What is Charge?

Section 100 of the Transfer of Property Act, 1882 defines a charge.

It says 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."

“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."

The expenses incurred by the trustee are a charge upon the trust property but this charge, unlike
other types of charges, cannot be enforced by the sale of the trust property for it would have the
effect of destroying the trust. Section 32 of the Trust Act says that the trust may only reimburse
itself for such expenses out of the income of the trust estate and prohibit any disposition of the
trust property without previous payment of his expenses.

The second exception lays down that no charge shall be enforced against any property in the
hands of the person to whom such property has been transferred for consideration and without
notice of the charge. This exception brings out the distinction between a charge and mortgage
(which will be discussed in detail by the researcher in the first chapter of this paper. The
researcher also wishes to discuss the distinction between a “charge and a lien" and “a charge and
a simple mortgage"

Mortgage and charge distinguished:

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

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A mortgage is a transfer of an interest in specific immovable property but a charge is not. In a
charge no right in rem is created, but the right is something more than a personal obligation, for
it is a just ad rem, that is right of payment out of property specified, while a mortgage is a right
in rem.

A charge may be created by act of parties or by operation of law; but a mortgage can be created
only by act of parties.

The creation of a charge does not necessarily imply the existence of a debt while it is always so
in case of a mortgage.

A mortgage is good against subsequent transferees and may be enforced against a bona fide
purchaser for value with or without notice, while a charge is good only against subsequent
transferee with notice.

A charge created by operation of law does not require registration pre scribed by section 59 of
the Act for a mortgage. A charge created by act of parties requires registration irrespective of the
amount involved.

In Goinda v. Dwarka nath,1 it was observed 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 necessary formalities of the due
execution were wanting would not convert the mortgage into a charge. If, on the other hand, the
instrument is no ton the face to 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.

Charge and Lien distinguished:

In law, a lien is a form of security interest granted over an item of property to secure the payment
of a debt or performance of some other obligation. The owner of the property, who grants the
lien, is referred to as the lienor and the person who has the benefit of the lien is referred to as
the lienee.

1
(1906) ILR 33 Cal 666

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A charge may be created by the act of parties or by operation of law, but lien can arise only by
operation of law.

A charge may not only empower its possessor in many cases to hold the property charged, if it is
in his possession, but also to enforce it in a court of law. A lien, on the other hand, is simply a
right to possess and retain property until some charge attaching to it is paid or discharged.

A charge is confined to immovable property, but a lien may be in respect of movable property.

Kinds of Charges:

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

 Charges created by act of parties.

 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 the section nor does the principle underlying it apply to it.

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.

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 contemplated by sec. 100 of the Act.

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. 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.

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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 no the result of a decision of the court, but
is an acceptance by the court of something to which the parties have agreed.

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. 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. 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. An
agreement which gives immovable property as security for the satisfaction of a debt, or for the
payment of a maintenance allowance in perpetuity, 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 income, 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.
 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.

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

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charges by operation of law has been criticized as inconsistent with the scheme of the Act which
relates to transfers by act of parties.

But as the SC observed in Laxmi Devi v. Mukand Munwar 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.

As illustrations of such charges we may note the following:

 Seller’s charge for unpaid purchase-money:

This is provided by sec. 54 (4)(b) : “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, any transferee without consideration
or any transferee with notice of non-payment, for the amount of the purchase-money, or
any part thereof remaining unpaid, and for interest on such amount or part from the date
on which possession has been delivered".
 Buyer’s charge for purchase-money paid in advance:
Under sec.55 (6)(b), 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".
Other instances of charges arising by operation of law are mortgagee’s lien under sec. 73
on surplus sales proceeds, a revenue sale, the right of maintenance under sec. 39 and the
right of a holder of a detective title who makes improvement on the property under sec.
51.

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CONCLUSION:

According to Section 55 (4) (b) which discusses the Seller’s right after sale, if the price or any
part of the price remains unpaid, the seller acquires a charge on the property. When the sale is
completed, the ownership is transferred from the seller to the buyer. In such a situation, even if
the amount remains unpaid, the seller cannot refuse delivery of the possession of the property nor
can he claim back the possession if already given to the buyer.

In such a case, the Seller is given a right to recover the unpaid price from out of the property.
This is how he is entitled to a charge over the property with respect to the unpaid amount.
Because the completion of sale of an immovable property does not depend on payment of price;
the price or part of it may be given even after the sale. The right of charge granted to the Seller
under Section 55(4) (b) is known as Statutory Charge of the seller for the unpaid price. Charge
on an immovable property is created to secure the payment of money. This is the only remedy
left with the seller for recovery of the balance purchase money.

In a charge, there is a creation of a right of payment by the buyer out of a specified property. A
charge may be created either by act of parties or by operation of law. Under this section, it is a
statutory right i.e. By operation of law and the property charged or the property specified for
securing the payment (of the unpaid price) is the sale property. The charge is said to be a non-
possession lien2 since under this right, the seller is not entitled to retain the possession of the
property; the property lies with the buyer itself. Under this section the Seller only gets a right to
get the unpaid price out of the property sold to the buyer; he is neither entitled to refuse delivery
of possession nor can he claim it back.

A suit for the same can be instituted against the buyer for recovery of the unpaid purchase price,
under Section 100 of the Transfer of Property Act, 1882. But such charge cannot be enforced
against any subsequent transferee for value without notice of the charge in favor of the vendor.
In the absence of such acknowledgement, statutory charge under Section 55(4) (b) cannot be
claimed after expiry of twelve years. Also where the property has been sold to several

2
Krishnamma v. Mali, (1920) Mad. 712

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purchasers, the seller has a charge on the whole property irrespective of the proportion of money
to be paid by each purchaser.

Also the Seller is entitled to claim not only the unpaid part of the purchase money but also the
interest on such amount. Seller’s purchase price is like a debt upon the buyer therefore he must
pay the interest on such amount as well.

A charge created in favor of the Seller is an unsecured money debt and is therefore actionable
claims which like any other kind of actionable claim, is transferrable. Also, the statutory charge
created in favor of the seller may be waived off by way of an express or implied contract.

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