AN ANALYSIS OF CHARGE, ITS TYPES AND THE DISTINCTION BETWEEN

CHARGE AND MORTGAGE

Submitted by-

Dhruv Thakur

BBA.LL.B (Hons.) Batch 2017-22

Registration No. – 17A046

Submitted to – Dr. R.K Singh (Assistant

Professor of Law)
Submission for – Law of Transfer of
Property and Easements Internal Evaluation
2020.

This project is submitted in partial fulfillment of the academic requirements for the
subject ‘Law of Transfer of Property and Easements’
 GNLU Project* Details and Academic Integrity Form
*
(Seminar paper/Research paper/Project/Article)

Student Name: Dhruv Thakur

Registration No. and Semester: 17A046

Law of Transfer of Property and Easements.

Subject:
Faculty Member: Dr. R.K. Singh

Allocation Date: March 2020.

Title Registration Date: March 2020.

Reason for selection of title: Interest in the said topic.

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Academic Integrity Declaration

I warrant and represent that the attached report/research work/articles does not infringe upon
any copyright or other right(s), and that it does not contain infringing, libelous, obscene or
other unlawful matter and that I have given appropriate credit to the original author or source
of information and fully adhered to GNLU research guidelines. I am aware that the non-
compliance with the GNLU academic integrity directive may result into non-evaluation of the
academic/research work, attracting failure in the subject or course and any other measures as
decided by the concerned faculty members.

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20.04.2020

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with the GNLU Exam Rules. Student shall be responsible to ensure full compliance with the
above details.

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 ACKNOWLEDGEMENT

I have taken intense efforts to conduct an in-depth study for the purpose of writing this
research project. However, it would not have been possible to conduct this extensive research
in time without the kind support and help of numerous individuals and thus I would like to
extend our most sincere gratitude to each and every one of them, primarily our respected
faculty for the subject of TPA & Easements, Dr. R.K. Singh, under whose constant support
and guidance I was able to accomplish this task. I am indeed grateful to him for his efforts in
constantly monitoring the gradual progress and eventual completion of this research project.

I am also highly indebted to our University for providing us the platform for such intellectual
pursuits and for its constant encouragement for such academic pursuits.
 I. WHAT IS A CHARGE UNDER THE TRANSFER OF PROPERTY
ACT, 1882?
a) Definition of Charge
A Charge, is defined under Section 100 of the Transfer of Property Act, 1882 (hereinafter as
“TPA”) as –
“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 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.”1
The purpose of a charge is to secure the payment of money, but there is no transfer of a right
in this property in favor of the other to make it a mortgage. 2 It is akin to the creation of a
personal obligation, such as a right to obtain the payment of money out of a specific
property.3
b) The requirements of a charge
The requisites for the enforcement of a charge are4:
i. immovable property of one person is made security for the payment of money
to another;
ii. by act of parties or by operation of law;
iii. this transaction does not amount to a mortgage;
iv. All the provisions which apply to a simple mortgage shall, so far as may be,
apply to such charge; and
v. Charges cannot be enforced against any property in hands of a bona fide
transferee for consideration without its notice.
c) Creation of Charge
A charge need not be in writing,5 but if it is reduced to writing, registration is necessary in the
case of a non-testamentary instrument of the value of Rs 100 or upwards. 6 No particular
words or form is prescribed to create a charge. However, the intention of the parties, that
money is to be paid out of a specific property, must be very clear.
For example, the husband earmarks a specific property for the wife so that she can realise her
maintenance from that property. It does not amount to the transfer of an interest in the
property in favor of the wife, but it is a charge, as the payment is to be made out of that
property. An assignment of such a charge would also need to be registered.7
A charge cannot ordinarily be split up by apportioning liability amongst various persons.8

