirements
• Party Information: Collect authorized signatories' details, company registration documents, and board resolutions
• Insurance Coverage: Document existing insurance policies and required additional coverage for hypothecated assets
• Compliance Check: Verify stamp duty requirements and registration rules for your state in India
• Document Generation: Use our platform to create a legally-sound agreement that includes all mandatory elements

• Parties & Assets: Detailed identification of lender, borrower, and complete description of hypothecated property
• Loan Details: Specify amount, interest rate, tenure, and repayment schedule with default consequences
• Security Terms: Clear provisions for asset maintenance, insurance requirements, and inspection rights
• Borrower Covenants: Obligations regarding asset usage, sale restrictions, and periodic reporting duties
• Enforcement Rights: Lender's remedies upon default, including asset seizure and sale procedures
• Legal Compliance: Jurisdiction clause, stamp duty adherence, and registration requirements per state laws
• Execution Format: Proper witness provisions and authorized signatory details

A Hypothecation Agreement differs significantly from an Asset Purchase Agreement in several key aspects. While both deal with assets, their fundamental purposes and legal effects are distinct in Indian law.

• Ownership Transfer: Hypothecation keeps assets with the borrower while creating a security interest; Asset Purchase involves complete transfer of ownership
• Duration: Hypothecation agreements last until loan repayment; Asset Purchase creates permanent ownership change
• Purpose: Hypothecation secures loans while maintaining business operations; Asset Purchase facilitates complete business asset sales
• Rights: Under hypothecation, borrowers retain usage rights but can't sell; Asset Purchase transfers all rights to the buyer
• Documentation: Hypothecation requires specific RBI-compliant formats; Asset Purchase needs more extensive due diligence and transfer documentation