Charges (Sections 100–101)

Indian property law recognises a security that is not a mortgage but still gives the security-holder a right to be paid out of immovable property. Section 100 of the Transfer of Property Act, 1882 calls that security a charge. The provision is short — three sentences — but its reach is wide. It absorbs every situation in which the law, or an act of parties, makes immovable property answerable for the payment of money without going so far as to transfer an interest in the property. The companion Section 101 closes a doctrinal gap that would otherwise let a mortgagee or charge-holder lose his security by buying the equity of redemption: it abolishes the merger of the security in the ownership where merger would prejudice a subsequent encumbrance. Together, the two sections sit at the seam between mortgage and ownership, and supply the law's answer to a recurring conveyancing problem.

Section 100 — what is a charge

Section 100 defines a charge in these terms: "Where immovable 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."

Three structural ingredients are visible. First, the security must be on immovable property. Charges on movables are governed by the Sale of Goods Act, 1930 and the Indian Contract Act, 1872 and are outside Section 100 altogether. Second, the security must be created by act of parties or by operation of law — it can therefore arise either by agreement, by judicial decree, or as an automatic statutory consequence of a transaction. Third, the transaction must not amount to a mortgage. If it does, the law of mortgages — and in particular the mortgagor's rights and liabilities — governs; the residuary description in Section 100 picks up only those transactions that fail the test of being a mortgage. The negative test of "not a mortgage" is therefore the gate to Section 100.

Charge versus mortgage — the structural difference

The difference between a charge and a mortgage under Section 58 is one of substance, not degree. A mortgage is a transfer of an interest in immovable property. A charge transfers no interest at all; it merely creates a right against the property to compel payment out of it. The mortgagee owns part of the bundle of rights in the property; the charge-holder owns nothing in the property — he has only a right against it.

Three practical consequences flow from that difference. First, a charge does not bind a transferee for consideration who took without notice of it; the proviso to Section 100 says so explicitly. A mortgage, where it is registered, binds the world. Second, a charge cannot be foreclosed; the charge-holder's only remedy is a suit for sale on the lines of a simple mortgage. The closing words of Section 100 import "all the provisions hereinbefore contained which apply to a simple mortgage" "so far as may be" — but only those, and the right of foreclosure is not one of them. The structure parallels the mortgagee's enforcement rights in Sections 67 to 77, with foreclosure stripped out. Third, a charge is created with less formality. It need not be by registered instrument unless its value falls within Section 17 of the Registration Act, 1908; many charges are created by mere recital in a sale deed, by court decree, or by operation of statute, none of which requires the formalities prescribed for mortgages by Section 59.

Charge by act of parties

A charge by act of parties arises when the parties expressly agree that immovable property shall be security for the payment of money, but stop short of creating a mortgage. The word "transfer" or "mortgage" is absent; the parties create only a right against the property. Examples are common.

• A clause in a will by which the testator directs that a specified amount shall be paid to a beneficiary out of designated immovable property.
• A clause in a partition deed by which one branch of the family is given a right to receive an annuity out of property allotted to another branch.
• A clause in a settlement deed creating a right of maintenance for a Hindu widow over property of the joint family.
• A clause in a sale deed under which the buyer agrees that the unpaid portion of the price shall stand charged on the property sold.
• A debenture issued by a company creating a fixed charge on its specified immovable property — distinct from a floating charge, which is governed by company law.

In each of these cases, the language of the document and the conduct of the parties must show an intention to create a security on the property — not a mere personal obligation. A bare promise to pay does not create a charge; what is required is words or conduct that fasten the obligation upon the property.

Charge by operation of law

The TPA itself creates several charges by operation of law, and other statutes create more. The principal examples within the TPA are the unpaid seller's charge under Section 55(4)(b) for the unpaid price after the conveyance, and the buyer's charge under Section 55(6)(b) for purchase money paid in advance where the contract is rescinded otherwise than through his default. Both arise automatically as soon as the conditions of the section are met; no instrument or conduct beyond the conveyance is required.

Outside the TPA, the most familiar examples are the maintenance charges declared by personal law on coparcenary property in favour of a Hindu widow or daughter; the charge of municipal taxes on property under various municipal statutes; the charge for arrears of revenue under the State revenue codes; and the charge created by a court decree directing payment of money out of specified property. The Income-tax Act, the Wealth-tax Act and other revenue statutes create their own charges by automatic statutory operation, with their own enforcement machinery.

