INTRODUCTION
Section 100 of the Transfer of Property Act, 1882(henceforth referred as “the Act”) defines a charge.
“Where immoveable property of one person is by act of parties or operation of law made security for the payment of money to another; and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge. “
It says that where immovable property of one person is, by act of parties or operation of law, made security for the payment of money to another, and the transaction does not amount to mortgage, the latter person is said to have a charge on the property, and all the provisions hereinbefore contained which apply to simple mortgage shall, so far as may be, apply to such charge.
“Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly insured in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.”
The expenses incurred by the trustee are a charge upon the trust property but this charge, unlike other types of charges, cannot be enforced by the sale of the trust property for it would have the effect of destroying the trust. Section 32 of the Trust Act says that the trust may only reimburse itself for such expenses out of the income of the trust estate and prohibit any disposition of the trust property without previous payment of his expenses.
The second exception lays down that no charge shall be enforced against any property in the hands of the person to whom such property has been transferred for consideration and without notice of the charge. This exception brings out the distinction between a charge and mortgage (which will be discussed in detail by the researcher in the first chapter of this paper. The researcher also wishes to discuss the distinction between a “charge and a lien” and “a charge and a simple mortgage” followed by the kinds of charges in the second chapter of this paper followed by his conclusion.
CHAPTER 1
OF CHARGES AND MORTGAGES
Section 58 of TOPA defines what a mortgage is:-
“A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.
The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed.”
Therefore a mortgage being just in rem can be enforced against the mortgaged property in the hands of any transferee from mortgage irrespective of notice. Whereas a charge, on the other hand, is a just ad rem and can be enforced against a transferor got consideration if he has taken the transfer with notice of charge.
Before section 100 of the Act was amended by ACT 20 of 1929, it was well settled that the section did not prescribe any particular mode of creating charge. The amendment substituted the words: “all the provisions hereinbefore contained which apply to a simple mortgage shall, so far maybe, apply to such charge”., for the words “all the provisions hereinbefore contained as to a mortgagor shall, so far may be, apply to the owner of such property, and the provisions of section 81 & 82 shall, so far as may be, apply to the person having such charge.”
The object of the amendment was to make it clear that the rights and liabilities of the parties in case of such charge shall, so far as may be, the same as the rights and liabilities of the parties of a simple mortgage [1] . The amendment was not intended to prescribe to any particular mode for the creation of a charge. The Nagpur HC came to a similar conclusion in Bapurao v. Narayan [2] .It follows that the security bond was not required to be attested by witness. It was duly registered and was valid and operative [3]
Mortgage and charge distinguished:
The main points of difference between mortgage and a charge are as follows:
A mortgage is a transfer of an interest in specific immovable property but a charge is not. In a charge no right in rem is created, but the right is something more than a personal obligation, for it is a just ad rem, that is right of payment out of property specified, while a mortgage is a right in rem.
A charge may be created by act of parties or by operation of law; but a mortgage can be created only by act of parties.
The creation of a charge does not necessarily imply the existence of a debt while it is always so in case of a mortgage.
A mortgage is good against subsequent transferees and may be enforced against a bona fide purchaser for value with or without notice, while a charge is good only against subsequent transferee with notice.
A charge created by operation of law does not require registration pre scribed by section 59 of the Act for a mortgage. A charge created by act of parties requires registration irrespective of the amount involved.
It should be noted that a transaction intended to be a mortgage but not reduced to writing and registration in cases where such a formality is required cannot operate as a charge. In Goinda v. Dwarka nath [4] , it was observed that: “if an instrument is expressly stated to be a mortgage, and give the power of realization of the mortgage money by sale of mortgaged premises, it should be held to be a mortgage. The fact that necessary formalities of the due execution were wanting would not convert the mortgage into a charge. If, on the other hand, the instrument is no ton the face to it a mortgage, but simply creates a lien, or directs the realization of money from a particular property without reference to sale, it creates a charge.
Charge and Lien distinguished:
In law, a lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the lienor and the person who has the benefit of the lien is referred to as the lienee.
A charge may be created by the act of parties or by operation of law, but lien can arise only by operation of law.
A charge may not only empower its possessor in many cases to hold the property charged, if it is in his possession, but also to enforce it in a court of law. A lien, on the other hand, is simply a right to possess and retain property until some charge attaching to it is paid or discharged.
A charge is confined to immovable property, but a lien may be in respect of movable property.
Charge and Simple Mortgage distinguished:
Section 58 of The Act defines simple mortgage as:
“Where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly or impliedly that in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee..
In simple terms a simple mortgage does not involve giving the possession of the mortgagor’s property to the mortgagee. It is under mutual agreement that in case of non-payment by the mortgagee to the mortgagor within the specified time, the mortgagee can cause the mortgaged property to be sold in accordance with law and have the sale proceeds adjusted towards the payment of the mortgage money.
In a simple mortgage, there is a personal covenant to pay the mortgage money whereas in charge, there is no understanding to pay the money personally.
In simple mortgage there is a transfer of interest in the property mortgaged, in a charge there is no such transfer. Not withstanding this vital distinction, the section says :
“The provision hereinbefore contained which apply to simple mortgage shall, so far may be, apply to charge.” As in case of a simple mortgage, the charge-holder has got a right to enforce the charge by sale of the property subject to charge. [5]
CHAPTER 2
KINDS OF CHARGES
The charges that have been dealt in this section are:-
Charges created by act of parties.
