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Everything About Charge Under Transfer of Property Act, 1882

by Lakshya Kaushish
Charge Under Transfer of Property Act, 1882


All the companies, whether large or small, need capital for financing their projects. Financial institutions and banks will not lend money unless they are confident that their funds will be safe and that they will be repaid according to the agreed-upon repayment schedule, including interest. To secure their loans, they create a charge on the borrowing firms’ assets and properties, which is known as a charge on assets. This is accomplished through signing loan agreements, hypothecation agreements, mortgage deeds, and other similar paperwork that the borrowing corporation is required to sign in favour of lending institutions/banks, among other things.

As defined under Section 100 of the Transfer of Property Act, 1882[1] (hereafter TPA), the term ‘Charge’ is said to take place when one person’s immovable property is pledged as security for the payment of money to another by an agreement or by the operation of law, and the transaction does not constitute Mortgage, then the latter person here is supposed to have Charge on the property, and all the provisions previously applicable to a simple mortgage shall apply to such Charge.


As regards types, there are two types of Charge, i.e., a fixed charge and a floating charge depending on its nature. The characteristics of both types of charges are discussed below: –

Fixed Charge

The fee is placed on ascertainable or tangible assets like land, buildings, machinery, goodwill, copyright, etc.

There is an established and defined attribute at the moment of the Charge’s establishment, and its identification does not alter over the loan duration.

In this case, the borrower is just left with the possession of the asset, but the lender retains complete control.

The borrower doesn’t have right to sell, transfer, or dispose of the property without first obtaining approval. It is obligatory to first pay down the outstanding balance.

Floating Charge

It is put on unascertainable or intangible assets like automobiles, debts etc.

Being dynamic in nature, the value and quantity fluctuate on a regular basis. The borrower is not required to obtain prior approval before selling, transferring, or disposing of the property, and there is no obligation to pay down the outstanding balance.

The floating Charge can be changed into a fixed charge. Such a process is called ‘Crystallization.’ It generally occurs when a borrower fails to make a payment, and the lender initiates legal action to collect the amount given on the loan.

Crystallization also occurs at the time of the company’s dissolution and when the corporation either ceases to exist or continues to operate the business. In such a case, the court appoints a receiver.


Section 100 of the Transfer of Property Act requires that there be a clear intention to use specific property as security for the repayment of a debt. There cannot be a mortgage or a charge if the property is not meant to be used as security. A charge is the consequence of an encumbrance on the property. It has been determined that entering into a memorandum of agreement to sell a property does not create any encumbrances or charges on the property. Receiving advances or funds in accordance with a memorandum is not the same as creating an encumbrance.

The Charge must be imposed against a present or prospective immovable property owned by the borrower. It is just a means of providing security that can be enforced in court. It is necessary to make a charge against immovable property in writing. Most crucial thing to remember is that property must be clearly intended to be used as a security for the money payment. A charge cannot be issued if the immovable property is not held by the person who owes the money. A wife, for example, demanded the imposition of a charge on the house property in a maintenance suit. The property could not be charged since it was not built nor held by the husband, according to the court.

A Charge can be created in two ways i.e.

  • Firstly, by Act of parties.
  • Secondly, by Operation of law.

Act of Parties

There are no precise phrases or vocabulary needed to create a charge. when it is created by an act of parties. All that is required is a clear purpose to transfer property as security for the payment of money in praesenti.[2] The parties themselves produce a price by engaging into an agreement.

A charge on future property is legal and operates on it when it becomes available. It is sufficient to form a charge if it is clear from the document that the property will be employed as a security for the payment of the money, and that there will be no interest or right in the property being transferred. The Charge’s bearer has just one remedy i.e., the charged property.

For example, A inherited the property from his grandmother. He also receives a certain amount of rent from the property. He signed an arrangement with B to pay a portion of the rent to him on his own initiative, and B will have a charge on the property. In this transaction, A owes no money to B, and B has no right to the rent that accrues from that property. A has placed a charge on the property by committing to pay B a specified sum, which B can enforce if A fails to meet his responsibilities.

Operation of Law

The operation of the legislation can also result in the creation of a Charge. It signifies that the Charge was made against the parties’ desire or purpose, yet the law requires them to comply with specific duties.

For example, B paid A the whole amount of the purchase price in advance. However, neither A nor B is transferring or registering the property in B’s name. By operation of law, a charge will be placed on the property in favour of B.

