Report No. 70
86.8. Second view.-
The second view is illustrated by an Allahabad case,1 holding that a Hindu widow's right to maintenance as against persons other than her own son is not ipso facto, a charge upon the property. It is this right-which is not yet a charge-to receive maintenance out of the profits of immoveable property which is spoken of in section 39. Section 39 does not apply to a charge created by a decree.
Where there is no compromise or award and the decree, passed after contest (as in the case of maintenance decree declaring a charge in favour of a Hindu widow), creates a charge for the first time by its own force, it cannot be said that the charge was created by "act of parties" or by "operation of law" within the meaning of the first paragraph of section 100, according to this view. Where a direction for sale of the property in enforcement of the charge is made in the decree, a definite interest is created in favour of the judgment-creditor. Such an order is binding not only against the judgment-debtor, but also against his privies, including purchasers for value without notice.2
Though, a charge created by a decree is like any other charge and is not enforceable against a transferee for consideration without notice,3 where the decree directs the sale of the property, the property can be sold in execution even in the hands of a transferee from the judgment-debtor and the transferee cannot plead that he had no knowledge that a decree for sale had been passed against his transferor. A declaratory decree, though creating a charge, does not order the sale of the property and, so long as an order for sale has not been passed, the interest created by the charge remains a nebulous one,4 not available against a purchaser for value without notice.
In a suit filed by a Hindu widow, claiming that she was entitled to maintenance out of the income of specified properties and asking for a charge to be created on the said property, a right to immovable property is directly and specifically in question. Where a decree is passed specifically creating a charge on specific immovable property and the decree is not merely a declaratory decree but an executable one, directing sale, a transferee of the property before the decree is fully satisfied, is affected by the decree, irrespective of the fact that he had no notice of the charge created by the decree.5
The doctrine of the binding nature of a decree creating a charge, either by way of res judicata or otherwise, will have no application as against transferees for valuable consideration and without notice, in the case of a merely declaratory decree. Where, however, the decree is executable and the property charged under the decree can be sold in execution of the decree, the transferees will be bound by the decree and in such a case it is wholly immaterial whether the decree itself created a charge or the charge was created by a compromise or an award which was embodied in the decree.
Where a decree contains directions for a declaration that the maintenance allowance shall be a charge on the joint family property and for the recovery of the maintenance allowance, the decree is executable at least for the recovery of the allowance by sale of the property charged. As the decree itself creates a charge, Order 34, Rules 14 and 15, Civil Procedure Code, does not apply in such a case. In one case,6 the Madras High Court has held that a charge would fall under section 100, when it can be realised by a suit for sale as it6 were a simple mortgage.7 A charge created by a decree would not fall within section 100.8
Even in cases of charges created by decrees, a distinction has to be borne in mind with regard to the mode of enforceability. If the decree is executable, a charge created by it can be enforced in execution. If, on the other hand, the decree creating the charge is merely declaratory, the decree holder is not entitled to sell the property in execution, but must file a suit to enforce the charge. Therefore, the charge created by the maintenance decree which, on the facts of this case, did not fall under section 100 could be enforced by sale of the properties in execution.
The petitioner in this case had obtained a maintenance decree in a particular suit in which a charge was created on certain properties. He now sought to bring these properties to sale. The question to be decided was whether a separate suit should be filed, or whether the right can be enforced in execution. The lower court held that a separate suit should be filed. On appeal, the High Court held that there was no doubt that a separate suit have been filed if a charge created in this case fell under section 100. The Court referred to the difference of opinion on the question whether section 100 was exhaustive of all kinds of charges and referred to the case law on the subject.9
1. Mahesh Prasad v. Mundar (Mt.), AIR 1951 All 141 (145) (FB), overruling AIR 1939 All 687.
2. Emphasis supplied.
3. This observation does not rely on section 100.
4. Mahesh Prasad v. Mundar (Mt.), AIR 1952 All 141 (150), para. 48 (Agarwala, J.).
5. AIR 1943 Oudh 354 (FB) not followed.
6. AIR 1956 Mad 167 followed (1954) 2 Mad LJ 13 not followed.
7. Seethalakshmi v. Srinivasa, AIR 1958 Mad 23.
8. Emphasis added.
9. AIR 1924 Cal 645;
AIR 1916 Pat 252;
AIR 1935 Nag 129;
AIR 1934 Nag 83;
AIR 1945 Pat 278;
AIR 1939 All 579;
AIR 1926 Pat 31;
AIR 1919 Born 227;
AIR 1934 Nag 147;
AIR 1948 Pat 199;
AIR 1940 Nag 163.
86.9. Third view.-
The third view, which applies section 100 to awards and compromise decrees, treating them as analogous to act of parties, may now be dealt with. In one case,1 the Allahabad High Court has held:
"Coming to the point viz whether this charge is one to which section 100, Transfer of Property Act, applies, one finds that the said section has been made applicable to cases where the charge is created by act of parties or operation of law".
This was held by a Full Bench of this Court,2 but the same authority goes on to say that if the decree is passed on the basis of a compromise or is passed on an award, it does amount to an "act of parties". It was held that the decree in suit was passed on the basis of an award, which amounted to an act of parties, and so section 100 would apply to this decree.