Charges arising out of operation of law.
The Nagpur HC had held that a charge which is created by a decree is not created by acts of parties, nor can it be said to have been creates by operation of law. Such charge does not fall under the section nor does the principle underlying it apply to it. [6] But in a later decision, the same HC has held that a charge created by a compromise of a money decree is a charge created by the act of parties and is thereof governed by this section. [7] The Patna HC has, however, held that where a charge is created by a decree which was passed in pursuance of an agreement between the parties; it is a charge by act the act of parties and consequently, one contemplated by sec. 100 of the Act. The Calcutta HC held that a charge created by a consent decree over certain property of the husband for maintenance of the deserted wife for his life was in the nature of a charge contemplated by sec. 100 of the Act, and will not lapse by death of the husband. [8] But a charge created by ordinary decree would not be charge created by the acts of parties and the provision of sec. 100 would not apply. [9]
However the SC has held in a case that a compromise decree creating a charge is an “act of parties” within the meaning of sec. 100 of the act. It is no the result of a decision of the court, but is an acceptance by the court of something to which the parties have agreed. [10]
Charges created by act of parties –
An agreement which gives immovable property as security for the satisfaction of a debt without transferring any interest in the property constitutes a charge by act of parties. No particular form of words is necessary case for creation of a charge. It is sufficient, if, having regard to all the circumstances of the transaction. The document shows intent to make the land security for the payment of the money mentioned therein. [11] But there must be a clear intention to make a property security for money in praesenti. If there is an intention to create a charge in praesenti an agreement to mortgage may amount to a charge. A mere undertaking to discharge an obligation or liability is not enough if the intention to make a specified property of fund liable is absent. An agreement which gives immovable property as security for the satisfaction of a debt, or for the payment of a maintenance allowance in perpetuity, without transferring any interest in the property or an agreement by which an owner of a share in a village receives in lieu of his share a lump sum out of the income, constitutes a charge on the property and is not a mortgage. [12]
The following are the illustrations of charges by acts of parties: [13]
A inherited an estate from his maternal grand-mother and executed an agreement to pay his sister B a fix annual sum out the rents of the estate; B has charges on the estate. [14]
A sued B on a promissory note. The compromise decree directed the payment of the money and further directed the B shall not dispose of his share in a factory until satisfaction of the entire decretal amount. It was held that A had a charge on the property specified. [15]
Charges arising out of operation of law –
A charge by operation of law is one which arises irrespective of the agreement of the parties. Such charges are known as equitable liens in English Law. The inclusion, in the definition, of charges by operation of law has been criticized as inconsistent with the scheme of the Act which relates to transfers by act of parties. [16] But as the SC observed in Laxmi Devi v. Mukand Munwar [17] a plain reading of sec. 2(d) of the Act leaves no doubt that the provisions of chapter IV of the Act, and therefore of this section, governs charges by operation of law. The Act however itself creates such charges, for a charge by the operation of law arises in this Act under sec. 55(4)(b) in the case of an unpaid vendor, under sec. 55(6)(b) for the purchase money paid in advance; and sec. 73 in favour of a mortgagee on surplus sale proceeds of a revenue sale. [18]
As illustrations of such charges we may note the following:
Vendor’s charge for unpaid purchase-money –
This is provided by sec. 54 (4)(b) : “where the ownership of the property has passed to the buyer before payment of the whole of the purchase-money, the seller is entitled to a charge upon the property in the hands of the buyer, any transferee without consideration or any transferee with notice of non-payment, for the amount of the purchase-money, or any part thereof remaining unpaid, and for interest on such amount or part from the date on which possession has been delivered” [19]
Vendee’s charge for purchase-money paid in advance –
Under sec.55 (6)(b), the vendee is entitled “to a charge on the property, as against the seller and all persons claiming under him to the extent of the seller’s interest in the property, for the amount of any purchase-money properly, for the amount of any purchase-money properly laid by the buyer in anticipation of the delivery and for interest on such amount” [20]
Other instances of charges arising by operation of law are mortgagee’s lien under sec. 73 on surplus sales proceeds, a revenue sale, the right of maintenance under sec. 39 and the right of a holder of a detective title who makes improvement on the property under sec. 51 [21]
CONCLUSION
A charge gives rise to a new proprietary interest in favour of the lender over the borrower’s property. In contrast to a mortgage there is no transfer of the borrower’s existing interest but the creation of a new burden upon the borrower’s ownership. This interest by way of charge appropriates the borrower’s property to the repayment of the loan. In other words it entitles the lender to look to the borrower’s property should the borrower fail to repay the loan, for instance by insisting that the property to be sold. When the loan is repaid the charge will cease as there is no longer any appropriation.
Strictly speaking, a charge does not involve the transfer of ownership, in the same way as a mortgage of unregistered title. The charge holder is deemed to have all the legal rights of a mortgagee. However, some mortgagee rights depend on ownership, such as the inherent right to take possession. A charge holder does not the have possession as a mortgagee. However, it is often the case that conditions of a charge of registered land, right a grant mortgagee, by the terms of the charge deed. Automatic same right to possession of the terms and to the
