Under Indian Contract Act, the provision of charge reads as under: –
“100. Charges.-
Where immoveable 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.
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.”
Section 100 of the Act, 1882 provides that where a transaction does not amount to a mortgage i.e., not a mortgage in terms of Section 58 of the said Act, the person to whom the immovable property is offered as a security would still nevertheless be said to have a “charge” in terms of the said provision, and that all provisions under the Act, 1882 as applicable to simple mortgage envisaged under Section 58 sub-section (b) of the said Act shall apply to such “charge” insofar as possible. The key distinction is that any mortgage which is not created in terms of Section 58 of the Act, 1882 i.e., all equitable mortgages are still nevertheless a “charge” to such property. The expression “and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge” assumes significance as it is not suggestive that such charge would be deemed a simple mortgage, rather it only goes so far as to provide that the provisions that apply to simple mortgage will also apply to such “charges” so far as possible but by no means does it provide that such “charge” is to be treated as a simple mortgage in terms of Section 58 of the Act, 1882 i.e., as a legal mortgage.
The last part of Section 100 of the Act, 1882 further statutorily recognizes the in personam nature of such “charge” and provides that they shall not be enforced against any person to whom such property or interest therein has been transferred i.e., to whom it has been mortgaged in terms of Section 58 of the said Act or any other bona-fide transferee who does not have notice of the said charge. Thus, what may be discerned is that, ‘equitable mortgages’ are very much recognized in India under the nomenclature of “charge” in terms of Section 100 of the Act, 1882, and the same will be enforceable as far as possible in terms of the procedure and provisions applicable to a simple mortgage except those without notice of such charge.
Supreme Court in J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind Spg. and Wvg. Co . Ltd. reported in 1968 SCC Online SC 32 held that an agreement to create a mortgage only gives rise to perform such an agreement and does not amount to either a mortgage or a charge and the decision in Haryana Financial Corpn. v. Gurcharan Singh reported in (2014) 16 SCC 722 wherein it was held that since all provisions applicable to a simple mortgage shall, as far as possible, also apply to a charge, Section 59 of the Act, 1882 which requires a simple mortgage to be compulsorily be registered would also be applicable and as such the creation of a charge under Section 100 of the Act, 1882 must be compulsorily registered.
However, a close reading of the decision in J.K. (Bombay) (P) Ltd. (supra) will reveal that Supreme Court never held that any agreement to mortgage will be incapable of creating a charge in terms of Section 100 of the Act, 1882, rather what was held is that only those agreement to mortgage where the intention to create a charge in praesenti is absent will be incapable of creating either a mortgage or a charge, but where such intention of parties is there, the same will definitely tantamount to a ‘charge’ under Section 100 of the Act, 1882 as held in ONGC Ltd. v. Official Liquidator reported in (2015) 5 SCC 300.
Similarly, the decision of Haryana Financial Corpn (supra) holding that registration in terms of Section 59 of the Act, 1882 is mandatory in order to create a charge prima facie appears to be incorrect in view of an earlier decision of a larger bench of Supreme Court in M.L. Abdul Jabbar Sahib v. M.V. Venkata Sastri & Sons reported in (1969) 1 SCC 573 which in clear terms held that the second part of Section 100 of the Act, 1882 does not attract the provisions of Section 59 of the said Act and that a charge may be made without any writing and there is no provision of law which require that such an instrument must be attested or registered.
If a charge can be made only by a registered instrument in accordance with Section 59 of the Act, 1882, then the subsequent transferee will always have notice of the said charge in view of Section 3 Explanation I which stipulates that “where any transaction relating to immoveable property is required by law to be and has been effected by a registered instrument, any person acquiring such property or any part of, or share or interest in, such property shall be deemed to have notice of such instrument as from the date of registration […]”. This would effectively render the second part of Section 100 of the Act, 1882 which mandates requirement of notice to all subsequent transferees before the enforcement of a ‘charge’ as otiose and redundant, as the moment when such instrument is registered, notice is deemed to have been made.