In one case,3 the Nagpur High Court held that a charge which is created by a decree is not created by act of parties, nor can it be said to have been created by operation of law. Such a charge does not fall under section 100, nor does the principle underlying it apply to it. However, it also held that the Act does not purport to be exhaustive, but purports to deal only with certain specific matters (transfers by act of parties), and that a charge could be recognised apart from the Act. "Charges are created in two ways and both are included in this section". It noted the argument of counsel for the purchaser-defendants.
"He argues that if a charge of this kind does not fall under section 100, then it cannot be a charge at all so far as India is concerned, because the Act is exhaustive of all matters with which it deals. We are unable to agree, because it appears from the preamble that the Act is one to "define and amend certain parts of the law relating to the transfer of property by act of parties". It is clear then that the Act does not purport to be exhaustive but only to deal with certain specific matters, and also that primarily it was enacted to deal with transfers by act of parties."
1. Manmohan Dass v. Bahauddin, AIR 1957 All 575 (DB).
2. Mahesh Prasad v. Mundar, AIR 1951 All 141 (FB).
3. Ghasiram v. Kundanbai, AIR 1940 Nag 163 (DB).
It appears to us on a consideration of all aspects of the matter that the conflict of decisions discussed above obviously shows the need for clarification. We do not see any reason why section 100 should not apply to charges created by decree of court (on compromise or otherwise). We recommend that section 100 be so amplified. Of course, this would mean that the charge1 would not bind a bona fide purchaser for value without notice, but this is just and fair.
The reasons for such a limitation have been convincingly set out in the Nagpur case2-
"But if a charge does not create any interest in immovable property and if the property covered by the charge is not thus the subject-matter of the suit, we find it difficult to understand how an innocent transferee, who had absolutely no notice and had no means of having notice as the charge was not created by a registered document, can be regarded as a privy of the judgment-debtor by the mere fact that the decree as passed mentioned some property as charged.
There is no privity of estate between the charge-holder and the judgment-debtor, and therefore the judgment-debtor was free to deal with the property, and a person taking bona fide without notice from such a person ought to be protected. It is for these and similar reasons that their Lordships of the Lucknow High Court in the Full Bench case reported in 13 Luck 101 held that there was 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 act of parties or by terms of a decree."
One possible device for implementing our recommendations would be to add an Explanation to section 100 to the effect that for the purposes of this section, a charge created by a decree or order of the court, whether such decree or order is passed on compromise or otherwise, is a charge created by the operation of law. Of course, it can also be provided that this section shall not affect the procedure for the enforcement of decretal charges or the doctrine of lis pendens (section 52).
We recommend such an amendment.3
1. Right of execution to be saved.
2. Goswami Maheshpuri v. Ramchandra, AIR 1944 Nag 1 (6).
3. Also see para. 86.5, supra.
86.11. Section 100-Subsequent transferee from a transferee if protected.-
In regard to the enforcement of charge, difficulties arise where a transferee of the charged property for consideration with notice of the charge, transfers it to another who takes it for consideration without notice of the charge. The subsequent transferee being a transferee without notice, the property in his hands will not be subject to the charge.1 The rationale in this case is that equity must look to the state of mind of the subsequent transferee whose rights are now in issue.
Take the converse case. A, a transferee for consideration (without notice of a charge), transfers it to a person who has notice of the charge. The subsequent transferee would take the property free from the charge, since the general rule is that a purchaser for valuable consideration without notice can give a good title to a subsequent purchaser from him with or without notice.2
The only exception is that a trustee who has sold property in breach of trust or a person who acquired property by fraud cannot protect himself by purchasing it from bona fide purchaser for value without notice. A purchaser without notice takes the property free of the charge3 and he is perfectly entitled to transfer his rights to any person whether the latter had notice of the charge or not.
The reason for the law is evident. If it were not so, the right of the person who purchased the property without notice would be limited, for his market would be limited.
We should, at this stage, note a contrary decision. In Harnam Singh v. Akbar Khan, AIR 1939 Pesh 76 (78), a property subject to charge was purchased by H without notice. He transferred it to K who had notice of the charge. It was held that K could not avail himself of a defence under the proviso to section 100, that the mere fact that K claimed through H could not change the situation and that K took subject to the charge. In our opinion this judgment does not, with respect, take a correct view, for the reasons given above.
Redraft-The following redraft of section 100 is recommended in the light of what we have stated above4:
"100. (1) When immovable property of one person is, by act of parties, or operation of law, made security for the payment or money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability, in favour of another and the transaction does not amount to a mortgage, the person for whom it is so made security 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:
Provided that nothing in section 59 shall apply to the creation of a charge.
(2) Nothing in this section applies to the charge of a trustee on the trust property for expenses properly incurred for the execution of his trust and, 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.
(3) For the purposes of this section, a charge created by a decree or order of a court, whether passed on compromise or otherwise, is one created by act of parties, by operation of law but nothing in this section shall affect the provisions of section 52 or the procedure for the enforcement of such charge."
1. AIR 1915 Cal 478 (481).
2. (a) Wilkes v. Spooner, (1911) 2 KB 473 (483): 80 LJKB 1107: 104 LT 911. (b) Stemple Fort Colliery Co. (in re:), (1880) 14 Ch D 432 (445): 28 WR (Eng) 270: 41 LT 755: 49 LJ Ch 488.
3. Attorney General v. Biphosphated Guano Co., (1879) 11 Ch D 327 (334): 27 WR (Eng) 621: 40 LT 201: 49 LJ Ch 68 (per Fry, J.).
4. See paras. 86.3, 86.5 and 86.10, supra.