1
§100 of Transfer of Property Act, 1882.
2
Raja Sri Shiva Prasad v. Beni Madhab, AIR 1922 Pat 529.
3
Property Law, Dr. Poonam Pradhan Saxena (3rd ed., Aug. 2017).
4
Id.
5
Abduljabhar v. Venkata Sastri, AIR 1969 SC 1147.
6
Vishwanadhan v. Menon, AIR 1939 Mad 202.
7
Shiva Rao v. Official Liquidator, AIR 1940 Mad 140.
8
Har Charan Lal v. Agra Municipal Board Agra, AIR 1952 All 315.
 d) Process of enforcement of a charge:
A charge is applicable by a sale 9 success and; if it carries with it a personal liability, the
charge holder is entitled to a personal decree. 10 A person who purchases a part of a property
which is subject to charge with notice of the charge is liable to pay the whole amount, but he
may sue for contribution.11 A recurring charge is not extinguished by a decree for sale.12
If two properties are burdened with a charge and one of them is relieved of the liability of
paying the charge as a result of its transfer by the owner to a person for consideration and
without notice of the charge, the charge holder can recover the entire amount from the
remaining property.13 A charge declared in a decree must be enforced by a suit. 14 The doctrine
of subrogation applies to a charge and it is immaterial whether the prior mortgagee had notice
of the charge.15
Some examples of charges arising are
- By the way of a document that gives only a right of payment out of a particular fund
or property; or
- an agreement which gives immovable property as security for the satisfaction of a
debt; or a compromise under which the right is given to the other party for the
payment of a maintenance allowance in property without transferring an 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; or
- an agreement executed by a person forbidden to execute a mortgage taking an
advance on the same terms as a mortgage; or
- an undertaking not to sell a particular share in the factory till the loan on promissory
note is paid off; or
- a covenant in a lease empowering the lessee to retain part of the rent in satisfaction of
a previous loan to the lessor; or
- a provision in a partition deed that a common family debt should be proportionately
discharged by the respective sharers and that if any sharer defaults, the share of
defaulting sharer constitutes a charge in favor of the sharer who has paid in excess.
-
II. WHAT ARE THE DIFFERENT TYPES OF CHARGES?
a) By definition:
Charge can be classified as:
1. Fixed Charge
It is a charge that has been established on stable property, on assets which are generally not
sold by companies, and made to secure a payment of debt. Examples of such assets are land,
house, machinery, etc.

9
Lalitha Kariappa v. Sanjeevi, AIR 2006 Kant 25.
10
Ahmedabad Municipality v. Haji Abdul, AIR 1971 SC 1201.
11
Babu Ram v. Imam Ullah, AIR 1935 All 411.
12
Parshair Lal v. Brij Mohan, AIR 1936 Oudh 52.
13
Raghubir Dayal v. Hussain Mirza, AIR 1948 Oudh 147.
14
Rajkumar Lal v. Jai Karan Das, (1920) 5 Pat 1J 248.
15
Aravamudhu Ayyangar v. Zamindarini Srinath Abiramvalli Ayah, AIR 1934 Mad 353.
The lender need not hold the property himself, however is in full control of it. The borrower
holds mere possession over the asset and cannot sell or dispose it any fashion but without the
permission of the lender, unless he pays off all the debt.16
2. Floating Charge
Such a charge is not established on any fixed or specific property, since the value or quantity
of the property keeps changing or fluctuating with time. Examples are stock, work in
progress, etc.
Here however, the borrower is under no liability to the lender and can dispose of or sell or
transfer the property in any manner according to his will, without the borrower’s approval.
The floating charge can be converted to a fixed charge provided the company winds up, or
the work completes, etc.17
e) By methods of enforcement:
1. 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. The
document should show intent to make the land security for the payment of the money
mentioned therein.
Example - 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.
3. 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. Examples are:
- Vendor’s charge for unpaid purchase-money.

Under Section 54(4)(b) of TPA18 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.
- Vendee’s charge for purchase-money paid in advance.

Under Section 55(6)(b) of TPA19 where 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.
- Mortgagee’s lien under Section 73 of TPA20 on surplus sales proceeds.
- Revenue sale.
- The right of maintenance under Section 3921 of TPA.