The following are some examples of Charge generation by operation of law: –

  1. Section 55(4)(b) TPA – The vendor has not been paid the full amount owed to them. The seller is entitled to a charge on the property in the hands of the buyer if the ownership of the property moves into the buyer’s hands before the entire purchase price is paid.[3]
  2. Section 55(6)(b) TPA- The vendee is compensated for the money paid in advance. The vendee has a charge on the property against the seller and all the persons claiming under him to the extent of seller’s interest in the property for the amount of any purchase money properly paid by buyer in anticipation of delivery, plus interest on that amount, as against the seller and all the persons claiming under him to the extent of seller’s interest in the property.
  3. Section 73 TPA – A mortgagee’s lien is placed on surplus sale proceeds in this case.[4]


Exception to Section 100 TPA.

Section 100 has two exceptions. Both of them prevent the formation of a Charge in the following circumstances: –

1. A charge, levied on an immovable property that is also a trust property, to pay a trustee for expenditures incurred in carrying out his trust, i.e. keeping the trust property in good working condition.

For example, A and B agreed to transfer a property on the condition that B will care for A’s grandson C, until he reaches the age of eighteen years, using the rent obtained from the property. The trust property will be charged with B’s costs, but this Charge cannot be enforced by selling the property since that would break the trust, which is prohibited under Section 32 of the India Trusts Act, 1882[5]. Only the money earned by such property may be used to reimburse B, and he can prohibit the property from being sold until his expenditures are paid.

2. A charge cannot be imposed against a person in consideration who brings a property on which a charge has been created without him being made aware of the Charge.


There are certain essential requirements to produce a legal charge which are as follows: –

  1. A charge does not imply that an interest in the immovable property will be transferred.
  2. It is necessary to specify the property and make it a security for the payment of money. For this purpose, a precise and accurate description of the property is required.
  3. It is not required to employ any technical jargon to create a charge; that is to say, the form of words does not matter.
  4. A charge must be established in the name of a specific individual.
  5. A charge can be created orally, but it must be recorded if it is created by a written instrument unless it is made by a Will, or the sum secured is less than one hundred rupees.
  6. A charge on a future contingency cannot be created. A charge made by a person on an unknown and uncertain share, that one of his heirs may inherit, is null and void.
  7. A charge on future property is legal and acts on that property as soon as it is created.
  8. It is possible to assign a charge.
  9. Normally, a fee cannot be broken up by assigning responsibility to different people.


As per terms of the Section 77 of the Companies Act, 2013[6], every company generating a Charge is required to register the specifics of Charge signed by the business and its charge-holder, as well as the instruments formed.[7] As a result, all forms of charges, whether produced inside or outside India, must be recorded in compliance with the Act.

In the case of certain charges, a firm must file specific information about the Charge, as well as the Charge Instrument or a certified copy, with the Registrar within 30 days of the Charge’s inception. It is not enforceable against the liquidator and any other creditor of the corporation if it is not registered. This does not, however, imply that the Charge is null and void, or that the debt is uncollectible. The Charge is valid and may be enforced as long as the firm does not go bankrupt.[8]


If the registrar judges that the firm had good reason for failing to file the information and instrument of Charge within the 30 days of Charge’s establishment, the Charge may be registered after 30 days but within 300 days. The request for an extension must be requested on Form CHG-10 and backed by a declaration from the corporation, signed by the director or secretary, stating that the company’s intervening creditors’ rights would not be damaged as a result of the late filing. If the company fails to file the Charge within the 300-day period, it may petition the Central Government to extend the period under Section 87.[9]


Even if a charge is created by a decree, it can be enforced through a judicial action. A charge is enforced by sale and, if applicable, personal culpability. A personal decree is available to the charge bearer. A person who buys a piece of a property that is subject to a charge after receiving notification of the Charge is responsible for the entire amount.


The Charge-holder has the following rights: –

  • To preserve the mortgaged property from destruction, forfeiture or sale etc.
  • For taking sides of the mortgagor’s title to the property.
  • For making his own title thereto good in opposition to the mortgagor.


A charge can be discharged in the same way that a mortgage can. As a result, a charge may be discharged: –

  1. By Act of parties by the release of Debt or Security.
  2. By the process of Novation, or
  3. By means of Merger.[10]


A merger can be used to discharge a mortgage or a charge. A merger occurs when a lower and a higher security are combined, or when a lesser estate and a greater estate are combined. A mortgage divides the mortgagor’s and mortgagee’s interest in the mortgaged property. The bundle of interest retained by the mortgagor constitutes one estate, while the bundle of interest transferred to the mortgagee constitutes another. A merger can arise in three ways in case of a mortgage.[11]

  • By the mortgagee obtaining the redemption equity
  • The Mortgage is redeemed by the mortgagor.
  • The Mortgage is redeemed by the purchaser of the redemption equity.

