PGS NATIONAL COLLEGE OF LAW

TRANSFER OF PROPERTY ACT UNIT-4

Q1. Define Lease of immovable property. Discuss the rights and liabilities of a
lease of immovable property.
Ans Definition of Lease.-Section 105 defines lease. Lease is a transfer of 'right of enjoyment' of
an immovable property made for a certain period, in consideration of a price paid or promised
to be paid or, money, share of crops, service or any other thing of value to be given periodically
or on specified occasions to the transferor by transferee.

As is evident from the definition, lease is not a transfer of ownership in property, it is transfer of
an interest in an immovable property. The interest is the right to use or enjoy the immovable
property. Since 'interest' in an immovable property is considered as property, lease is a transfer
of property. However, lease is a transfer of only a partial interest. It is not a transfer of absolute
interest Lease contemplates separation of right of possession from the ownership. The interest
which is transferred is the right of enjoyment of property for fixed period on payment of some
consideration in cash or kind. The transferor is called lessor and the transferee is called lessee.
In common language the lessor is usually called landlord and the lessee is known as tenant.
Price is called premium and the money, share, service or other things so given is called the rent.

Essential Elements of Lease.-The essential elements of lease are as under:

1. The parties i.e. transferor and the transferee.

2. The demise i.e. right to enjoy immovable property.

3. The term i.e. the duration.

4. The consideration i.e. premium or rent.

1. The Parties : Lessor and Lessee.-In a lease two contracting parties are necessary. The parties
are lessor and lessee. Every lease is based on an agreement between two persons competent to
contract. Since one cannot contract with himself therefore one cannot also grant any lease to
himself.

Lessor. The lessor, who transfers the right of enjoyment of his property must be a person
competent to contract and must also have right to transfer the possession of property. The
lessor must have attained the age of majority and must possess a sound mind at the time of
granting the lease. The lessor must not be only competent to contract but he must have also
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the authority to effect lease. Lessor has authority if he is either owner of the property or, has
possession of the property.

Lessee.-Lessee too must be competent to contract at the date of execution. Lessee must be of
the age of majority and must be of sound mind. Lease in favour of a minor is void because the
transfer by way of lease contemplates agreement by minor to pay rent and other obligations.
Lessee may be a juristic person e.g. a company or, a registered firm. But, an unregistered firm is
not juristic person. Therefore it cannot be a competent lessee.

2. The Demise: Right to Enjoy Immovable Property.-Lease is a transfer of right of enjoyment in

an immovable property. It is not a transfer of ownership; it is transfer of partial interest.
Ownership or absolute interest is aggregate of several interest. In a sale, gift or exchange
absolute interest is transferred. In mortgage only partial or limited interest is transferred for
securing the debts. In a lease toc partial or limited interest namely, the right of enjoyment of
immovable property, is transferred, Lease is, therefore, transfer of limited estate. This limited
estate which is right of enjoyment of property, is called demise. In a lease this right of
enjoyment or demise is the subject matter of transfer.

3. The Term: Duration of Lease.-The right of enjoyment must be given to the lessee for a
certain period of time. The period for which the right to use the property is transferred is called
'term' of the lease. The term may be any period of time, longer or shorter, even for perpetuity.
But it must be specified in the deed. The time form which the right of enjoyment begins and the
time when it ends must be fixed and ascertainable. The lease may commence immediately after
execution of deed or, may commence with effect from a specified future date. The date of
commencement may also depend on some future event. The specific mention of the day or
date is not necessary. All that is required is that duration of lease is ascertainable; it should not
be uncertain or ambiguous.

Leases in Perpetuity.-Leases in perpetuity are also called as permanent leases. Term is a

necessary element of every lease. Therefore, where the term of a lease is neither fixed nor
ascertainable by any other method, the lease may be valid only if it is a permanent lease.
Permanent leases are not known in England. In India the leases in perpetuity is permissible and
have been in practice since long. Such leases may be created either by express words or by
necessary implication.

