Name: ANJALI TRIPATHI

Application ID: 22810047814

 Research Area/ Proposed Topic

The Law Pertaining to

Hypothecation & Lease financing
by Banks.
 Research Questions:-
• The researcher poses the following questions in relation to the project topic in hand
and also intends to find possible solutions for the same.

1. Whether SARFAESI Act, 2002 is implemented properly in relation to

hypothecation?

2. What is the mechanism lying behind the hypothecation and lease financing by
banks?

3. How far the problem of Bank lending is solved?

4. Are there any loop-holes present in the said act? If yes, what is the possible
solutions or suggestions to such problem?
 Background of the Problem:-
• Hypothecation is the practice where a borrower pledges collateral to secure
a debt, as a condition precedent to a loan. The borrower retains ownership of
the collateral, but the creditor has the right to seize possession if the borrower
defaults. Hypothecation is usually done in a case of movable assets, for
creating the charge against collateral for the loan given. Under hypothecation,
the possession of the security remains with the borrower itself. Hence, if the
borrower defaults on payments, the lender would have to first take possession
of the security and then sell the asset to recover dues. Unlike in a pledge, the
lack of possession of assets by the creditor and the continued usage of the same
by the debtor puts into question that the research seeks to answer. Sometimes,
borrowers try to cheat the banker by partly selling goods hypothecated to bank
and other such methods like not keeping the desired amount of stock of goods.
This study shall examine what are the remedies available to the bankers.
Need for this research/Possible Contribution:-

Goods financed by banks in India are often hypothecated to the bank as security/
collateral till the loan covering it is repaid by the borrower. Hypothecation is used
when a debtor wants to obtain a loan and use a certain property or asset as a security
or collateral. It can help reduce mortgage fees and interest and help those who may
not look their best on paper to obtain a loan. Hypothecation & leasing is a very
prominent transaction in the banking sector worldwide. It is dealt with under
banking laws as well as many other laws. However, unlike other charges like
mortgage, pledge etc., there is a serious lack of literature on hypothecation in India.
Additionally, there is a lack of codification with regards to hypothecation which has
resulted in heavy reliance being placed upon judicial pronouncements. The
researcher will seek to fill this void through this research.
In this research, the researcher will analyses Indian case law to determine the
interest, rights and duties of the parties to hypothecation contract.
 Motivation for doing this research:-
•The banking sector is an integral part of every economy and accounts for a huge
percentage of the total assets that can be directed to economic advantage. It had
however been controversial to emphatically state that Indian banks are beneficial
to the local economy. The study elucidated when bank lending increases the nation
has a definite opportunity to grow its output, growing the output ordinarily translate
into creation of wealth for the individual house hold the firms and the government
causing a direct impact on the per capita standard of
Living.
•In addition to current situation the COVID-19 pandemic adversely affects the financial
markets, a better understanding of the lending dynamics of a successful marketplace is
necessary under the conditions of financial distress.
•To study the implications of the lack of a specific legal framework dealing with
hypothecation in India.
 References:-
• Akhileshwar Pathak, Law Relating to Special Contracts: Contracts of Bailment, Pledge,
Hypothecation, Indemnity and Guarantee (LexisNexis 2014).
• E.P Erlanger and R.J.A Hole, Ellingers Modern Banking Law (1st Indian edn, 4th
International edn, Oxford University 2007).
• GRK Murty, Banking and the law: A User’s Manual (1st edn, ICFAI University Press 2008).
• Mark Hapgood Q.C, Paget’s Laws on Banking (13th edn, Lexis and Nexis Butterwoods
2007).
• R.K. Gupta, Banking Law and Practice, vol 1 (2nd edn, Modern Law Publications 2012).
• S.N Gupta, Supreme Court on Banking Law (5th edn, Universal Law Publishing Co., 2007).
• Sanjana M and Sharvari Kothawade, ‘The Law on Hypothecation’ in Sairam Bhat (ed),
Contract, Agreements and Public Policy in India (National Law School of India University,
Bengaluru 2015).
• Sundharam and P.N Varshney, Banking Theory Law and Practice (Sultan Chandan Sons
2013).