Exception to Doctrine of Merger

Section 101 of the TPA provides that any mortgagee of, or person holding a charge against, immovable property, Charge-holder or any transferee from such mortgagee, may acquire or purchase the mortgagor’s or owner’s rights in the property without causing the Mortgage or the Charge to be merged as between himself and any subsequent mortgagee of, or person holding a subsequent charge against the same property; and such subsequent mortgagee or charge-holder is not permitted to purchase or otherwise acquire the rights in the property[12]

Section 101 expressly disallows the doctrine of merger. In other words, the purpose of Section 101 is to keep a charge alive. A contract that relieves the preceding mortgagee of his Charge on the property when he acquires ownership through a sale must be unambiguous. A mortgage will be discharged by merging if no interest or consideration exists that would obstruct the comprehensive and complete transfer of ownership of the estate as such.


A charge is not the same as a mortgage since no property or right is transferred; instead, a personal obligation or a right to payment from a defined property is created. Despite the fact that all of the regulations that apply to a basic mortgage also apply to a charge, section 100 expressly states that a charge is not a mortgage. “The rules of this section that apply to a simple mortgage will, to the extent possible, apply to a charge.” the section specifies. While the term Mortgage appears quite similar to Charge; however, there are inherent differences between the two.  According to the Section 58 of the Transfer of Property Act, 1882 “A mortgage is the transfer of an interest in a specified immovable property just for the purpose of acquiring the payment of money advanced otherwise to be advanced by loan, a current or potential debt, or the performance of a commitment that may give rise to a pecuniary liability.”[13] Thus, a mortgage is a legal procedure in which a person borrows money from another person and then creates a right or Charge in favor of the lender on his moveable and/or immovable property to insure repayment of the borrowed money as well as the payment of interest at the agreed rate.[14] The differences between Charge and Mortgage are as follows:-

1. While the term Charge is defined under the Section 100 of TPA; the term Mortgage is defined in Section 58 of the Act.

2. A charge-holder does not receive a transfer of interest in the Charge. The charge-holder can settle his claim against a certain property without having to transfer it to him.; however, a Mortgage entails the transfer of an immovable property’s ownership interest.

3. While a Charge is created by an act of the parties or by the operation of the law; and on the other hand, a Mortgage can be generated by a group of people acting together.

4. A Charge is required to be registered only required when it is triggered by the parties’ actions, whereas a registration under TPA is a must in case of a Mortgage.

5. While time is limitless and can never end in case of Charge; the time is fixed in case of a Mortgage.

6. In Charge, personal liability arises only when an agreement creates a charge; on the other hand, a personal liability is created unless there is an express contract prohibiting the same.

7. While in Charge, there is creation of a Right in personam[15], that is, a right that can be enforced against those individuals who are directly affected by the charge notice; whereas, in Mortgage, there is creation of a Right in rem, that is, right that can be enforced against the entire globe.

8. A Charge can take the form of both oral and written communication but in Mortgage, the communication needs to be written.

9. A Charge is a guarantee of payment for a sum of money that may or may not be a debt; but a Mortgage is an assurance that a debt will be paid.

10. A Mortgage can be used as collateral for the performance of an engagement that results in a monetary responsibility, however, in the case of a charge, it is not so.

11. While there cannot be a payment covenant in a charge; in Mortgage, a payment covenant may be included.

12. A charge can be enforced within 12 years, but a Mortgage can be enforced from 12 years to 30 years.

13. Every Mortgage has a fee attached to it. The phrase “Charge” is significantly broader than “Mortgage.” Every Charge is a Mortgage, but not every Mortgage is a charge.

14. While a Charge can only be enforced by a Court-ordered property sale; a foreclosure suit for money and sale might be used to enforce a mortgage (under sections 67, 68 and 69).

15. While, a charge-holder is unable to track his security; a mortgagee can even investigate the value of a genuine buyer. A mortgagee has the right to follow his security into the hands of anyone he chooses.

“While a charge just creates a right of payment out of the designated property, a mortgage actually transfers property or an interest in it.” the Supreme Court held in the case JK(Bombay) Private Ltd vs. New Kaiser-I-Hind Spinning and Weaving Co Ltd.[16] “To create a charge, no specific words are required; all that is required is a clear desire to make a property security for the payment of money in praesenti.”

