Concept of charge
Under section 100 of the Transfer of Property Act 1882, a charge is said to be created on an immovable property when the property of an individual is by the act of the parties or by the operation of law made a security for the repayment of money advanced by the lender. In other words, when a property of the borrower is kept as security to secure the repayment of debt in favour of the lender who has advanced money to him is called a charge. The person in whose favour the security is held is called the charge holder, he is said to have a charge on the property till the repayment of money. However, such a transfer shall not amount to a mortgage. The relevant provisions that apply to simple mortgage apply to charge under the Act.[i]
Illustration
X files a suit in the court against her husband Y for maintenance. The court grants the decree and orders the husband to pay a monthly maintenance of rupees 1000 to the wife. In case of default of the husband to pay the maintenance, his property would be liable to amount for the same. In such a case, a charge is created on the husband’s property.
J&K (Bombay) Pvt. Ltd. v. New Kaiser-i-hind Spg. &Wvg. Ltd.[ii] The Supreme Court held that to create a charge no particular words is necessary. However, there should be a clear intention to give a property as security for the payment of money due.
Mortgage
Under section 58 of the Act, when a borrower transfers interest in an immovable property to the lender for securing the payment of money advanced or to be advanced, an existing or future debt from the lender who might be a bank or financial institution that creates a pecuniary liability is said to have created a mortgage of the immovable property. The borrower is called the mortgagor and the lender is the mortgagee. If the mortgagor fails to repay the debt, the mortgagee can sell the security after giving a notice to the mortgagee. The transfer of such interest takes place by executing a mortgage deed. The money advanced is known as mortgage money.[iii]
Illustration
X takes a loan of rupees 1,00,000 from the bank, keeping his house as a security. He deposits the title deeds of the house with the bank. In such a case, X is said to have mortgaged his house.
Paresh Nath Singha vs Nabogopal Chattopadhya[iv] the court held that when a mortgage is executed it is said to be a transfer of an interest in an immovable property. Immovable property under General Clauses Act is defined as one which includes land, benefits arising out of the land, things attached to the land or things that are permanently fastened to anything that is attached to the earth.
Difference between Mortgage and charge
The key differences between mortgage and charge are as under-
Meaning
Mortgage means when there is a transfer of an interest in ownership of an immovable property by the mortgagor as a security for the repayment of debt to the mortgagee. Whereas a charge on an asset implies a security of an asset created to secure a debt or a loan advanced by the lender, there is no transfer of ownership interest but a mere security for the repayment of debt. Hence charge is a right of releasing the debt out of the asset held as security but there is no transfer of interest executed.
Registration
A mortgage should be registered compulsorily under the Transfer of Property Act 1882 whereas a charge need or need not be registered under the Act. When a charge is created by the act of parties, it must be registered. However, if a charge is created on a property through the operation of law, registration is not required.
Time limit
A mortgage on immovable property is created for a fixed period whereas a charge on a property can be created for an indefinite period.
Creation
A mortgage on immovable property is created by the act of parties i.e. the lender or the borrower. Whereas a charge is created by the act of parties i.e. the charge creator or the charge holder or by the operation of law.
Personal liability
A mortgage creates a personal liability on the borrower i.e. the mortgagor for the repayment of the debt unless it is expressly mentioned otherwise in a contract. However, a charge does not create a personal liability on the charge creator for the repayment of debt. When a charge on a property is created under a contract, in such a case it does create a personal liability for repayment.
Right in Rem
A mortgage creates a right in rem i.e. a right enforceable against the world. Whereas a charge is available only against a particular set of persons. It may become a right in rem when a decree has been obtained.
Foreclosure
Foreclosure means when a property is sold through the intervention of court. In certain kinds of mortgages foreclosure can be done however in case of charge there can be no foreclosure. Only remedy that the charge holder has is to sell the security held by him after giving a notice to the charge creator.
Instrument
Mortgage is executed by a mortgage deed which is executed in writing. Whereas charge on a property can be created orally or in writing.
Conclusion
Hence a charge is not a mortgage. However, a mortgage can be a charge. When an immovable property is held as security by the lender for the repayment of money without any transfer of interest or ownership it is said to be a charge and not a mortgage.
Frequently Asked Qusetions
What are the essentials of a mortgage?
- Transfer of interest in the property to the mortgagee
- Transfer of an interest in an immovable property
- Transfer is executed for securing the repayment of debt
What are the different types of mortgages under the Act?
There are 6 different types of mortgages in immovable property
a. Simple mortgage
b. Mortgage by conditional sale
c. Usufructuary mortgage
d. English mortgage
e. Mortgage by deposit of title deeds/ equitable mortgage
f. Anomalous mortgage
Edited by Sakshi Agarwal
Approved & Published – Sakshi Raje
Reference
[i] Transfer of Property Act 1882, section 100
[ii] AIR 1970 SC 1041
[iii] Transfer of Property Act 1882, section 58
[iv] (1902) ILR 29 Cal 1
