Only party to the ‘Deed of Hypothecation’ are the chargors and the security trustee and the only purpose of the document is appearing in broadly is to create a charge and the chargor is not and cannot be treated as a Guarantor within the meaning of the Contract Act – Doha Bank Q.P.S.C Vs. Anish Nanavaty RP of Corporate Debtor – NCLAT New Delhi

The ‘Deed of Hypothecation’ is merely creation of security interest and a mere security of interest created by hypothecation or mortgage does not constitute a financial debt. From our commercial understanding ‘Deed of Hypothecation’ is not a ‘Deed of Guarantee’. The ‘Deed of Hypothecation’ discharges the liabilities of other borrowers upon their default and is limited to the realization value of those hypothecated assets and hence it cannot be construed as a contract of guarantee. ‘Deed of Hypothecation’ is a regular boilerplate clause in any standard draft of a ‘Deed of Hypothecation’. The instrument which covers hypothecation or guarantee is specifically specified in the initial part or object of the agreement or preamble and not somewhere some wordings are mentioned in the agreement. If any, there is a guarantee there will be express or unequivocal promise to discharge the liability of the Principal Borrower in case of any default and will not contain a clause somewhere in the agreement that deficiency will be recouped. The only party to the ‘Deed of Hypothecation’ are the chargors and the security trustee and the only purpose of the document is appearing in broadly is to create a charge and the chargor is not and cannot be treated as a guarantor within the meaning of the Contract Act vide Section 126.

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