Report No. 70
Section 100 defines a "charge", and also provides that all the provisions of the Act which apply to a simple mortgage shall, so far as may be, apply to a charge. Under the defining portion, 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. According to the operative portion, which is also contained in the same paragraph, all the provisions herein before contained which apply to a simple mortgage shall, so far as may be, apply to such charge.
Two kinds of charges are excluded from the operation of the section by the second paragraph. That paragraph provides, first, that nothing in this section applies to the charge of a trustee on the trust property for expenses properly incurred in the execution of his trust,1 and, secondly, 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.
1. Cf. section 32, Trusts Act.
86.2. Meaning of transfer-Recommendation.-
With reference to this provision, it may be noted1 that the "transfer" mentioned in this portion includes an auction purchase. Some controversy has arisen on the question whether a simple mortgagee can be regarded as a transferee, it being the Madras view that the property is not "in the hands" of such a person.2 With respect, we think that this is too narrow a construction of the relevant words, and we would agree with the contrary view of the Bombay High Court,3 holding that a mortgagee, whether or not he takes possession, prevails over the prior charge without notice created on the same property. We recommend that the Bombay view should be adopted by an express amendment, since the point is of a recurring nature.
1. Lakshmi Devi v. S.N. Kanwar, AIR 1965 SC 834.
2. Surayya v. Venkataramanamma, AIR 1940 Mad 701.
3. Raichand Gulabchand v. Dattatraya, AIR 1964 Born 1.
86.3. Formalitie.- Recommendation.-
The words "provisions hereinbefore contained so far as may be", which occur in section 100, raise an interesting question, namely, whether, for the creation of a charge, it is necessary to comply with the formalities laid down by section 59 in relation to the creation of a mortgage. There is a Madras case1 holding that the words "so far as may be" do not exclude the application of section 59. On the other hand, the Supreme Court has held that section 100 does not lay down any2 particular formality for the creation of a charge; section 59 is not attracted and attestation is not required. It may also be noted that according to a Madras case,3 attestation is not required for creating a charge.
It seems to us that in such an important matter, the law should not be obscure. It is desirable to make it clear beyond doubt that nothing in section 59 shall apply for the creation of a charge. This could be inserted as a proviso to section 100. We recommend accordingly.
1. Shiva Rao v. Official Liquidator, AIR 1940 Mad 140.
2. Abdul labbar Sahib v. Venkata Sastri, AIR 1969 SC 1147 (1152), para. 14.15
3. Ramasami lyengar v. Kuppusami lyer, AIR 1921 Mad 514, followed in Sikandar v. Hasan, AIR 1936 Oudh 196.
86.4. Mortgage and charge.-
The Act draws a clear distinction between a mortgage and a charge, and restricts the latter to cases where the security does not create an interest. Both are encumbrances but the principal distinction is that an interest is not created by a charge, with the result that the charge is not enforceable against a purchaser for value without notice.1
Of course, there are other differences. While a charge can be created by an act of parties by operation of law, including a decree, a mortgage can be created only by an act of parties, according to the usually accepted view,2 though, occasionally, there are observations to the contrary. In fact, sometimes, a mortgage can be created by express words of statute.3
1. ILR 35 Cal 837 (844).
2. ILR 35 Cal 837 (844).
3. AIR 1918 Lah (98) 102.
86.5. Purpose-Recommendation to expand the scope as to purpose.-
The wording of section 100, in so far as it relates to the purpose for which a charge is created, is somewhat limited, since the expression used is "security for the payment of money to another", but there can hardly be any doubt that an engagement which may give rise to a pecuniary liability is as much a permissible purpose for section 100, as it is for the purposes of the creation of a mortgage under section 58. A charge need not necessarily secure a debt or loan.1 It will be conducive to clarify if the language of section 100 is brought into line with section 58 in this regard, and we recommend accordingly.