Section 100 — three controlling propositions

(i) The remedies are those of a simple mortgage, so far as may be

The closing words of Section 100 import the law of simple mortgages into the law of charges, but only "so far as may be". The phrase signals selective import. The charge-holder may sue for sale of the property, take possession on the lines of a mortgagee in possession (where the charge is so structured), and account in the same way. He cannot, however, exercise foreclosure, sue for the money on a personal covenant where there is none, or invoke Section 67 in its full breadth. The principle is that the charge stands one step short of a mortgage in its remedial power.

(ii) Trustee's charge for expenses excepted

Section 100 expressly excepts the charge of a trustee on trust property for expenses properly incurred in the execution of his trust. The trustee's right to be reimbursed out of the trust property is governed by the Indian Trusts Act, 1882, and is intentionally left outside the TPA's machinery. The reason is that the trust law has its own scheme of accounts, indemnity, and retention, and the imposition of TPA-style charge enforcement would distort that scheme.

(iii) Bona fide transferee for consideration without notice

The most important limitation in Section 100 is the closing proviso: 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. This proviso tracks the rule that runs through the law of notice — actual and constructive: a charge that is not on the register and not within the buyer's actual or constructive knowledge does not bind him. The doctrine of constructive notice will, of course, often defeat a buyer who fails to make the inquiry that an ordinary purchaser would make; possession of the property by the charge-holder, recital of the charge in earlier title deeds, or registration of the charge will all amount to notice. But where notice cannot be brought home, the bona fide purchaser takes free.

The proviso has its own statutory exceptions. Some charges — under municipal acts, revenue laws, and certain personal-law charges — are by their statutes expressly enforceable against the property regardless of notice. The opening words of the proviso, "save as otherwise expressly provided", make room for those exceptions.

Section 101 — no merger of the security in the equity of redemption

Section 101 enacts: "Any mortgagee of, or person having a charge upon, immovable property, or any transferee from such mortgagee or charge-holder, may purchase or otherwise acquire the rights in the property of the mortgagor or owner, as the case may be, without thereby causing the mortgage or charge to be merged as between himself and any subsequent mortgagee of, or person having a charge upon, the same property; and no such subsequent mortgagee or charge-holder shall be entitled to foreclose or sell such property without redeeming the prior mortgage or charge, or otherwise than subject thereto."

The section addresses a problem of equitable doctrine. Under the old common-law rule, when the lesser estate (the security) and the greater estate (the equity of redemption) came together in the same hand, the lesser estate was said to merge in the greater and was extinguished. The result, applied without qualification to mortgages, would be that a first mortgagee who buys the equity of redemption from the mortgagor instantly loses his first-mortgage status; the second mortgagee then steps up into priority, even though the first mortgagee paid full value for the equity. Section 101 abolishes that result. The first mortgagee retains his security; the second mortgagee's priority is not improved by the first mortgagee's purchase.

The reasoning behind Section 101

The merger rule made sense in a system where a single mortgage was the norm. It made nonsense in a system where multiple mortgages over the same property were routine. A first mortgagee who, for entirely legitimate reasons of consolidating title or refinancing, bought the equity of redemption would be punished by losing his first-mortgage priority, and the second mortgagee would be rewarded by an undeserved promotion. Section 101 says: the security and the equity of redemption do not merge as between the buyer and any subsequent encumbrancer. As between the buyer and himself, of course, the merger occurs — there is nothing left to redeem. But as against the second mortgagee, the prior security stands.

The corollary is in the second limb of the section. The subsequent mortgagee or charge-holder cannot foreclose or sell the property without redeeming the prior mortgage, or otherwise than subject to it. He cannot, in other words, use the merger of the prior security in the ownership as an argument for selling free of that prior security. The prior security continues to bind him exactly as it did before the merger.

The exception — express intention to extinguish

Section 101 protects against unintended merger. It does not prevent the parties from intending merger. If the first mortgagee, on buying the equity of redemption, expressly intends to extinguish his prior mortgage — by an express recital of release, by surrendering the mortgage deed, by formally cancelling the instrument — the merger occurs and the second mortgagee steps up. The presumption built into Section 101 is that, in the absence of such express intention, the security is preserved. The presumption is rebuttable but, in practice, rarely rebutted.

Charge versus lien

A charge and a lien are commonly confused, but the law treats them as distinct. A lien is a possessory right — the right to retain possession of property belonging to another until a debt is paid. The pawnbroker's lien on the pawned chattel and the carrier's lien on goods carried are familiar examples. A charge, by contrast, is non-possessory. The charge-holder may have no possession of the property at all; his right is a right against the property, exercised through suit for sale, not by retaining possession. The TPA does not deal with liens; the Indian Contract Act and special statutes (the Carriers Act, the Sale of Goods Act) supply that law.