4. Consideration : Premium or Rent.-The contract of lease must be supported with some

consideration. Consideration in a lease may be premium or rent. Where the whole amount to

A lease, by its very nature, involves the transfer of the right to enjoy immovable property for a limited period of time, whether fixed or capable of being determined (i.e., brought to an end). The essence of a lease is
temporariness and the retention of ownership by the lessor (the property owner). If a lease is granted in perpetuity—meaning it has no end and gives the lessee indefinite enjoyment of the property—it begins to resemble
ownership rather than a lease. Courts and legal systems often scrutinize such arrangements. If a lease is practically permanent and confers most of the rights of an owner (such as the right to transfer, sub-let, or develop the
property indefinitely), it might be treated as a transfer of ownership in disguise, especially if there’s no real power of resumption left with the original owner. However, in some specific cases, like perpetual leases granted by the
government or under old land grant systems, the law expressly allows long-term or even perpetual leases but still recognizes them as leases due to certain retained powers—like revision of rent, resumption for public purpose,
or conditions of use. So, in principle, a lease must be for a limited time. If it is truly perpetual, without any control or ownership-like rights left with the lessor, it may not be considered a lease in the true legal sense—it may
instead be construed as a conveyance or transfer of ownership, depending on the facts and intention of the parties.
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be recovered as consideration from the lessee is paid by him in lump sum, (at one time) the
consideration is called premium. For example, where A executes a lease of his land to B for one
year and takes Rs. 1200/- from B before transferring the right of enjoyment to B for the said
period, Rs. 1200/- is the premium.

MODES OF CREATING LEASES

Section 107 provides for the modes of making leases. Like other transfers, certain formalities
are necessary also for completing a lease. This section provides for two modes of creation of
leases.

A. Leases which can be made only by registration

(a) Leases from year to year.

(b) Leases for a term exceeding one year

(c) Leases reserving an yearly rent.

(d) Permanent leases.

B. Leases in which registration is optional:

(a) Leases from month to month.

(b) Leases for a term of one year.

(c) Leases for a term of less than one year.

Rights of Lessee.-In the absence of any contract or local usage to the contrary, the rights of a
lessee as given under Section 108 clauses (d) to (j) are given below:

(1) Right to Accretions.-Accretions means additions made to the property either by human
being or by operation of natural forces. If during the continuance of lease some accretion is
made to the property, it is presumed to be a part of the property. Where the accretions are
made by operation of natural forces e.g. accretions by alluvion, the lessee can enjoy it during
the subsistence of the lease.

(2) Right to avoid lease on Destruction of Property. Where the property is rendered
substantially and permanently unfit for use due to fire, flood, violence, mob or other
Lessor = The Owner
The lessor is the person who gives the property on lease.
They still own the property but allow someone else to use it for a certain period in exchange for rent.
Think of them as the landlord.

PGS NATIONAL COLLEGE OF LAW

TRANSFER OF PROPERTY ACT UNIT-4
Lessee = The Tenant
The lessee is the person who takes the property on lease.
They do not own the property but have the right to use and enjoy it as per the lease terms.
Think of them as the renter or tenant.

uncontrolable reasons, the lessee has a right to get the lease terminated before expiry to the
term.

(3) Right to deduct Cost of Repairs.-Under this Act the lessor has no obligation to repair the
property. But, under an express agreement, the lessor may undertake the obligation of making
necessary repairs in the tenanted property. Lessor's duty to repair the property may arise also
under some local law (e.g. Rent Control Acts) or custom.

(4) Right to deduct Outgoings.-it is the duty of lessor to pay the outgoings e.g. municipal taxes
revenue and other public charges. But, since the lessee is interested in holding the possession
of property, he is entitled to pay such public charges to avoid its sale in default of payment of
these public charges. Where a lessee makes payment of the public charge in respect of
tenanted property, he has right to deduct the amount from the rents.

5) Right to remove Fixtures.-After termination of lease, the lessee has right to remove the
'fixtures' made by him during continuance of the lease. 'Fixtures' means all the things fixed or
attached to earth by him in the tenanted premises and includes trees, buildings and machinery.
The lessee can remove and take out these fixtures even after the determination of the lease.

(6)Right to remove Crops.-After termination of lease, the lessee is entitled to remove the crops
sown by him during subsistence of the lease. For removing and collecting all the crops growing
on the land, the lessee or his representatives are entitled to enter into the property after
determination of the lease. This right is exercisable where the leases are of uncertain duration.

