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Understand the difference between Charge and Mortage


Charge denotes an impediment over the title of the property, i.e. when the charge is created on an asset, the asset is not allowed to be sold or transferred. Basically, there are three ways through which a charge is created on the property, that are classified according to the movability of the asset, i.e. On movable property, the charge is created by way of pledge or hypothecation, whereas when the charge is created on an immovable asset, then it is known as Mortgage.


Definition:

By virtue of the Transfer of Property Act, 1882 Charge and Mortgage have been defined as below :

Charge: 100. Where immovable property of one person is by an 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.

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, 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.


Mortgage : 58. Mortgage", "mortgagor", "mortgagee", "mortgage-money" and "mortgaged" defined.

(a) A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of 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.

The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed.

(b) Simple mortgage-Where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly or impliedly, that, in the event of his failure to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee.

(c) Mortgage by conditional sale-Where, the mortgagor ostensibly sells the mortgaged property-

on condition that on default of payment of the mortgage money on a certain date the sale shall become absolute, or

on condition that on such payment being made the sale shall become void, or

on condition that on such payment being made the buyer shall transfer the property to the seller,

the transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale:

PROVIDED that no such transaction shall be deemed to be a mortgage unless the condition is embodied in the document which affects or purports to affect the sale.

(d) Usufructuary mortgage-Where the mortgagor delivers possession or expressly or by implication binds himself to deliver possession of the mortgaged property to the mortgagee, and authorizes him to retain such possession until payment of the mortgage-money, and to receive the rents and profits accruing from the property or any part of such rents and profits and to appropriate the same in lieu of interest or in payment of the mortgage-money, or partly in lieu of interest or partly in payment of the mortgage-money, the transaction is called a usufructuary mortgage and the mortgagee a usufructuary mortgagee.

(e) English mortgage-Where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage.

(f) Mortgage by deposit of title-deeds-Where a person in any of the following towns, namely, the towns of Calcutta, Madras, and Bombay, and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.

(g) Anomalous mortgage-A mortgage which is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage by deposit of title-deeds within the meaning of this section is called an anomalous mortgage.




Key Differences Between Charge and Mortgage :


The difference between charge and mortgage can be drawn clearly on the following grounds:

1. The term mortgage alludes to a form of charge, in which the ownership interest in a particular immovable property is transferred. On the other hand, Charge is used to mean the creation of right over the assets in favour of the lender, for securing the repayment of the loan.


2. The mortgage is created out of the act of the parties concerned, whereas the charge is created either by the operation of law or by the act of the charger holder and charge creator.


3. A mortgage requires compulsory registration under the Transfer of Property Act, 1882. Conversely, when the charge is created as a result of the act of the parties concerned, registration is a must, but when the charge is created by operation of law, no such registration is needed at all.


4. The mortgage is for a specified term. Unlike charge, which continues forever.


5. A mortgage carries personal liability, except when it is specifically excluded by an express contract. As against this, no personal liability is created. Nevertheless, when the charge comes into effect due to a contract, then personal liability may be created.


What we can conclude?


The creation of a charge provides security to the lender of money that the amount given to the borrower will be repaid.

In the case of a mortgage, the borrower is bound to repay the loan amount otherwise the mortgaged asset will be realized after getting an order from Court.

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