16
The State Of Andhra Pradesh v. Rajah Ram Janardhana Krishna, AIR 1966 AP 233.
17
Supra note 12.
18
§54(4)(b) of Transfer of Property Act, 1882.
19
§55(6)(b) of Transfer of Property Act, 1882.
20
§73 of Transfer of Property Act, 1882.
21
§39 of Transfer of Property Act, 1882.
 - The right of a holder of a detective title who makes improvement on the property
under Section 51 of TPA.22
III. DIFFERENCE BETWEEN CHARGE AND MORTGAGE
Before proceeding with the difference between a charge and a mortgage, it is imperative for
us to understand the basic principles of mortgage.
IV. WHAT IS A MORTGAGE?
A mortgage is the transfer of an interest in specific immovable 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.23
The transferor is called the 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.24
Thus the essential elements of a transaction of a mortgage are;
(i) Parties to a mortgage;
(ii) Transfer of an interest;
(iii) In a specific immovable property;
(iv) The purpose is to secure the repayment of money advanced or to be advanced/or is
for performance of an engagement that may give rise to a pecuniary liability.
V. FUNDAMENTAL DIFFERENCE BETWEEN CHARGE AND MORTGAGE.
The difference between a mortgage and charge 25 can be better understood in the form of a
comparison chart:

BASIS FOR MORTGAGE CHARGE

COMPARISION
Meaning Mortgage implies the transfer Charge refers to the security
of ownership interest in a for securing the debt, by way
particular immovable asset. of pledge, hypothecation and
mortgage.
Creation Mortgage is the result of the Charge is created either by
act of parties. the operation of law or by the
act of the parties concerned.
Registration Must be registered under When the charge is a result of
Transfer of Property Act, the act of parties, registration
1882. is compulsory otherwise not.
Term Fixed. Infinite.
Personal Liability In general, mortgage carries No personal liability is
personal liability, except created; however, when it
when excluded by an express comes into effect due to a
contract. contract, then personal
liability may be created.
22
§51 of Transfer of Property Act, 1882.
23
Madan Lal Sobti v. Rajasthan State Industrial Development and Investment Corporation, AIR 2007 (NOC)
638 (Del).
24
Ali Hussain v. Nilla Kanden, (1864) 1 Mad HC 356.
25
Supra, Note 32.
 f) The primary distinctions between a mortgage and a charge are as follows:
1. In every mortgage there is a charge, but every charge is not a mortgage.26
2. A mortgage is primarily a contract between two parties and is created by the act of
parties, while charge can be created either by act of parties or even by operation of
law. 27
3. In a mortgage there is a transfer of an interest in property in favour of the mortgagee,
but in case of a charge, there is no transfer of an interest.
4. On the one hand, a charge does not amount to a mortgage and yet it is subject to the
application of provisions applicable to a simple mortgage as if it has been equated to a
simple mortgage both in respect of the nature and efficacy of the security. An
intended oral mortgage or a mortgage or a sale deed 28 which is invalid for want of
attestation or intended to operate until the vendee executes an agreement of re-
conveyance on the vendee’s default cannot take effect as a charge. 29
5. A mortgage is a transaction for the security of repayment of a debt, or for
performance of an engagement which may give rise to a pecuniary liability, while in
case of a charge, there may or may not be a debt. 30
6. A mortgage is for a fixed term and redeemable, while a charge may create a liability
in perpetuity not capable of redemption.
7. A charge does not require to be attested and proved in the same way as a mortgage.
8. A charge-holder has no priority if there is no notice on the part of a subsequent simple
mortgagee.31
9. A mortgage gives to the mortgagee a right in rem, but the charge does not give such a
right in favour of the other party.32
10. A charge like a simple mortgage can be enforced within a period of 12 years only, but
the rest of the mortgages can be enforced within a period of 30 years.33

26
Dattatraya Mote v. Anand Datar, (1974) 2 SCC 799.
27
P.R. Somasundram v. Y.P.N.Nachiapa, AIR 1925 Rang 55.
28
Rama Sami lyengar v. Kuppusami, AIR 1921 Mad 514.
29
Gobinda Chandra v. Dwarka Nath, (1908) ILR 35 Cal 837.
30
Gajraj Jain v State of Bihar, (2004) 7 SCC 15.
31
Dattatraya Mote v. Anand Datar, (1974) 2 SCC 799.
32
Id.
33
Id.