(7) Right to assign his Interest.-In the absence of any contract to the contrary, a lessee has right
to assign or transfer his right of enjoyment in the property. Right of enjoyment of an immovable
property is a 'property owned by lessee. He can transfer it to any other person provided there is
no prohibition imposed by lessor. However, a lessee's right to assign his demise (right to use
the land) cannot extend beyond the term of his own lease, Basically sub-letting

Liabilities of the Lessee.-Section 108 clauses (k) to (q) lays down the liabilities of lessee. The
duties or liabilities of a lessee are given below:

(1) Duty to disclose Facts.-Just as lessor has duty to disclose a latent material defect to lessee,
the lessee too is bound to disclose to the lessor any fact known to him which increases the
value of property.

In simple terms, when someone (a lessee) takes a property on lease, they get the right to use and enjoy that property for a certain period. This right is considered their legal property.
So, unless the lease agreement says otherwise, the lessee is allowed to transfer or give this right to someone else—for example, by sub-letting or assigning the lease. However, they
can only transfer what they themselves have. This means the new person (the assignee) can only use the property for the remaining time left in the original lease. The lessee cannot
give more rights than they have, and they cannot extend the lease beyond its original term unless the lessor (the owner) agrees.
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(2) Duty to Pay Rent.-The lessee is bound to pay the rent or premium as stipulated in the lease-
deed. It is obligatory on the tenant to pay or tender the rent at proper time and place. But, the
tenant's liability to pay rent begins from the date on which he takes possession and not from
the date on which the landlord signs the deed.

(3) Duty to maintain the Property.-The lessee is bound to keep and maintain the property in
the same condition in which it was given to him. He has, therefore, to take reasonable care in
keeping the property in good condition.

(4) Duty to give notice of Encroachment.-If the lessee comes to know encroachment has been
made on the property in his possession, it is his duty to inform the lessor so that he may take
proper action.

(5) Duty to use the property Reasonably.-The lessee has a duty to use and enjoy the tenanted
property as a person of ordinary prudence would use his own property.

6) Duty not to erect Permanent Structure.-The lessee cannot erect any permanent structure on
the leased property without the consent of lessor. Whether the construction made by lessee is
permanent or not depends on the nature of construction and intention of the lessee.

(7) Duty to Restore Possession.-Lease is a transfer of right of enjoyment (possession) in

immovable property to lessee for specified period and during the subsistence of the lease.
Accordingly, upon the expiry of the term or determination of lease before its expiry the lessee
must re-transfer the possession to the lessor. It is the duty of the lessee to vacate the
possession and restore it to the lessor after expiry of the term.

Q2 Define Mortgage. What are the various kind of Mortgage give the salient
features of each of the mortgage.
Ans Definition of Mortgage.-Section 58(a) defines mortgage in the following words:

"Mortgage is the transfer of an interest in specific immovable property for the purpose of securing
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".

Mortgage as defined in this section is transfer of an interest in some immovable property. It is not
transfer of all the interests but only of some interest in the property. The purpose of this transfer of
interest is to give security for repayment of loan. Therefore, where a person mortgages his property, the
legal effect is that there is a transfer of an 'interest of that property in consideration of money advanced
When a property is given on lease, the lessee (tenant) is allowed to use and enjoy the property, but only for a specific period as agreed in the lease. This arrangement does not make the
lessee the owner—it only gives them temporary possession or control over the property. Once the lease period ends, or if the lease is legally terminated before the agreed time (due to
breach of conditions or mutual agreement), the lessee is legally required to hand the property back to the lessor (the original owner). This means the tenant must vacate the premises
and return possession of the property to the owner without delay or resistance. This duty is based on the understanding that the lease was only a temporary arrangement, and the right
to possession ends with it. If the lessee refuses to return the property after the lease ends, it is considered wrongful possession, and the lessor can take legal action to reclaim it.
Therefore, restoring possession after the lease ends is a basic and important obligation of every lessee under the law.
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to him by the money-lender. In case the loan could not be repaid, the money-lender can
recover his money on the basis of that 'interest'. The loan may either be present or might have
been taken in the past. It may also be in the form of any pecuniary liability of the mortgagor
towards mortgagee.

The person who takes loan under a mortgage i.e. transfers the interest in his immovable
property, is called mortgagor. The person in whose favour, the property is mortgaged i.e. who
advances loan, is called mortgagee. The sum of money taken as loan under mortgage is called
mortgage-money and the instrument or deed of transfer is called mortgage-deed.

