Charges under Transfer of Property Act, 1882

Introduction

• Charge under the Transfer of Property Act, 1882 is an interest created over an immovable property for securing payment of the amount which is due to the party.
• Section 100 of the Transfer of Property Act, 1882 defines “charge”. It states that -
  • Where a person’s immovable property is, by an act of parties or operation of law, made a security for the payment of money to another, and this transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions therein contained which apply to a simple mortgage shall, so far will also apply to charge.
• This Section does not apply to the following:
  • A trustee’s charge on trust-property for the expenses in the execution of his trust.
  • A charge against any property in the hands of the person to whom such property has been transferred for consideration and without notice of charge.

Essential Elements of a Charge

• A charge can be formed either by an act of parties or throughout the operation of law.
• An immovable property is made security for the payment of money.
• The transaction which is formed does not amount in the direction of a mortgage.
• A charge can be obligatory by a suit.
• A charge may be extinguish either by an act of the parties by means of the release of debt otherwise through an enhancement or otherwise by a merger.

Types of Charges

• Contractual Charge (Charges Created by Act of Parties)
  • A charge is created by the act of parties which 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.
• Legal Charge (Charges Arising by Operation of Law)
  • It is a charge which is created without reference to any agreement or stipulation between the parties, the charge is said to be created by provisions of law.

Difference Between Charge and Lien

 Difference between Charge and Mortgage

Case laws

• JK (Bombay) Private Ltd vs. New Kaiser-I-Hind Spinning and Weaving Co Ltd. (1970)

In this case the Apex Court held that in the case of a charge, there is no transfer of interest or any of its interest, but only the creation of the right of payment out of the specified property, however, a mortgage accomplishes the transfer of property or an interest. No particular form of wording is required to create a charge and it is necessary that there should be a clear intention to create security of property for payment of money in the praesenti (at present time).

• Raychand Jivaji vs. Basappa Virappa Bellary (1940)

In this case the Bombay High Court held that it would be sufficient to create a charge if it can be seen from the document that there is a clear intention to use that property as security for the payment of money, without transferring any right or interest in the property.