Hypothecation is not a statutory creation but it is in usage in the mercantile field from time immemorial. There is no provision in the Indian Contract Act 1872 or Sale of Goods Act regarding hypothecation.   

According to Section 172 of the Indian Contract Act, 1872 Pledge is a Bailment of goods as the security of repayment of a loan or performance of a promise.


In hypothecation, the possession of goods is retained by the borrower.

In pledge, possession of goods is parted with by the owner in favor of the creditor.


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