Essential Elements of Mortgage. Following essential elements are necessary in mortgage:

1. There must be transfer of an interest.

2. The interest transferred must be of some specific immovable property.

3. The purpose of transfer of interest must be to secure payment of any debt or, performance
of an engagement which may give rise to a

pecuniary liability.

Section 58 provides following kinds of mortgage :

1. Simple Mortgage : S. 58 (b).-Where the mortgagor promises to pay the mortgage-money

(loan) without delivering possession of the mortgage property and agrees expressly or impliedly
that in case of non-payment of loan, the mortgagee shall have the right to cause the mortgage-
property to be sold, the mortgage is a simple mortgage.

The characteristics of a simple mortgage are as under:

(a) The mortgagor takes a personal undertaking to pay the loan.

(b) The possession of the mortgage-property is not given to the mortgagee.

(c) In the case of non-payment of loan the mortgagee has right to have the mortgage-property
sold.

Mortgage by Conditional Sale: S. 58 (c).-Mortgage by conditional sale is an apparent sale with a

condition that upon repayment of the consideration amount, the purchaser shall retransfer the
property to the seller. Although, the whole transaction looks into like a conditional sale yet, in

In simple terms, when a person mortgages their property, they are not giving away ownership, but they are giving the lender (called the mortgagee) a legal interest or right over the
property as security for the money borrowed. This means that in return for the loan, the lender gets a legal claim over the property. If the borrower (called the mortgagor) fails to repay the
loan, the lender can use that legal right to recover their money—usually by selling the property or through a legal process. The loan could be money taken at that time, money borrowed
earlier, or even some other financial obligation the borrower owes to the lender. The mortgage is basically a guarantee that the lender can rely on the property to get their money back if
the borrower doesn’t pay.
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essence the intention of the parties is to secure the money which the seller takes as loan from
the purchaser. Mortgage by conditional sale was very well known in this country. Among the
Muslims it was a common mode of securing a debt. In a simple mortgage, the mortgagee
generally gets also interest. Since taking interest was considered against the principles of Islam,
simple mortgage could not be common among them and they introduced bye-bil-wafa which
was mortgage by conditional sale. In this form of mortgage, the Muslim creditor got his principal
money and interest in the shape of an enhanced price on repayment. At the same time, recovery of loan
and his religious belief both were safe. It was common also among the Hindus as a mortgage which
became a sale on non-payment of debt. The Transfer of Property Act has now recognised this form of
mortgage with modifications.

Essential element of mortgage by conditional sale. According to Section 58 (c) the mortgage by
In Islam, charging or taking interest is not allowed, so the usual form of mortgage (called a
conditional sale has following essential elements : simple mortgage)—where interest is charged on a loan—was not commonly used.
Instead, Muslims developed a different type of mortgage called "bye-bil-wafa", which
means a mortgage by conditional sale.In this arrangement, the borrower sold the property
(1) There is an ostensible sale of an immovable property. to the lender, but with a condition: if the borrower repaid the loan, the property would be
returned; if not, the sale would become permanent. The lender didn’t charge interest, but
instead, got a higher amount back (like an increased price) when the borrower repaid the
(2) The sale is subject to any of the following conditionsloan.
: This way, the lender recovered the money without violating Islamic principles, and
both parties felt secure.

(a) On non-payment of mortgage-money (price) the saleToday,

would become
the Transfer absolute
of Property or, law) recognizes this type of mortgage officially,
Act (Indian
but with some rules and changes, to make sure it’s not misused and both sides are
protected.
(b) On payment of mortgage-money, the sale shall become void or the buyer shall retransfer the said
In short: It was a way to give and recover loans without charging interest, by using a sale
property to the seller. with conditions, and the law now formally allows this kind of arrangement under certain
conditions.

(3) The condition must be embodied in the same document.