Charge versus simple mortgage

The difference between a charge and a simple mortgage is the difference between a non-transfer security and a transfer security. The simple mortgagee has an interest in the property; the charge-holder has only a right against it. The simple mortgagee may sue on the personal covenant of the mortgagor under Section 68(a); the charge-holder ordinarily has no personal covenant — the charge is on the property, not on the borrower. The simple mortgage of property worth ₹100 or more must be by registered instrument attested by two witnesses; a charge does not attract the same formality unless its value falls within Section 17 of the Registration Act. Section 100's importation of simple-mortgage law into the law of charges is structural — sale as the remedy, accounts as the duty, accession as the rule — but the substantive identity of the two is not collapsed.

Floating charges — a special case

A floating charge over the assets of a company — created by the issue of debentures or by the company's articles, distinct from competence questions under Section 7 — is a creature of company law rather than the TPA. The floating charge does not attach to any specific asset until crystallisation, which usually occurs on default, on the appointment of a receiver, or on the company going into liquidation. Until crystallisation, the company may deal with its assets in the ordinary course of business; on crystallisation, the floating charge fixes on the assets then in the company's possession and becomes a fixed charge. The Companies Act, 2013, with its registration regime under Sections 77 to 87, governs floating charges; Section 100 of the TPA applies only to charges that have crystallised on specific immovable property.

Charge and lis pendens, fraudulent transfers, ostensible owner

The same set of cognate doctrines that bear on mortgages bears on charges. A transfer of property that is subject to a charge, made during the pendency of a suit to enforce the charge, is hit by the doctrine of lis pendens under Section 52. A transfer made with intent to defeat or delay creditors who hold a charge is voidable under Section 53. A purchaser without notice from an ostensible owner may invoke Section 41 against the holder of a charge, just as he may against an unregistered mortgage. The proviso to Section 100 already reflects the same principle in its own terms.

Worked illustrations

Illustration 1 — vendor's charge as charge by operation of law. Seller S sells his bungalow to buyer B for ₹50 lakh. B pays ₹40 lakh on execution and registration, agreeing to pay the balance ₹10 lakh in six months. After conveyance, B does not pay. S has a charge under Section 55(4)(b) for the unpaid ₹10 lakh and interest, enforceable by suit for sale. The charge is by operation of law and arises automatically; no separate document is required. If B sells the bungalow to T without notice of the unpaid price (perhaps S forgot to insist on a recital in the conveyance), T takes free of the charge under the proviso to Section 100, and S is left with only a personal action against B.

Illustration 2 — anti-merger under Section 101. Mortgagor M mortgages his land first to L1 for ₹4 lakh and then to L2 for ₹3 lakh. L1 later buys the equity of redemption from M for ₹2 lakh, intending to consolidate his interest. Without Section 101, the lesser estate (L1's mortgage) would merge in the greater (the equity of redemption), and L2 would step up to first place. Section 101 prevents that. L1's first-mortgage priority is preserved as against L2; L2's only path to enforce his security is to redeem L1's first mortgage or to sell subject to it.

Illustration 3 — express intention rebutting Section 101. Same facts, but on buying the equity of redemption L1 surrenders his mortgage deed to M with an express recital that the mortgage stands satisfied and discharged. The express intention to extinguish overrides the presumption in Section 101. The mortgage merges in the ownership; L2 now stands first.

Why Sections 100 and 101 matter

The two sections clean up the residual category of secured transactions on immovable property. Section 100 absorbs every security that does not amount to a mortgage and gives it a working remedy on the lines of a simple mortgage, while protecting the bona fide purchaser without notice. Section 101 prevents the technical doctrine of merger from defeating the substantive priorities that successive lenders have built up. Together, they let the Indian property market accommodate non-mortgage securities — vendor's liens, maintenance charges, decree charges, statutory charges — without forcing every secured transaction into the rigid template of Section 58's six kinds of mortgage. Read alongside the rules on marshalling and contribution, the chapter on charges completes the architecture of secured lending under the TPA.

The aspirant facing a Section 100 problem should ask three questions in order. Is the transaction a transfer of an interest? If yes, it is a mortgage; the law of mortgages governs. If no, is the property made answerable for the payment of money by act of parties or operation of law? If yes, it is a charge under Section 100. Has the property passed into the hands of a transferee for consideration without notice? If yes, the proviso defeats the charge. The same three-step routine, applied with care, answers nearly every Charge problem on the paper.

