Charges Section 100-101

Definition – Section 100

Where immovable property of one person is –

a) by act of parties or operation of law,

b) 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‟.

All the provisions which apply to a simple mortgage, apply to a charge.

Exception – Section 100 does not apply to the charge of a trustee on a trust property, for
expenses properly incurred in the execution of his trust.

Moreover, no charge can be enforced against any property in the hands of a person to
whom such property is transferred for consideration and without notice of the charge.

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What is a Charge?

It may be that in a particular case, there may not be an actual mortgage of an

immovable property, in the sense that any interest in the property is transferred to the
transferee, and yet a person may have a right to recover debt from that property. Where
such a right exists, it is called a „Charge‟.

The person who is entitled to it is called a charge-holder, and the right is exercisable by
a suit for sale of the property for realizing the money charged on it.

No particular form of words is necessary to create charge. All that is necessary is that
there must be a clear intension to give property as security for payment of money.

Exception:

1) This section lays down an exception, not to the definition of Charge, but to the rights
of a charge, namely, that a trustee who has incurred expenses in execution of a trust,
though having a charge on the trust property in respect of such expenses, is not entitled
to sue for a sale of the trust property in respect of such expenses, is not entitled to sue
for a sale of the trust property in order to realize the same, for it would have the effect
of destroying the trust estate. He can only sue for recovery of money.
Or

He may reimburse himself out of the income of the trust property and prohibit any
disposition of the property without previous payment of such expenses.

( See Section 32 of the Indian Trust Act)

2) This section also lays down another exception as regards the extent of enforceability
of a charge, namely, that no charge can 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. This exception marks an important distinction between a charge
and a mortgage.

A mortgage, being a jus in rem, can be enforced against the mortgaged property in the
hands of any transferee from the mortgage, irrespective of notice.

But a charge is a jus ad rem and can be enforced against a transferee for consideration,
only if it is shown that he has taken the transfer with notice of the charge.

- A charge cannot be enforced against bonafide purchaser for value who was not aware
of the charge.

- A charge may be created by an act of parties (when property is charged for the
maintenance of education of another) or

- by operation of law (a vendor of immovable property has a charge on the property

sold for his unpaid purchase money: Section 55(4)(b). or

-the charge of buyer for advances made by him. Section 55(6)(b).

Charges by act of the parties: Instances –

A charge by act of the parties can be created by an instrument inter vivos or will. Thus,
a document stating “I have willingly fixed an annual allowance of Rs.100 in cash in
perpetuity out of the profits of the said village for my eldest brother” creates a valid
charge.

Similarly a will devising immovable properties and directing the devisee to pay a
certain debts of the testator from this properties, creates a charge in them in respect of
these debts.

Charges by operation of law - Instances

Charges by operation of law are based upon the consideration of duty of implied
intention on the part of the owner of the property to make it answerable for a specific
claim.

a) A hindu widow‟s charge on the family property for her maintenance, if created by a
decree. (Section 39)

b) A vendor‟s charge for unpaid purchase-money. (Section 55(4))

c) A party entitled to claim contribution under Section 82 also acquires a charge in

respect thereof.

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Requisites of charge by act of parties

1. A charge does not contemplate any transfer of an interest in the immovable property.

2. The property should be specified, and it should be made security for the payment of
money.

3. In order to constitute a charge, the form of words is immaterial; it is not necessary to

use any technical term.

4. A charge must be created in favour of a particular person specifically named.

5. A charge may be created orally, although if it is created by an instrument in writing,

it must be registered, unless made by a will, or unless the amount secured is less than
one hundred rupees.

6. A charge cannot be created on a future contingency.

7. A charge on future property is valid and operates on such property when it comes
into existence.

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How charge can be created?

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

How a charge is extinguished?

Under Section 100, all the rules which apply to a simple mortgage also apply to a
charge. So, a charge can be extinguished by an act of the parties‟ i.e.
 i) by a release by the charge of the debt or security; or

ii) by novation; or

iii) by merger.

Difference between Mortgage and Charge:

1. As to security

a) A mortgage is a security for the payment of a debt

a) A charge is a security for the payment of money (and such money may or may not be
a debt)

b) A mortgage may be a security for the performance of an engagement giving rise to a

pecuniary liability.

b) Such is not the case with a charge.

2. Covenant to pay –

There may b a covenant to pay

There is no covenant to pay.

3. Transfer if interest-

A mortgage involves a transfer of an interest in specific immovable property.

A charge does not operate to transfer any interest in the property in favour of the
charge-holder. It merely gives the charge-holder the right to have a claim satisfied out
of a particular property, without transferring that property to him. It is only under a
decree for sale that an interest in the property is transferred in the case of charge.

4. As to creation

A mortgage can only be made by act of parties

A charge may arise either by an act of parties or by operation of law.

5. Right in rem –

A mortgage gives rise to a right in rem.

A charge does not create any such right. It is available only against a particular set of
persons, i.e. persons who are affected with notice of the charge. A charge becomes a
right in rem only when a decree has been obtained to that effect.

6. As to following the security –

a) A mortgagee can follow his security into whatsoever hands it goes

a) A charge-holder cannot do so.

b) A mortgagee can follow a bonafide purchaser for value without notice

b) A charge holder cannot do so/

7. Defence of purchase for value without notice –

Such a defence is wholly unavailing against a mortgage.

It is a good defence against a charge

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Charge and Lien distinction:

1. A charge may be created both by an act of parties or by operation of law.

A lien arises by operation of law.

2. A charge can exist on immovable property only.

A lien can exist on both movable and immovable property.

3. A charge-holder can satisfy his claim by selling the property subject to his charge.

A lien holder satisfies himself by i) private sale, or ii) retaining possession of

property.

4. A charge cannot possessory in its nature. A lien is possessory in nature.

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