Usufructuary Mortgage: S. 58 (d).-Mortgage is usufructuary where the mortgagor gives possession of

the property to mortgagee. Since possession is with mortgagee, he gets the usufruct i.e. produce,
benefits, rents or profits of the mortgage-property. In a usufructuary mortgage, the mortgagee is
entitled to enjoy the benefits of mortgage-property in lieu of interest on the principal money (debt)
advanced by him. So, on payment of debt (principal money) the mortgagee has no right of possession.
Where the property is capable of giving good produce or benefits, the parties may also agree that
mortgagee is entitled to get the usufruct of property not only in lieu of interest but also in part payment
of the money advanced. This form of mortgage is also common throughout the country and is called by
its different local names. For example, in Madras it is known by the name of Diggu Bhogyam or Swadhin
Adamanam. In Bengal it is called as Bhoga Bandhaki or Khai Khalasi and in Uttar Pradesh it is known as
Bhog Bandhak. In Punjab this form of mortgage is called Lekha Mukhi mortgage.

Essential elements of usufructuary mortgage.-The essential elements of usufructuary mortgage are as

under:
A simple mortgage is a type of loan where the borrower offers their property as security but does not give up possession of it. The borrower promises to repay the loan, and if they fail to
do so, the lender can approach the court to sell the property and recover the money. Ownership and possession remain with the borrower unless there is a default. On the other hand, a
mortgage by conditional sale is a form where the borrower appears to sell the property to the lender, but with a condition: if the borrower repays the loan within a specified time, the sale
is cancelled and the property returns to them; if not, the sale becomes final, and the lender becomes the owner. This form of mortgage was popular among Muslims and Hindus in earlier
times, especially because it avoided charging interest, which was considered against religious principles. The Transfer of Property Act now formally recognizes this type of mortgage,
with some modifications to ensure clarity and fairness in such arrangements.
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(i) Delivery of possession of the mortgage-property or, an express or implied undertaking by

mortgagor to deliver such possession.

(ii) Enjoyment or use of the property by mortgagee until his dues are paid off.

(iii) No personal liability of the mortgagor.

(iv) Mortgagee cannot foreclose or sue for sale of mortgage-property.

4. English Mortgage: S. 58 (e).-In English mortgage there is absolute transfer of property to

mortgagee with a condition that when the debt is paid off on a certain date, he (mortgagee)
shall re-transfer the property to mortgagor. According to Section 58 (e) of this Act, where
mortgagor binds himself to repay the money (debt) on a certain date and transfers the
mortgage property absolutely subject to proviso that mortgagee will re-transfer it to mortgagor
on payment of debt as agreed, the mortgage is English mortgage. Essential elements of English
mortgage are as under:

(i) The mortgagor binds himself to repay the mortgage-money (debt) on a certain date.

(ii) The mortgage-property is transferred absolutely to mortgagee.

(iii) The absolute transfer is subject to a proviso that mortgagee will re transfer the property to
mortgagor on payment of mortgage-money on the said date.

5. Mortgage by Deposit of Title-Deeds: S. 58 (f).-Mortgage by deposit of title-deeds is a

peculiar kind of mortgage. It is peculiar in the sense that in this mortgage, execution of
mortgage-deed by mortgagor is not necessary. Mere deposit of title-deeds of an immovable
property by mortgagor to mortgagee is sufficient. Title deeds are those documents which are
legal proof that a person owns a particular property. For instance, if A has purchased a house,
the sale-deed in his favour is the title-deed establishing ownership of A in that house. Now, if A
wants to take loan from B. A may execute either simple mortgage or usufructuary mortgage or
any other kind of mortgage. But, in these kinds of mortgages execution of mortgage-deed and
its registration may take some time because of the legal formalities. So, if A is in urgent need of
money, it may not be possible for him to get the money immediately. Mortgage by deposit of
title-deeds does not require formalities of execution or registration etc. Therefore, just by
depositing the title-deeds to B, A may get the money immediately. Possession of title-deeds by
B (money-lender) is the security for repayment of loan. In this form, the mortgage is created by
mere deposit of title deeds with intent to create security thereon without any legal formality.

A mortgage by deposit of title deeds is a special type of mortgage where the borrower (called the mortgagor) doesn’t need to sign or register any legal documents. Instead, they simply
hand over the ownership papers (title deeds) of their property to the lender (called the mortgagee) to get a loan. These title deeds are documents that prove who owns the property, like a
sale deed. For example, if A owns a house and urgently needs money, instead of going through the lengthy legal process of signing and registering a mortgage agreement, A can just
deposit the title deeds with B (the lender). By doing this, B holds the documents as security for the loan, and A can get the money quickly. This method is fast and convenient because it
skips the usual paperwork and formalities, but still legally creates a mortgage based on trust and intent to use the property as security.
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The lender trusts the borrower and gives the loan just by holding the property papers (title deeds) as security.

