Adam Frankel
General Counsel · Technology & AI
15+ years as General Counsel to technology, cloud & AI companies
AGREEMENT TO HYPOTHECATE GOODS TO SECURE FIXED LOAN
The Manager,
____________ Bank,
____________
____________
Sir,
In consideration of your Bank advancing to me/us on loan the sum of Rs. ____________, I/We hereby agree to hypothecate and hold under lien to the Bank, as security for the repayment as per the Schedule hereto of the principal amount of the loan, and payment of interest on demand at the rate of ______% per annum, subject to a maximum of ______% per annum above the Bank Rate.
The goods so to be held by me/us under lien to the Bank, I/We declare to be my/our absolute property, and to be stored in my/our godowns at ____________.
I/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 me/us under lien to the Bank in terms of this agreement shall be kept separate and apart from all other goods in my/our possession; and no moneys shall be borrowed by me/us from any company, firm or person on the security of such goods stored in the same godown, in a way that such other goods may be mixed with the goods held under lien to the Bank; nor shall I/We do any other act by means of which the Bank's lien on the goods so held shall be in any way impaired or affected. It is understood that I/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, provided that no such sale shall reduce the value of the goods held under lien below the amount of my/our said debt to the Bank plus the margin of ______ per cent.
In case of any sale of goods held under lien to the Bank reducing the value of the goods held under this lien to less than the amount of my/our said debt to the Bank plus such margin, the proceeds of such sale, as soon as the same are received, shall be paid into the Bank in part satisfaction of the said loan, and shall in the meantime be held as specifically appropriated to payment of the amount due by me/us on the security.
This is a preview. The full template is free on GitLaw.
About this template
What is this template?
This is a letter agreement establishing a charge over movable goods where the debtor keeps possession. It is not a standard mortgage over land or a simple promissory note. It contains specific powers for the bank to enter the borrower's godowns and take possession of 'bazaar chits' if the loan is unpaid.
When should you use it?
Use this when a business needs to borrow funds against stock but needs to keep and sell that stock to maintain operations. Use a Goods Pledge Agreement instead if the bank is taking physical possession of the items in their own warehouse.
What's inside
| Clause | Name | What it does |
|---|---|---|
| Paragraph 7 | Security and Interest | Hypothecates goods to secure a loan of a specific Rs amount at a stated percentage rate above the Bank Rate. |
| Paragraph 9 | Monthly Reporting | The borrower must provide a full statement of goods held under lien at the close of each English calendar month. |
| Paragraph 9 | Margin and Sale Conditions | Borrowers may sell goods in the ordinary course of business provided the value does not drop below the debt plus a margin. |
| Paragraph 11 | Bank Entry and Inspection | The bank is authorized to enter godowns to inspect goods and take accounts while the loan remains unpaid. |
| Paragraph 11 | Rights of Pawnee | The bank exercises rights under the Indian Contract Act, 1872, including the power to sell goods without notice upon default. |
| Paragraph 12 | Insurance | The borrower must insure goods against fire to their full value and deposit the policies with the bank on demand. |
Who it's for
- a borrower in India securing a bank loan using movable inventory stored in their own godown
- a bank manager documenting a fixed loan secured by a floating stock of goods
- a company director pledging business inventory as collateral for debt while maintaining operational control
How long it runs and how it's signed
How long
Runs until the work is done
Signed by
Managing Director
Witness
Not required
Notarisation
Not required
Also needed
Schedule of securities must be attached; Schedule of instalments must be attached
Law it's drafted under
Refers to
Indian Contract Act, 1872
Jurisdiction
India
Document info
GitLaw document. Document created on Fri Jun 26th, 2026. Last updated on Thu Jul 9th, 2026.
This document is public
Licensed under CC BY 4.0 (Attribution).
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