Differentiate between 'pledge' and 'hypothecation' of goods as security. Which mode of security would a banker prefer?

Difference between Pledge and Hypothecation Pledge : Section 172 of Indian Contract Act, 1872 defines pledge, as a bailment of a debt or performance of a promise. In pledge, there is actual or constructive delivery of goods by the pledger to the pledgee for securing a debt. At times pledge may be created by a pledger handling over the key to a godown containing the goods or giving a documents to tittle to the goods duly endorsed in favour of the pledgee. The nature of charge is fixed. The contract Act gives the pledgee the right to sell the goods if the pledgor fails to repay the debts by giving reasonable notice. At the same time the pledgee has a duty to return the goods to the pledgor once the debt is repaid. The ownership of security is with borrower and possession is with bank till repayment of the loan. Bank has to take care of the security and return the same if loan is repaid. No registration of charge with ROC required. Limitation period is not applicable. Parties are - Pledger/Pawner (borrower) and Pledgee / Pawnee (Bank). Hypothecation : Defined in SARFAESI Act 2002 (section 2n) as charge on movable property in favour of secured creditor without delivery of possession. Nature of charge is equitable. Hypothecation refers to pledging property as security or collateral for a debt without transfer of the tittle or possession. By its very nature, nature banks run a high risk in hypothecation. Hence the facility is generally given to borrower whose integrity is beyond doubt. Sometimes the borrower may hypothecate the same stock to several banks and obtains multiple finance. Registration with ROC under section 125 of Companies Act, 2013 is required. Limitation period is 3 years. Both possession and ownership is with borrower. Parties - Hypothecator (borrower) and Hypothecatee (bank). As a banker pledge is more preferred as a security than the hypothecation. But practically in banking industry maximum advances are granted under hypothecation and very rarely the advances are granted under pledge. As a banker, pledge is more preferred as a security than hypothecation.