The object of this kind of mortgage is to provide easy mode of taking loans in urgent need
especially by trading community of the commercial towns. The borrowing transaction is a
matter of faith or equity, justice and good conscience that money-lender advances loan only by
having possession of certain papers (title deeds) without any writing or legal fornality.

Essential elements of mortgage by deposit of title-deeds. According to Section 58 (f), where a

person in any of the Specified towns, delivers to a creditor or his agent documents of title to immovable
property, with intent to create to security thereon, the transaction is called a mortgage by deposit of
title-deeds. Under this definition, the essential elements of a mortgage by deposit of title-deeds are:

(i) Existence of a debt,

(ii) Deposit of title-deeds,

(iii) Intention to create security, and

(iv) Territorial Restrictions; application of this form of mortgage only in specified towns.

6. Anomalous Mortgage : Section 58 (g).-Section 58 has laid down several kinds of mortgage. But the
classification of mortgage given in this section is not exhaustive. Besides these forms of mortgage, there
are other methods of taking loans on the security of immovable property. These methods. although not
included in Section 58, but are in practice in India. Such modes of taking loans fulfil the essential
requirements of a mortgage but do not come under any category of mortgage given in this section.
These transactions are in their very nature a mortgage without any specific name. Since most of such
mortgages are either customary or combinations of two or more forms of mortgages and thereby
causing anomaly (inconsistency) they are called anomalous mortgage.

Instances of anomalous mortgage.-Some well known examples of anomalous mortgage are given
below:

(a) Simple mortgage usufructuary.-Where terms of mortgage are mixture of a simple mortgage and an
usufructuary mortgage, the transaction is simple mortgage usufructuary. This is a special category and is
called anomalous mortgage. Where there is a personal covenant with an express or implied right of sale
and the mortgagee is given also possession of the property so that he may adjust his loan from the rents
and profits of the property or the interest thereof, the mortgage is neither a simple mortgage nor
usufructuary mortgage. It is a combination of the two.

(b) Mortgage usufructuary by conditional sale.-In this form of mortgage, the mortgagee is first entitled
to take possession and enjoyment of property but there is also a condition that in default of repayment
within a specified period, the mortgagee shall have the right to cause the sale of property. Thus, where
the mortgage is usufructuary mortgage for a fixed term and there is also a condition that on expiry of
An anomalous mortgage is a special kind of mortgage that doesn't fit neatly into the usual types like a simple or usufructuary mortgage because it combines elements of both. In a
simple mortgage, the borrower (mortgagor) agrees to repay the loan personally, and the lender (mortgagee) can sell the property if the borrower doesn't pay, but the borrower keeps
possession of the property. In a usufructuary mortgage, the lender gets possession of the property and collects rent or income from it instead of interest or repayment, but there's no
right to sell the property. Now, in an anomalous mortgage, the lender gets both the right to sell the property if the borrower doesn't repay and the right to use or collect rent from the
property. For example, imagine Rahul takes a loan from Priya and gives her the right to collect rent from his shop until the loan is repaid, and also agrees that if he defaults, she can
sell the shop—this mix of rights makes it an anomalous mortgage.
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the due date, it shall operate as mortgage by conditional sale, the whole transaction is mixture
of usufructuary mortgage and mortgage by conditional sale. It is therefore anomalous
mortgage.

c) Customary forms of anomalous mortgage.-Customary mortgages are mortgages to which