Limitation and procedural notes

A suit to enforce payment of money secured by a charge falls within Article 62 of the Limitation Act, 1963 — twelve years from the date when the money sued for becomes due. Where the charge is the unpaid seller's charge under Section 55(4)(b), the right to sue accrues on the date when the price falls due under the contract. Where the charge is by court decree, the right to sue accrues on the decree itself. The procedural law of Order XXXIV of the Code of Civil Procedure, which governs suits relating to mortgages, applies, with appropriate adaptations, to suits to enforce a charge — preliminary decree for sale, opportunity to redeem, final decree, sale of the charged property, and application of the proceeds in payment of the charge with the surplus, if any, returning to the owner. The charge-holder who delays past the twelve-year window loses the right to sue on the security, although his personal action against the debtor may survive under a different article of limitation.

Frequently asked questions

What is the difference between a charge and a mortgage?

A mortgage under Section 58 is a transfer of an interest in immovable property as security for a debt; the mortgagee acquires part of the bundle of rights in the property. A charge under Section 100 transfers no interest at all; it creates only a right against the property to compel payment out of it. Three consequences follow. (i) A charge does not bind a bona fide transferee for consideration without notice; a registered mortgage binds the world. (ii) A charge cannot be foreclosed; the only remedy is a suit for sale on the lines of a simple mortgage. (iii) A charge ordinarily does not require the formalities of Section 59; a mortgage of ₹100 or more must be by a registered instrument attested by two witnesses.

How is a charge created — by act of parties or by operation of law?

Section 100 expressly recognises both modes. A charge by act of parties arises when the parties — by contract, will, partition deed, settlement deed, sale deed, or debenture — expressly fasten an obligation to pay money upon specific immovable property without going so far as to transfer an interest. A charge by operation of law arises automatically when the conditions of a statute are met. Examples within the TPA itself are the unpaid seller's charge under Section 55(4)(b) and the buyer's charge under Section 55(6)(b). Examples outside the TPA include municipal property tax charges, revenue charges under State revenue codes, the Hindu widow's or daughter's charge for maintenance under personal law, and the charge created by a court decree.

Can a charge be enforced against a bona fide purchaser of the property?

Generally no. The proviso to Section 100 says that, 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. Constructive notice will often defeat a buyer who fails to make the inquiry an ordinary purchaser would make — possession of the property by the charge-holder, recitals in earlier title deeds, or registration of the charge can all be enough. But where notice cannot be brought home, the buyer takes free. Statutory exceptions exist for certain charges — municipal taxes, revenue arrears, some personal-law charges — that bind the property regardless of notice.

What is the rule against merger under Section 101?

Section 101 prevents a mortgagee or charge-holder, on buying the equity of redemption from the mortgagor or owner, from accidentally losing his security through the common-law doctrine of merger. The lesser estate (the security) and the greater estate (the ownership) come together in his hand, but Section 101 says they do not merge as against any subsequent mortgagee or charge-holder. The first mortgagee's priority is preserved; the second mortgagee or charge-holder cannot foreclose or sell the property without redeeming the prior mortgage or charge, or otherwise than subject to it. The presumption is rebuttable: if the buyer of the equity expressly intends to extinguish his security — by recital, by surrender of the deed, by cancellation — the merger occurs.

Is a vendor's lien for unpaid purchase money a charge under Section 100?

Yes. The unpaid seller's right to a charge on the property in the hands of the buyer for the unpaid price arises automatically under Section 55(4)(b) of the TPA — it is a charge by operation of law. The same is true of the buyer's right under Section 55(6)(b) to a charge for purchase money paid in advance where the contract is rescinded otherwise than through his default. Both charges are non-possessory and are enforced by suit for sale on the lines of a simple mortgage. They are subject to the proviso to Section 100: a transferee for consideration from the buyer (or the seller, as the case may be) who took without notice of the charge takes free of it.

Does a floating charge fall within Section 100 of the TPA?

Not until it crystallises on specific immovable property. A floating charge over the assets of a company is a creature of company law — created by the issue of debentures or by the company's articles, registered under Sections 77 to 87 of the Companies Act, 2013. Until crystallisation, which usually occurs on default, on the appointment of a receiver, or on the company going into liquidation, the company may deal with its assets in the ordinary course of business and the charge does not attach to any specific asset. On crystallisation, the floating charge fixes on the assets then in the company's possession and becomes a fixed charge. To the extent the fixed charge is on immovable property, the substantive law of Section 100 — including the proviso protecting bona fide transferees — applies, but the registration and enforcement regime is largely supplied by company law.