1. AIR 1915 Cal 478 (480).
86.6. Charge created by decree-controversy.-
On the question whether section 100 applies to a charge created by a decree, there seems to be a divergence of opinion in the various High Courts-
(a) Some of the High Court1 have held that a decree creating a charge would fall within the provisions of section 100.
(b) According to some High Courts,2 such a charge is outside the provisions of this section, as it is not a charge created by "act of parties" or "operation of law".
(c) Some decisions3-4 take the view that certain types of decrees-for example, a compromise or an award-fall within the provisions of section 100, treating a decree as an "act of parties",. Many of the judicial decisions on section 100 are reviewed in the undermentioned cases.5 It will be useful to refer to a few important cases.
1. Mahesh Prasad v. Mundar, AIR 1951 All 141 (145, 150), paras. 14, 15, 42 (FB).
2. Seethalakshmi v. Srinivasa, AIR 1958 Mad 23; AIR 1951 All 141 (FB): AIR 1948 Pat 199.
3. Manmohan Das v. Bhagwan, AIR 1957 Cal 575 (582), para. 29.
4. AIR 1957 All 575 (582).
5. (a) Tnangavelu v. Tirumalswami, AIR 1956 Mad 67;
(b) AIR 1941 Pat 95 (98);
(c) AIR 1943 Oudh 354 (359);
(d) AIR 1958 Mad 23.
86.7. In illustration of the first view, a judgment of the Nagpur High Court1 may be cited:
"When a charge is created by a decree, there is no priority of estate between the charge-holder and the judgment debtor, and therefore, the judgment-debtor is free to deal with the property, and a person taking bona fide without notice from such a person ought to be protected. There is no difference in principle between a charge created by a decree and one created by contract.
If a charge does not create any interest in immovable property, it should make no difference whether it is created by a decree or one created by contract. A charge as defined in section 100 is either created by act of parties or by operation of law. Its being embodied in a decree does not make it anything but a charge".
In one case,2 the Calcutta High Court has held:
"A charge created by a decree would be one by operation of law only where the decree merely embodies a charge which exists in law apart from the decree itself. If a decree embodies a charge which has no existence in right to maintenance is not, however, in the fullest sense of the term, a charge on her husband's estate, though she has a right to be maintained out of that estate because it does not necessarily bind any part of such property in the hands of a purchaser. It becomes a complete charge if it be fixed and charged upon such property or a portion thereof by a decree or by an agreement or by a Will.
That being so, a charge for the payment of maintenance of a widow out of her late husband's estate, though created by a decree, may, from one point of view, be said to be one by operation of law and from another point of view, one not by operation of law but by a decree only. Where a charge is created by a decree, the instrument creating the charge is, at the same time, a decree.
Therefore, it has a double character and it distinguished from one which is merely an instrument creating a chargelaw independently of the decree itself, this would be outside the definition of section 100.3 A Hindu widow's. If it were merely an instrument creating a charge, it would be enforced only by a suit according to the first paragraph of section 100, but as it is at the same time a decree, it is capable of execution according to the provisions of law. That makes a charge created by a decree enforceable in execution."
In one Madras case,4 properties were specified in the decree and it was stated that future maintenance was to be recovered from these properties by selling them without attachment and that that method was to be resorted to "in default of measuring the paddy on the due date". It was held that the decree made the future maintenance a charge on the said properties. It was also held that where a decree makes maintenance a charge on specified properties, the decree-holder was entitled to realize the maintenance by executing the decree, without having recourse to any suit.
These decisions either assume or hold that section 100 applies to decretal charges, at least in some cases, though they also hold that being a decree, it can be enforced in execution.
1. Goswami Maheshpuri v. Ramchandra, AIR 1944 Nag 1 (6).
2. Jata Bhushan v. Krishna Bhamini, AIR 1957 Cal 204.
3. Emphasis added.
4. Abdul Md. Rowther v. Seethalakshmi, AIR 1931 Mad 120.