special incidents are attached by local usage¹5 certain peculiar mortgages are in practice in the
form of local customs. They have the essential features of a mortgage but their terms and
conditions are governed by local customary practices. Such customary mortgages are included
in the category of anomalous mortgage For example, Kanom and Otti mortgages of Malabar are
peculiar forms of mortgage because they are not redeemable before expiry of twelve years.
Kanom mortgage operates as lease as well as usufructuary mortgage. Paruartham mortgage of
Malabar is also in the category of anomalous mortgage.
A customary mortgage is a type of mortgage that arises from long-established local traditions and community practices rather than formal legal contracts. It is recognized in areas where
local usage has given rise to specific mortgage arrangements, even if they don’t fully comply with the formal requirements of the Transfer of Property Act. In such mortgages, the terms—
like the lender taking possession of the property, using its produce, or the conditions for repayment—are based on customary norms that are accepted by the local community. For
example, in some rural areas, it may be a customary practice that when a person borrows money, they give the lender the right to cultivate their land and keep the produce until the loan is
repaid. These types of mortgages are valid in law as long as the custom is proven to be certain, reasonable, and ancient.
Q3. What do you understand by charge? Discuss the difference between charge
and mortgage?
Ans Definition and Nature of Charge -. Where immovable property of a person is made
security for the payment of money to another, and the transaction is not a mortgage there is
creation of charge. The charge is created in favour of the person who is entitled to such
payment. Section 100 of the Act defines charge in the following words:

"Where immovable 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
mortgage, the latter person is said to have a charge on the property...........

Charge on an immovable property is created to secure payment of money. If payment is not

made by the person who is liable for such payment, it is made out of the property charged for
this purpose. Charge is, therefore, created for securing the recovery of some money e.g.
maintenance allowance, from the person whose property is so charged. Mortgage is also made
to secure a certain sum of money (debt). But, in its very nature a charge is different from
mortgage. Mortgage is transfer of an interest in favour of mortgagee; it is, therefore, transfer of
property. Charge does not amount to transfer of any interest. When a property is charged,
there is no transfer of any interest in favour of the charge holder. The concept is that such
charge-holder is simply entitled to recover his money from that property. In other words, an
A charge is a legal right created over someone’s immovable property to secure the payment of money, but unlike a mortgage, it does not involve the transfer of any ownership or interest
in the property. It simply gives the person to whom money is owed (the charge-holder) the right to recover that money from the property if the debtor fails to pay. This can happen either
by agreement between the parties or automatically by law. For example, if a court orders a man to pay monthly maintenance to his wife and says that his house will be used as security
for this payment, a charge is created on that house in the wife’s favor. If he doesn’t pay, she can recover the money from the house. Unlike a mortgage, she doesn’t get any ownership
or possession rights—just the right to claim money from the property if needed.
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'interest in the property charged is created in favour of the charge-holder The person in whose
favour a charge is created is called a charge-holder.

Section 100 while defining a charge provides, "and the transaction does not amount to
mortgage". This means that charge is almost like a mortgage but, in essence it is not mortgage.
Mortgage is wider than a charge. In every mortgage there is a charge, but every charge is not a
mortgage. In Raja Shri Shiv Prasad v. Beni Madhab, distinguishing the nature of charge from
that of mortgage, the Patna High Court, observed;

"the broad distinction between a mortgage and a charge is this that whereas a charge only
gives a right to payment out of a particular fund or particular property without transferring that
fund or property, a mortgage is in essence a transfer of an interest in specific immovable
property.

It may be noted that there is very little difference between charge and mortgage in so far as the
nature of these two transactions is concerned. Practical differences apart, the nature of charge
differs from mortgage in the sense tha unlike mortgage, charge is not transfer of interest
Accordingly, an agreemere which gives an immovable property as security for the satisfaction
of a debt or for the payment of a maintenance allowance without transferring any interest in
the property constitutes a charge on the property and is not a mortgage

Distinction Between Charge and Mortgage.-Charge may be distinguished from a mortgage as

under: Init’ssimple terms, a charge gives the creditor a right to be paid from a specific property, but it does not give them ownership or control over that property—
called a "jus ad rem", meaning just a right against the thing (to get payment). It is more than just a personal promise to pay, but less than a full legal
right over the property. On the other hand, a mortgage creates a "right in rem", which means the lender gets a legal interest in the property itself and can
enforce their right against anyone, not just the borrower
(1) In a charge there is no creation of any interest in favour of the charge holder, therefore,
charge is not a transfer of property. Mortgage is a transfer of interest i.e. transfer of property.
In other words, in a mortgage there is transfer of interest in the property mortgaged while in a
charge no interest is created in the property charged do as to reduce the full ownership to
limited ownership

(2) In a charge there is jus ad rem i.e. creation of right of payment out of specified property.
Charge is therefore, creation of something more than a personal obligation but not a right in
rem. In mortgage there is a right in rem.

