Pledge: A pledge is a bailment of goods as security for the payment of a debt or the performance of a promise (Section 172 of the contract Act 1872). Where bailment means the delivery of goods by one person to another for some purpose under a contract that the goods will be returned or otherwise disposed of according to the directions of the person delivering them when the purpose is accomplished.
Hypothecation:
hypothecation is a charge against property
for an amount of debt whether neither ownership nor possession is passed to the creditor. In this case, the possession and control of goods
remain with the customers. An equitable charge on the security is created by the customer in favor of the banks. In this case the customer executes an agreement called as agreement of hypothecation.
Feature of hypothecation:
I. Charge against a
property for an amount of debt
II. Goods remain in the possession of the borrower
III. Equitable charge to the bank under documents Letter of credit
IV. Borrower binds himself to give possession of the hypothecated goods to the bank when called
upon to do so.