PAPER ON

CHARGES

SUBMITTED FOR THE PURPOSE OF INTERNAL ASSESSMENT

THE TRANSFER OF PROPERTY ACT

FIRST SEMESTER

LL.B. (HONS.) IN INTELLECTUAL PROPERTY LAW

AT RGSOIPL – IIT KHARAGPUR

UNDER GUIDANCE OF: SUBMITTED BY:

Prof. SHREYA MATILAL CHINMOY MISHRA – 17IP63011

RAJNISH KUMAR – 17IP63022

RISHITA GHOSH – 17IP63037

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CHARGES

INTRODUCTION
Section 100 of the Transfer of Property Act, 1882 defines a charge, as:

“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.”

“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."

So to summarise this section:

a. When immovable property of one person is made to secure the payment of money to
another,
b. Can be done by act of parties or by operation of law,
c. This process does not amount to a mortgage,
d. All the provisions which apply to a simple mortgage shall apply to such charge,
e. Charge cannot be enforced against any property in hands of a bona fide transferee for
consideration without notice.

Few examples,

1. A is the owner of certain property, who has a son and a daughter. He gives his entire
property to the son and puts a condition that the son would be under an obligation to
pay Rs. 5000 out of the property every month to the daughter for her maintenance.
This amount of money would constitute a charge in favour of a daughter. If the son
sells the property to a 3rd party, the daughter can enforce her right against the 3rd party
provided that he has notice of this charge.
2. A Hindu joint family comprised of 3 coparceners, A, B and C. The 3 decide to
partition the property and each of them gets one third share in the property. The
family had to pay some debts from the property and each of them will be separately
liable to pay the proportionate amount of the debt. If A and B together pay the total
debt, they would have a charge over the property in the hands of C, for his
proportionate amount of debt that was C under an obligation to pay from his share of
the property.

The purpose of charge is to create security for the payment of money, but there is no transfer
of right in the said property in favour of the other to make it a mortgage. A charge need not
be in writing, but if writing is required, registration is necessary in the case of a non-
testamentary instrument of the value of Rs. 100 or upwards. The security for the charge must
be specific immovable property otherwise the charge would be void for uncertainty.

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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 jus in rem can be enforced against the mortgaged property in the
hands of any transferee from mortgage irrespective of notice. A charge is a jus ad rem and
can be forced against a transferor who got consideration if he has received the transfer with
notice of charge.

Before section 100 of the Act was amended in 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 herein before contained which apply to a simple mortgage shall, so far
maybe, apply to such charge", for the words “all the provisions herein before 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 aim of the amendment was to make it clear that the rights and liabilities of the parties in
case of such charge shall be the same as the rights and liabilities of the parties of a simple
mortgage. 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. Narayan1 .
It follows that the security bond was not required to be attested by witness. It was duly
registered and was valid and operative.

A charge may be enforced by a suit even when created by a decree.

A charge may be extinguished in the same manner as a simple mortgage. Therefore, a charge
may be extinguished –

i. By act of parties by release of debt or security,

ii. By novation, or
iii. By merger.

1
[1949] ILR Nag 802

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Mortgage and charge distinguished:

The main points of difference between mortgage and a charge are as follows:

I. A mortgage is a security for the payment of a debt. Where a charge is a security for
the payment of money and which may or may not be a debt.
II. A mortgage may be security for the performance of an engagement giving rise to a
pecuniary liability, but in case of charge it is not.
III. A mortgage involves transfer of an interest in some specific immovable property. But
there is no transfer of interest in a charge in favour of a charge-holder; the charge-
holder can satisfy his claim out of a particular property without transferring that
property to him.
IV. A mortgage can be created only by the act of parties, but a charge can be created
either by the act of the parties or by operation of law.
V. In a mortgage, there may be a agreement to pay, but in a charge, there can be no
agreement to pay.
VI. A mortgage gives rise to a right in rem, but a charge doesn’t give rise to a right in
rem, it is a right in personam, i.e. available only against those particular persons who
are affected by the notice of the charge.
VII. A mortgage can follow his security into whatsoever hands it may go and can even
follow a bona fide purchaser for value, but a charge-holder can’t follow his security.
VIII. A mortgage can be enforced by foreclosure suit for money and sale, but a charge can
be enforced only by sale of property through the Court.
IX. Every mortgage is a charge; every charge is not a mortgage.
X. A simple mortgage can be enforced within 12 years whereas other types of mortgages
can be enforced within 30 years, but a charge can only be enforced within 12 years.

It should be remembered 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 Govinda v. Dwarka nath2 , it was held 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 required formalities of
such execution were wanting would not convert the mortgage into a charge. If the instrument
is not a mortgage, but 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:

I. A charge may be created both by the act of parties and operation of law, but a lien
arises by operation of law only.
II. A charge exists on immovable property only, but a lien may be created both on
immovable and movable property.
III. A charge is not possessory in nature, but a lien is possessory in nature.
IV. A charge-holder may satisfy his claim by selling the property, but a lien-holder can
satisfy his claim by sale or by retaining possession of the property.

2
[1908] 35 Cal 837

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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.”

It means a simple mortgage does not involve transferring the possession of the mortgagor's
property to the mortgagee. It is under agreement that in case of non-payment by the
mortgagee to the mortgagor within the specified time, the mortgagee can sell the mortgaged
property in accordance with law and have the same amount from sale to be adjusted towards
the payment of the mortgage money.

In a simple mortgage, there is a personal agreement to pay the mortgage money whereas in
charge, there is no agreement to pay the money personally.

In simple mortgage there is a transfer of interest of the property mortgaged, in a charge there
is no such transfer. The section 100 also 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 a right to enforce
the charge by selling the property subject to charge.

