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In a case reported in State Bank of India v. S.B. Shah Ali, a Division Bench of that court has held as follows:

"Hypothecation is not a statutory creation but it is in usage in mercantile field limes immemorial. The hypothecation is neither governed by any Statute nor there is any law governing the same directly or indirectly. Therefore, courts have to consider hypothecated cases purely on general conditions of the contract as per the terms of the hypothecation agreement. Hypothecation is understood in mercantile world as creation of charge on moveables in favour of hypothecatee by hypothecator where possession of goods will remain with the hypothecator. Thus, the hypothecator can be in possession of goods hypothecated and enjoy the same without causing any damage to the rights of the hypothecatee."
"The distinction between pledge and hypothecation is that, in case of hypothecation the hypothecatee can be in possession of the goods hypothecated and enjoy the same without causing any damage to the rights of the hypothecatee whereas in the case of pledge the possession of moveables will be transferred to the pawnee and he will be in possession and the pawner will not be able to enjoy the same as the possession has already been parted with."
"Where there is a mere charge in hypothecation agreement, the hypothecatee has to approach the court and seek intervention of the court for obtaining money decree and for bringing the hypothecated goods for sale through the court. When there is any specific clause in the hypothecation agreement empowering the hypothecatee to take possession of the goods and sell the same, in the event of default in payment, as per the said terms the hypothecatee can proceed ahead without intervention of the court."
"In the hypothecation agreement, the rights of the hypothecatee are governed by the terms of the agreement Where the agreement provides for taking of possession of the goods hypothecated, the hypothecatee can take possession of the said goods without intervention of the court. Where the goods are hypothecated only by creating a charge, then the hypothecatee has to take action to enforce the said charge according to law. Therefore, it cannot be said that the hypothecatee has to approach the court even though the deed provides for taking of possession in case of default of the hypothecator. If there is any violation of the terms of the deed it will not, however, bar the hypothecator to approach the court and seek proper relief."

12. In the light of the law laid down by various courts in the judgments referred to above, I applied my mind to Ex.A.1 to find out what are the terms and conditions on which the memorandum of hypothecation was created by the first defendant in favour of the plaintiff Bank. To Ex.A.1, the first defendant is a party as the first part; defendants 2 and 3 are parties to the same as the second part and the plaintiff is a party to it as the bank. Under Clause 6 of the said agreement the Bank is given the power to call for the entire money immediately and also enforce the security or recover the money in any other manner which the Bank thinks fit. The 3rd schedule to the document gives the description of the boat hypothecated to the Bank. Clause 9(a) of this document states that the hypothecated boat shall be held as Bank's exclusive property and the borrower will not create charge, mortgage or lien or encumbrance affecting the same or any part thereof nor do anything which would prejudice the security. Clause 10 of this agreement empowers the Bank to take possession of the hypothecated boat. Clause 12 of the said agreement specifically states that "in the event of default in terms of the agreement by the borrower, the Bank at it's option is entitled to take possession of the hypothecated boat at the risk of the borrower and sell the same by public auction or private contract or otherwise. The net proceeds after deducting the expenses and other losses incurred in exercise thereof, should be applied towards liquidation of the balance due to the Bank without prejudice to the Bank's rights and remedies of suits against the borrower; the borrower agreed to Bank's account of sales of realisation and pay any shortfall or deficiency therein shown and appear to be due by the borrower." Under Clause 17 of this document, the borrower shall not without previous permission of the Bank in writing sell or otherwise part with the hypothecated goods and if with the permission of the Bank the goods are sold, the value of the goods shall be paid to the Bank.