“It should be treated as a mortgage if a document clearly specifies that it is a mortgage and grants the ability to realise the mortgage money through the sale of the mortgaged premises,” the Calcutta High Court said. The Mortgage would not become a charge if the requisite procedures for due execution were not followed. The instrument is a charge if it does not appear to be a mortgage but instead forms a lien or orders the realization of money from a specified property without respect to sale.”


As in the case of Mortgage, a Lien is also akin to the concept of Charge. A lien is defined as the legal right to keep lawful possession of another person’s property until the owner meets a legal obligation to the person holding the property, such as paying legal charges for work performed on the property. A mortgage is a very prevalent type of lien.

Lien refers to a situation in which real or personal property is charged with the payment of an obligation or duty. In a narrower sense, it is also defined as the right to retain another’s property until a claim is satisfied. In most cases, the lien emerges through operation of law, but in rare instances, it is created expressly by contract.

The main distinction or variation between a Charge and a Lien is discussed below:

1.     A charge can be produced by the actions of the parties or by the operation of the law. A lien, on the other hand, originates only by operation of law.

2.     Only immovable property can be subject to a charge. A lien, on the other hand, can be created on both immovable and mobile property.

3.     The nature of a charge is that it is not possessory. A lien, on the other hand, is a possessory obligation.

4.     A charge-claim holders can be satisfied by selling the property that is subject to the Charge. A lienholder, on the other hand, can fulfil his claim through a private sale or by keeping possession of the property.


‘Charge’ is said to take place when one person’s immovable property is pledged as security for the payment of money to another by an agreement or by the operation of law as per Section 100 of TPA and its registration is done under the Section 77 of the Companies Act, 2013. Since charge is created by decree, Charge-holders’ right can be enforced through a judicial action. Section 87 of TPA assists in case condonation of delay arises for Charge.

Charge can be Flexible in case of ascertained assets and Floating or Flexible in case of unascertained. The exemptions to Section 100 include charge levied on an immovable property and a charge which cannot be imposed on someone who is unaware about bringing a Charged property.

As discussed above, Doctrine of Merger along with its exceptions provided in Section 101 of TPA, 1882. The term Mortgage is defined in Section 58 of the Act. A Charge is created by an act of the parties or by the operation of the law not amounting to Mortgage; and on the other hand, a Mortgage can be generated by a group of people acting together and lien originates only by operation of law; yet can be created on both immovable and mobile property.

A charge and mortgage can be discharged by Act of parties through release of Debt or Security, Novation and Merger. A Charge creates a new proprietary interest in the borrower’s property in favor of the lender., there exists no transfer of the borrower’s existing interest; rather a new burden is placed on the borrower’s ownership, unlike Mortgage. This Charge of interest appropriates the borrower’s property to the loan repayment.


  1. The Transfer of Property Act 1882
  2. The Companies Act, 2013
  3. India Trusts Act, 1882
  4. www.indiankanoon.org/
  5. www.legalservicesindia.com/
  6. www.prsindia.org/
  7. http://www.itestweb.in/pdy30/sites/default/files/transferofproperty.pdf
  8. Gobinda Chandra v. Dwarka Nath,(1908) ILR 35 Cal 837(cited in https://shodhganga.inflibnet.ac.in/bitstream/10603/31643/13/13_chapter%205.pdf).
  9.  Mulla, The Transfer of Property Act (10th Edition, LexisNexis Butterworths) 2005.

[1] https://housing.com/news/transfer-of-property-act/

[2] https://www.dictionary.com/browse/in-praesenti

[3] https://indiankanoon.org/doc/1484775/

[4] K.N. Krishnaswami Bhagavathar vs N.A. Thirumalai Iyar AIR 1926 Mad 101, 90 Ind Cas 410

[5] https://legislative.gov.in/sites/default/files/A1882-02.pdf

[6] https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf

[7] Section 77 of the Companies Act, 2013

[8] Section 77 of The Companies Act, 2013


[10] https://www.indiacode.nic.in/bitstream/123456789/2338/1/A1882-04.pdf

[11] https://www.scconline.com/blog/post/2021/02/06/the-doctrine-of-merger/


[13] Section 58, Transfer of Property Act, 1882

[14] Debi Singh And Ors. vs Jagdish Saran Singh AIR 1952 All 716

[15] https://bnblegal.com/in-personam/

[16]1970 AIR 1041

This article has been written by Lakshya Kaushish, a 3rd Year B.A.LL.B student at Bennett University. He can be contacted at lakshya.kaushish01[at]gmail[dot]com

To submit your articles as guest posts, kindly mail us at kanooniyat@gmail.com and cc to connections@kanooniyat.com with the subject as ‘Guest Post – Title of article’.

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