Definitions of Mortgage, Hypothecation and pledge

What is a mortgage?

“Mortgage” is defined under the Transfer of property Act.

A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of
(1)Money advanced or to be advanced by way of loan
(2)an existing or future debt
(3)the performance of an engagement which may give rise to pecuniary liability.

The person who transfers the interest (the transferor)is called the “mortgagor” and the transferee is called the
“Mortgagee”. Generally the mortgagor is the Borrower and the mortgagee is the Lender of money or creditor.
The principal money and interest of which payment is secured for the time being are called the mortgage
Money and the Instrument/document by which the transfer is effected is called a mortgage deed.

In a mortgage, generally, the ownership and possession lies with the Borrower and the Creditor or the lender
or the banker only has a right to get the mortgaged property sold through court.

What is a Hypothecation?

Hypothecation is a form of security where a movable property is given as a security to the lender. The ownership
and possession is with the borrower and the Creditor (a lender or a banker) has a right to sell the property and
recover the loan in case of default. Such a sale has to be through court or if so agreed, directly without the
intervention of the court.

What is a pledge?

It is a form of security where the borrower delivers the goods to the lender or creditor or any other person as a
Security for the repayment of the loan taken or for the performance of a promise. The borrower is the owner of
the goods pledged but the possession is with the creditor. On default of the borrower, the creditor or the lender
may file a suit against the borrower AND retain the pledged goods as a security (or) he may sell the goods
pledged, after giving notice of the sale to the borrower.

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