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Section 100 - Charge
Sec. 100 says that Where immovable property of one person is
(a) by act of parties or operation of law,
(b) 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
It may be that in a particular case, there may not be an actual mortgage of an immovable property, in the sense that any interest in the property is transferred, to the transferee, and yet a person may have a right to recover a debt from that property.
Where such a right exists, it is called a ‘charge’, and the person who is entitled to it is called a charge holder, and the right is exercisable by a suit for sale of property for realising the money charged on it.
Difference between Mortgage and Charge
The distinction between a ‘Mortgage’ and a ‘Charge’ is as follows:
Security: A 'mortgage' serves as security for the repayment of a debt, while a 'charge' functions as security for the payment of money, which may or may not be a debt. Additionally, a charge can secure payment obligations such as maintenance allowance. However, unlike a mortgage, a charge cannot secure the performance of an engagement leading to a pecuniary liability.
2. Transfer of Interest: A 'mortgage' entails the transfer of an interest in specific immovable property from the borrower to the lender. In contrast, a 'charge' does not transfer any interest in the property to the charge holder. Instead, it grants the charge holder the right to satisfy a claim from a particular property without acquiring ownership of the property itself. Only under a decree for sale does a charge result in the transfer of an interest in the property.
Right in Rem: A 'mortgage' establishes a right in rem, providing the mortgagee with a legally enforceable claim against the property. Conversely, a 'charge' initially represents more of a personal obligation without a corresponding right in rem. It only becomes a right in rem when a decree is obtained to that effect, typically through legal proceedings.
Covenant to Pay: In a 'mortgage,' there may be a covenant to pay, indicating the borrower's commitment to repay the debt. On the other hand, a 'charge' does not involve a covenant to pay. It primarily focuses on securing the payment without necessarily involving a promise to repay.
Creation: A 'mortgage' is created solely through the actions of the involved parties. However, a 'charge' may arise either through the actions of the parties or by operation of law, depending on the circumstances.
Agreement Interpretation: Mere agreement to create a mortgage does not constitute a mortgage or a charge. While every mortgage constitutes a charge, not every charge qualifies as a mortgage. The determination hinges on the intentions of the parties involved.
Following the Security: A 'mortgagee' retains the ability to follow their security even if it changes hands, allowing them to pursue a bona fide purchaser for value without notice. However, a 'charge holder' does not possess this privilege and cannot follow the charge into subsequent hands.
Defence of Purchaser for Value Without Notice: The defence of being a purchaser for value without notice is ineffective against a 'mortgage.' However, it serves as a valid defence against a 'charge.' This defence holds against subsequent transferees for value with notice and may also apply against transferees without consideration, depending on the circumstances.