KINDS OF CHARGES
The charges that have been dealt in this section are:-

1. Charges created by act of parties.

2. 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 this section nor does the principle underlying it apply to it.3 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.4 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

3
Ghasiram v Kundanbai (1941) ILR Nag 513
4
Bapurao v Narayan (1949) ILR Nag 802

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contemplated by sec. 100 of the Act.5 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.6 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.7 A charge on
future property is valid and operates on such property when it comes into existence. 2 persons
appointed an arbitrator to make a partition of their properties and for securing their rights.
The arbitrator allotted some properties to A and some to B. As the value of A’s properties
was greater than those of B, he directed A to pay B Rs. 1400 to make up the difference within
a month. He further directed that if such payment was not made, B should have a charge on
A’s properties for that sum and also interest at 10 annas per month.8

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 not the result of a decision of the court,
but is an acceptance by the court of something to which the parties have agreed.9

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.10 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.11 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.12 An agreement which gives immovable property
as security for the satisfaction of a debt13, or for the payment of a maintenance allowance in
perpetuity14, 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 income15,
constitutes a charge on the property and is not a mortgage.

The following are the illustrations of charges by acts of parties:

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. 16

5
Basumati v Harbansi (1940) ILR 20 Pat 86
6
Rundibala Roy v Putubala AIR 1985 Cal 47
7
Debendranath v Trinayani 1945 Pat 245
8
Kanhaiya Lal v Jangi 1926 24 All LJ 649
9
Dattatraya v Anand Datar (1974) 2 SCC 799
10
Janardan v Anant (1908) ILR 32 Bom 386
11
JK P Ltd v New K-I-Hind Spg &Wvg Co [1969] 2 SCR 866
12
Chacko MC v State Bank Of Travancore [1970] 1 SCR 658
13
Sher Singh v Daya Ram (1932) ILR 13 Lah 660
14
Liquidator Bank of Upper India v Nisar Ahmed Chaudhari (1932) ILR 8 Luck 168
15
Rustamali v Afta Khan AIR 1943 Bom 414
16
Chalamanna v Subbamma (1984) ILR 7 Mad 23

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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.17

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. 18 But as the SC observed in Laxmi Devi v.
Mukand Munwar19 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.20

Summary of propositions lay down by various judgments of SC

I. A compromise decree is an act of parties within Section 100, it isn’t the result of a
decision of a court, but is an acceptance by the court, of something to which parties
have agreed.
II. A charge doesn’t amount to a mortgage. In every mortgage there is a charge, but
every charge is not a mortgage. The declaration in S100 that the provisions applicable
to a simple mortgage apply as far as may be to a charge does not have effect of
changing the nature of the charge to one of an interest in property.
III. The expression ‘transfer of property’ in S100 connotes a transfer of the whole
property and not a mere interest in, or over, the property, such as mortgage.
IV. The expression ‘property in hands of a person’ in s100 also does not cover a
mortgage. It is confined to a case where the person has sufficient control over the
property, so as to enable that person to do whatever he can do with the property as far
as the nature of the subject matter would admit.
V. The provisions of S100 do not apply to a mortgage. Since a charge is not a ‘transfer of
an interest’, the charge-holder gets no security as against the subsequent mortgagee,
unless the subsequent mortgagee had notice of the existence of the prior charge. The
charge would not have priority over the subsequent mortgage without notice.

17
Narain Das v Murli Dhar 121 IC 81, AIR 1929 Oudh
18
Corporn of Calcutta v Arunchandra Singha (1934) ILR 61 Cal 862
19
AIR 1965 SC 834
20
Chatraput Singh v Grindra Chunder (1881) ILR 6 Cal 389

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Notice of Charge
Charges are not enforceable against transferees for consideration without notice or a
volunteer with or without notice.21 There are some instances where it was held that a charge
created by a decree was enforceable against a transferee for consideration without notice.22

A charge can be enforced against a purchaser without notice if any law expressly so provides.
A charge is enforced by sale as in the case of a simple mortgage under this section and if the
charge carries with a personal liability, the charge holder is entitled to a personal decree. 23 A
person who purchases a portion of a property which is subject to charge with notice of the
charge is liable to pay the whole amount. He may sue for contribution.24

Charge of a Trustee over trust property

A trustee is entitled to a charge on the income as well as the corpus of the trust estate for all
moneys properly expended in performing the obligations of the trust and this charge has
priority over the returns of the beneficiaries.25 However, once he ceases to be a trustee or
loses possession of the trust property, he can enforce his charge by sale.26

CONCLUSION
A charge gives rise to a new 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 liability upon the borrower’s ownership. This interest by way of charge keeps the
borrower’s property to the repayment of the loan. In other words it gives the lender the option
to look to the borrower’s property if the borrower fails to repay the loan, by insisting that the
property to be sold. When the loan is repaid the charge will end as there is no longer any
liability.

So a charge does not involve the transfer of ownership, and in the same way as a mortgage of
unregistered title. The charge holder is considered to have all the legal rights of a mortgagee.
However, some mortgagee rights depend on ownership, such as the essential right to take
possession. A charge holder does not have ownership as a mortgagee. However, it is often in
the case that conditions of a charge of registered land, right a grant mortgagee, by the terms
of the charge deed.

21
Kishan Lal v Ganga Ram (1981) ILR 13 All 28
22
Maina v Bachchi (1906) ILR 28 All 655
23
Babu Ram v Imam Ullah (1935) All LJ 279
24
Shariff Ahmed v H Hunter 167 IC 52
25
Peary Mohun Mukerjee v Narendra Nath, (1910) ILR 37 Cal 229
26
Abkan Sahib v Soran Bibi, (1915) ILR 38 Mad 260

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