INTRODUCTION
Concept of Charge is defined under Section 100 of Transfer of Property Act, 1882 and Companies Act 2013[1] covers its registration.
AS DEFINED IN TPA, 1882:
Section 100 of the TPA, 1882 defines charge as,
“Where immovable property of one person is by an 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 incurred 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.”
It says that:
Where immovable property of one person is, by act of parties or operation of law, makes security for the payment of money to other person, and that transaction does not values as mortgage then the latter person is said to have a charge on the property, and all the provisions which apply to simple mortgage are also applied to charge.
This is an exception to charge, provisions of this section does not apply to trustee who has paid or incurred all the expenses properly in execution of his trust for the trust property. Acc. to section 32 of Trust Act: Every trustee may re-imburse himself, or pay or discharge out of the trust property, all expenses properly incurred in or about the execution of the trust, or the realization, preservation or benefit of the trust property, or the protection or support of the beneficiary. If he pays such expenses out of his own pocket, he has a first charge upon the trust property for such expenses and interest thereon; but such charge shall be enforced only by prohibiting any disposition of the trust property without previous payment of such expenses and interest.[2] This means a trustee may repay himself for such expenses only out of the trust income and can prohibit transfer of trust property if payment of his expenses has not been done.
Hereby, exception 2 says that no charge shall be enforced on a transferee i.e. the person to whom property has been sold or transferred for the exchange of consideration and without the notice of charge. Therefore, he has taken the ownership of the property in good faith without any knowledge of such charge being associated to the property.
MEANING:
Charge means, 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 charge on the property, and all the provision hereinbefore contained which apply to simple mortgage shall, so far as may be, apply to such charge.
If charge is attached to the property charged?
The charge for maintenance, present and future, is recurring charge and is not extinguished by a decree for sale. A recurring charge is not identical with mortgage. The auction purchaser will not get the property free from the charge. The charge will continue as long as the decree holder has right to recover future maintenance. Such person can bring the property to sale whenever maintenance becomes due to her notwithstanding the fact that the property is in the hands of an auction purchaser, who purchased it in sale held previously in satisfaction of the decree for arrears of maintenance.
The words “which apply to apply to a simple mortgage shall, so far as may be, apply to such charge” in this section were substituted by section 53 of Transfer of Property (amendment) Act, 1929, for the words “as to a mortgagor shall, so far as may be, apply to the persons having such charge.” Evidently, the effect of the amendment was that all the provisions of TP Act which apply to simple mortgages were made applicable to the charges.
Case Law:
Haryana Financial Corporation v. Gurcharan Singh[3]
“An ordinary charge created under the Transfer of Property Act is compulsorily registerable. The first portion of Section 100 of the TP Act lays down that 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. The words “which apply to a simple mortgage shall, so far as may be, apply to such charge” in this Section were substituted by Section 53 of the Transfer of Property (Amendment) Act, 1929, for the words “as to a mortgagor shall, so far as may be, apply to the owner of such property, and the provisions of Sections 81 and 82 shall, so far as may be, apply to the persons having such charge.” Evidently, the effect of the amendment was that all the provisions of the TP Act which apply to simple mortgages were made applicable to charges.”[4]
EXCEPTIONS TO CHARGE
It is a charge created on immovable property which is also a trust property in trustee’s favour i.e. responsible for the maintenance. This charge doesn’t extinguish by the sale of the property as it would lead to destroying the trust. A trustee can be reimbursed from the expenses out of the income of the trust, therefore he can stop the transfer of the trust property.
- Transferee who had no notice about the charge
Transfer of property in hands of a person who was unknowledgeable about the charge on property i.e. no notice was given to him by the transferor therefore, charge cannot be enforced upon the transferee. A charge is ad rem and can be enforced upon transferor who got the consideration if he has taken transfer with the notice of charge.
ESSENTIALS OF CHARGE
- IMMOVABLE PROPERTY
- The charge must be created against an immovable property which can be a current or future property belonging to the borrower.
- A charge cannot be created if the immovable property is not owned by the person from whom the payment is due.
- DOES NOT AMOUNT TO MORTGAGE
A charge is not a mortgage as there is no transfer of property and interest. Right in ad rem i.e. right to payment out of a specified property is generated. It has been mentioned in section 100 that a charge doesn’t amount to mortgage, although all the provisions which apply to a simple mortgage shall also be applicable to charge.
