Explain in brief the essentials of a hypothecation agreement. Draft a specimen agreement on behalf of a firm Excel & Co. to hypothecate goods to execute fixed loan from Rich Bank.

Hypothecation is a form of transfer of property in goods. Hypothecation agreement is a document by which legal property in goods passes to the person who lends money on them, but the possession does not pass. Hypothecation agreements usually cover moveable machinery, equipment, stocks of finished and semi-finished goods, raw materials, consumable stores, present and future available in factories and godowns of the borrower and also enroute to the borrower's factories and book debts. While these items as moveable assets remain in the possession of the borrower and he has absolute right to convert them, sell them and deal with them in any manner the borrower likes in the course of his business, the legal title vests in the lending institution by virtue of the hypothecation agreement. A Specimen Agreement to Hypothecate Goods to Secure Fixed Loan The Manager, Rich Bank, Sir, In consideration of your Bank advancing to us on loan the sum of ₹............ I/We hereby agree to hypothecate and hold under lien to the Rich Bank (hereinafter called 'the one party') as security for the repayment as per Schedule hereto of the principal amount of the loan and payment of interest on demand at ............% per annum subject to a maximum of ............% per annum above Bank Rate. The goods so to be held by us under lien to the Bank, We declare to be our absolute property, and to be stored in our godowns at ............ We hereby agree to furnish you at the close of business on the last day of each English calendar month so long as any money remains due in respect of the said loan with a full and correct statement of particulars of all goods so held under lien to the Bank, with the market value thereof respectively on that day. All goods from time to time held by us under lien to the Bank in terms of this agreement shall be kept separate and apart from all other goods in our possession. It is understood that we are at liberty, from time to time in the ordinary course of business, to sell all or any of the goods from time to time held under lien to the Bank under this agreement. We empower you or any one from time to time authorised by you on behalf of the Bank to enter the godowns in which the goods held under lien to the bank under this agreement shall be from time to time stored, for the purpose of inspecting and taking an account of the said goods. We further empower you or anyone authorised by you as aforesaid so long as any money advanced by the bank under this agreement remains unpaid, to take possession of any goods from time to time held by us under lien to the Bank under this agreement. We undertake to keep all held under lien to the Bank under this agreement, insured against fire to their full value, and to produce and deposit the policies with the Bank any time on demand and to hold all moneys which may become payable under any such policies in trust for the Bank so long as any money shall remain due in respect of our said loan. It is understood that the Bank's lien on the goods, so held under this agreement shall extend to any other sum or sums of money for which we or any other of us either separately or jointly with any other person or persons may be or become indebted or liable to the bank on any account. Schedule of securities referred to in the agreement. Schedule of instalments for the repayment of the loan amount. ............ Yours faithfully, For Excel & Co. (............) Managing Partner, New Delhi Dated............