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A charge on immovable property is established to secure payment of money without transferring any interest in the property, differing from a mortgage. It can be created through the act of parties or by operation of law, and is enforceable through legal action. Key distinctions between a charge and a mortgage include the nature of security, transfer of interest, and enforcement methods.

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Khushi Periwal
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2 views

Module-12

A charge on immovable property is established to secure payment of money without transferring any interest in the property, differing from a mortgage. It can be created through the act of parties or by operation of law, and is enforceable through legal action. Key distinctions between a charge and a mortgage include the nature of security, transfer of interest, and enforcement methods.

Uploaded by

Khushi Periwal
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CHARGE:

Charges
(1) Where immovable property of one person is made security for the payment of money to some
other person by—
(i) act of parties, or
(ii) operation of law, and

(2) The transaction does not amount to a mortgage.


(3) The latter person is said to have a charge on the property.
(4) All the provisions of a simple mortgage apply to such a charge.
(5) This section is not applicable to the charge of a trustee on the trust property for expenses properly
incurred in the execution of his trust.
(6) 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.

A charge on immovable property is created to secure the payment of money. Section 100 states that
when immovable property is used as security for the payment of money, and the transaction is not a
mortgage, a charge is created. In a charge, there is no transfer of any interest in favor of the charge-
holder, but they are entitled to recover their money from the property. A charge creates only a
personal obligation, meaning a right to payment out of the specified property.

Who Can Create Security


Property can be made security either by the act of parties or by operation of law.

Act of Parties
When a charge is created by an act of parties, no particular form of words is required to create it. All
that is necessary is a clear intention to give property as security for payment of money in praesenti.
The property must be specific. A charge on any property may be created by an instrument inter vivos
or by will. A charge must be created in favor of a particular person, and such a person must be
specifically named. A charge may be created orally, but if it is created by an instrument in writing, it
must be registered. A charge cannot be created on future contingency. A charge on future property is
valid and operates on such property when it comes into existence.

EXAMPLE: Where a person inherited an estate from his maternal grandmother and executed an
agreement to pay his sister a fixed sum every year out of the rents of the estate, his sister had a charge
over the estate.

Operation of Law
A charge may be created as a result of a legal obligation and not by volition of parties. The following
are examples of the creation of a charge by operation of law:
(a) Section 55(4)(b): The vendor has not been paid the amount due. Where the ownership of property
passes into the hands of the buyer before the payment of the whole purchase money, the seller is
entitled to a charge upon the property in the hands of the buyer.
(b) Section 55(6)(b): The vendee acquires a charge in respect of purchase money paid in advance.
The vendee is entitled to a charge on the property, as against the seller.

Transaction Does Not Amount to Mortgage


In a mortgage, there is a transfer of interest in the property, whereas in a charge, there is neither a
transfer of property nor of any right in the property.

Enforcement of Charge
A charge can be enforced by a suit, even when created by a decree.
Extinction of Charge
A charge may be extinguished in the same manner as a simple mortgage. Therefore, a charge may be
extinguished:
(a) by act of parties, by release of debt or security,
(b) by novation, or
(c) by merger.

The key distinctions between a mortgage and a charge, presented more clearly:

1. Nature of Security
o Mortgage: A mortgage is a security for the repayment of a specific debt.
o Charge: A charge is a security for the payment of money, which may or may not be
tied to a specific debt.
2. Liability
o Mortgage: It can secure the performance of an obligation that gives rise to a financial
liability.
o Charge: It does not involve securing the performance of an obligation.
3. Transfer of Interest
o Mortgage: It involves the transfer of an interest in a specific immovable property to
the mortgagee.
o Charge: There is no transfer of interest in favor of the charge-holder. The charge-
holder can satisfy their claim from the property without any ownership transfer.
4. Creation
o Mortgage: It can only be created by the act of the parties.
o Charge: A charge can be created either by the act of parties or by operation of law.
5. Covenant to Pay
o Mortgage: It may include a covenant to pay the debt.
o Charge: There is no personal covenant to pay in a charge.
6. Right in Rem
o Mortgage: A mortgage creates a right in rem, meaning it is enforceable against the
world, including third parties.
o Charge: A charge does not create a right in rem and is only enforceable against those
specifically notified of the charge.
7. Following Security
o Mortgage: A mortgagee can pursue the secured property, regardless of who holds it,
even if it's in the hands of a bona fide purchaser for value.
o Charge: A charge-holder cannot follow the property once it has been transferred to a
bona fide purchaser for value.
8. Enforcement
o Mortgage: A mortgage can be enforced through foreclosure, sale, or a suit for money
(as per sections 67, 68, and 69).
o Charge: A charge can only be enforced through the sale of the property, typically
through a court process.
9. Relationship
o Mortgage: Every mortgage is a charge, but a charge can cover more situations than a
mortgage.
o Charge: Not every charge is a mortgage.

10. Limitation Period

 Mortgage: A simple mortgage can be enforced within 12 years, while other types of
mortgages can be enforced within 30 years.
 Charge: A charge can be enforced within 12 years.

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