Case Law:
MatlubHasan v Mt Kalawati[5]
It was held that:
“If an instrument is expressly stated to be a mortgage and gives the power of realization of the mortgage money by the sale of the mortgaged premises, it should be held to be a mortgage. The fact that the necessary formalities of due execution were wanting would not convert the mortgage into a charge. If, on the other hand, the instrument is not on the face of 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.”
KINDS OF CHARGE
- CREATED BY ACT OF PARTIES
An agreement which gives immovable property as security for satisfaction of a debt without transferring any interest in property constitute a charge by act of parties. No particular form of word is needed for creation of a charge. It is sufficient if having regard to all the circumstances of the transaction, the document shows an intention to make the land security for the payment of money mentioned therein. Further, the Act nowhere prescribes any particular mode of creating orally. Where however, it is created by an instrument, such instrument must be registered unless amount involved is less than Rs. 100 [Section 17 (1) (b) of Registration Act].
- ARISING BY OPERATION OF LAW
A charge by operation of law is one which arises irrespective of agreement of the parties. Such charges are known as equitable liens in English law.
- Vendors charge for unpaid purchase money
This is provided by Section 54 (4) (b): “where the ownership of the property has passed to the buyer before payment of the whole of the purchase-money, to a charge upon the property in the hands of the buyer before payment of whole of the purchase money, the seller is entitled to charge upon the property in hands of the buyer, any transferee without consideration or any transferee with notice of the non-payment, for the amount of the purchase-money, or any part thereof remaining unpaid, and for interest on such amount or part 1[from the date on which possession has been delivered.”
- Vendees charge for purchase money paid in advance
Under Section 55 (6) (b), the vendee is entitled “to a charge on the property, as against the sellers and all persons claiming under him to extent of seller’s interest in the property, for the amount of ant purchase money properly paid by the buyer in anticipation of delivery and for interest on such amount.”
Other instances of charge arising by the operation of law are mortgagee’s lien under Section 73 on surplus sale proceeds, a revenue sale, the right of maintenance under Section 39 and the right of a holder of a detective title who makes improvement on property under Section 51.
CASE LAWS
Pujjuru Suryanarayana vs. Union Bank of India, Rep. by It’s…
The objection raised in the execution petition was rejected by the learned Judge relying upon the provisions of Sub-rule (2) of Rule 15 of Order XXXIV CPC. Questioning the said order, the present civil revision petition is filed by the first judgment-debtor as mentioned above.
CPC has no application to a mortgage decree and that the reliance placed by the lower Court on the judgment of this Court in Rama Mandiram v. Raghavamma, (1984(1) ALT 8) is not sustainable. The reference to ‘charge’ in Sub-rule (2) of Rule 15 is preferable to the ‘charge’ created under Section 100, Transfer of Property Act, as mentioned in Sub-rule (1) of Rule 15. The learned Judge, in the said decision, dealt with the question whether there is any necessity of obtaining any separate final decree to enforce a decree of a charge created under Section 100 of the Transfer of Property Act.
The provision clearly indicates, that till the passing of final decree and even till the confirmation of the sale made in pursuance of the final decree, the defendant is entitled to redeem the mortgage.[6]
Debendra Chandra Roy v. Behari Lal Mukherji and Anr.
The lower Appellate Court held, and we think rightly, that the Court of first instance was wrong in holding that any charge on the property described in the document could be held to be created by the document. Section 100 of the Transfer of Property Act expressly states that where immoveable property of one person is by act of parties or by 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, in this case, there can be no doubt that the document, if valid, amounted to a mortgage. In these circumstances, it is impossible to hold that any charge by it was created on the property.[7]
CONCLUSION
Hence, every mortgage is a charge but not every charge is a mortgage. A charge is an interest created over an immovable property for securing payment of the amount which is due to the party. The property is not transferred to the lender and only interest is created. It is neither a lien nor a mortgage but some properties of both are present in a charge.
[1] Section 77, Companies Act, 2013
[2] Section 32 in The Indian Trusts Act, 1882
[3] 2014(1) AWC 212 (SC)
[4]https://indiankanoon.org/doc/183708144/
[5] 147 IC 302, AIR 1933 All 934
[6] 1991 (2) ALT 361
[7]15 IndCas 666
You must be logged in to post a comment.