(3) Charge may be created either by act of parties or, by operation of law. Mortgage is created
only by act of parties.
The main difference between a mortgage and a charge is that a mortgage involves the transfer of an interest in a specific immovable property to the lender, while a charge does not
transfer any interest—it only gives the creditor a right to claim payment from that property if the debt is not repaid. In other words, a charge is like a legal hold over the property, but the
creditor does not get any ownership or control. For example, if Ramesh agrees to pay monthly maintenance to his sister and promises that if he fails, she can recover it from his house,
this creates a charge on the house. She doesn’t own or control the house but can claim the money from its value if needed. However, if he had given her an actual legal interest or
partial rights in the house to secure the payment, that would have been a mortgage. So, while both are used to secure debts or obligations, a mortgage involves transfer of interest; a
charge does not.
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(4) Charge cannot be enforced against a bona fide transferee for value without notice of the
charge. Mortgage can be enforced against any transferee with or without notice of the charge.

(5) Except a charge created by operation of law, the charges created by act of parties must be
effected through a registered document. Except mortgage by deposit of title-deeds, a mortgage
must be completed by registered deed or delivery of possession as prescribed by Section 59 of
this Act.

Kinds of Charges.-Charges are of two kinds: (i) Charges created by act of parties and, (ii)
Charges arising by operation of law.

(i) Charges created by act of parties.-A charge is created by act of parties when it takes place
between two living persons. A charge by act of parties is constituted by an agreement between
two or more persons. Under such agreement some immovable property is specified as security
for repayment of a certain sum of money, without transfer of any interest of that property. No
particular mode of creating a charge has been provided in this Act. Therefore, the general rule
as laid down in Section 9 may apply under which a charge may also be created orally. But where
the agreement creating charge is in writing, it must be registered if the change is valued Rs. 100
or upwards.

It is not necessary to use any particular words for creating a charge. It is sufficient that the
document shows an intention to make the property as security for payment of the money
mentioned therein. But, the document must create the charge immediately on its execution
without operating as a charge at same future date. Charge must not be created on a future
contingency.

(ii) Charge arising by operation of law.-Where a charge is created without reference to any
agreement or stipulation between the parties, the charge is said to be created by law. Charge
by operation of law results due to some legal obligation. In other words, such charges arise
under some provision of law irrespective of any agreement between the parties. For example,
charge is created by operation of law under Section 55(4) (b) of this Act in the case of unpaid
vendor. Similarly, such charge is created in favour of a mortgagee on surplus sale proceeds of
revenue sale under Section 73 of this Act. Charge created by a decree based upon an award
made on agreement out of Court or otherwise is also charge created by operation of law. A
charge created by operation of law need not be registered.

Illustrations
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(i) A inherits certain properties from his maternal grandmother. He executes an instrument in
which he agreed to pay a certain sum of money every year to his sister B out of the rents and
profits of the inherited property. Charge by act of parties is created in favour of B.

(2) A who is co-sharer, pays the entire arrears of rent as required under some provision of law
(e.g. Madras Estates Land Act). A has a charge by operation of law, on the other co-sharer's
portion of property.
Charges on immovable property can arise in two ways: by act of parties or by operation of law. A charge by act of parties is created through an agreement between two
living individuals, where one party agrees to use a specific immovable property as security for repayment of a debt, without transferring any ownership interest in that
property. There is no fixed form or language required to create such a charge, and it can even be created orally, although if the agreement is in writing and the value is ₹100
or more, it must be registered to be legally valid. What matters most is that the document clearly shows an immediate intention to treat the property as security. Importantly,
the charge must not be based on a future event or contingency—it must come into effect right at the time of agreement. This type of charge is contractual and depends
entirely on the intention of the parties involved.

On the other hand, a charge by operation of law arises automatically due to a legal obligation, without any agreement between the parties. The law itself imposes a charge
in certain situations to protect someone’s financial interest. For example, under Section 55(4)(b) of the Transfer of Property Act, if a seller has not received full payment for a
property, a charge is created on the property in their favor. Similarly, Section 73 provides for a charge in favor of a mortgagee on the surplus proceeds from a revenue sale.
Charges can also be created through court decrees, even when based on private settlements or arbitration awards. Since these charges are imposed by law and not
created through a formal agreement, registration is not required. This type of charge reflects the law's intention to secure rightful claims even without a formal or express
arrangement between parties.