The very idea behind stipulating the requirement of notice under Section 100 of the Act, 1882 seems to be to save even those transactions which are not registered and do not amount to a mortgage yet in equity may still be enforceable provided the subsequent transferee has notice of such charge. If an ‘equitable mortgage’ cannot be construed as a ‘charge’ in terms of Section 100 of the Act, 1882, the former may still be permitted to be enforceable in the extant of equity in the peculiar facts of each case. This is because the enforcement of an ‘equitable mortgage’ being a by-product of the doctrine of equity is purely a matter of discretion that a court of conscience may grant keeping in mind the principles of fair-play, good conscience and justice. Where any ‘equitable mortgage’ is found to be unenforceable, the same though neither a ‘legal mortgage’ nor a ‘charge’ may still nevertheless entitle a lender to seek other reliefs such as specific performance of the contract or a suit for recovery on the strength of the ab inito intention of the parties to create a security evident from such ‘equitable mortgage’.
Supreme Court in Kedar Lal v. Hari Lal reported in AIR 1952 SC 47 held that the whole of law of mortgage in India, including the law of contribution arising out of a transaction of mortgage, is now statutory and is embodied in the Act, 1882 read with the Civil Procedure Code, 1908 and that the courts cannot travel beyond these provisions. The relevant observations read as under: –
“27. So far as Section 43 is concerned, I am not prepared to apply it unless Sections 82 and 92 can be excluded. Both Sections 43 and 82 deal with the question of contribution. Section 43 is a provision of the Contract Act dealing with contracts generally. Section 82 applies to mortgages. As the right to contribution here arises out of a mortgage, I am clear that Section 82 must exclude Section 43 because when there is a general law and a special law dealing with a particular matter, the special excludes the general. In my opinion, the whole law of mortgage in India, including the law of contribution arising out of a transaction of mortgage, is now statutory and is embodied in the Transfer of Property Act read with the Civil Procedure Code. I am clear we cannot travel beyondthese statutory provisions.”
However, a close reading of the aforesaid paragraph of Kedar Lal (supra) would reveal that the observations were made in light of the question whether Section 43 of the Indian Contract Act, 1882 which deals with right to contribution would be applicable to such a right which is arising out of a mortgage to the exclusion of Section 82 of the Act, 1882 which deals with mortgages. It was in this context Supreme Court held that when it comes to mortgages it will not be permissible to travel beyond the scheme of Act, 1882 and venture into the provisions contained in other laws.
However, this by no stretch means that the concept of equitable mortgage has no place in the Indian jurisprudence. The concept of equitable mortgage is purely a creation and by-product of the doctrine of equity, and thus, the absence of any specific provision under the Act, 1882 providing for such a mortgage will not run to the detriment of something which is essentially designed to ensure that principles of fair-play, good conscience and justice endure. There is no decision which either specifically excludes or out rightly rejects the application of this doctrine. Rather, the subsequent decision of Supreme Court in K.J. Nathan (supra) it was specifically stated that although the concept of equitable mortgage as evolved under the English Law cannot be considered to be a rule of law, which as also discussed by us in the foregoing paragraphs is by-product of doctrine of equity and not the law of the land, yet they may serve as a guide. The relevant observations read as under:-
10 . The foregoing discussion may be summarized thus : Under the Transfer of Property Act a mortgage by deposit of title deeds is one of the forms of mortgages where-under there is a transfer of interest in specific immovable property for the purpose of securing payment of money advanced or to be advanced by way of loan. Therefore, such a mortgage of property takes effect against a mortgage deed subsequently executed and registered in respect of the same property. The three requisites for such a mortgage are, (i) debt, (ii) deposit of title deed; and (iii) an intention that the deeds shall be security for the debt. Whether there is an intention that the deeds shall be security for the debt is a question of fact in each case. The said fact will have to be decided just like any other fact on presumptions and on oral, documentary or circumstantial evidence. There is no presumption of law that the mere deposit of title deeds constitutes a mortgage, for no such presumption has been laid down either in the Evidence Act or in the Transfer of Property Act. But a court may presume under Section 114 of the Evidence Act that under certain circumstances a loan and a deposit of title deeds constitute a mortgage. But that is really an infer-ence as to the existence of one fact from the existence of some other fact or facts. Nor the fact that at the time the title deeds were deposited there was an intention to execute a mortgage deed in itself negatives, or is inconsistent with, the intention to create a mortgage by deposit of title deeds to be in force till the mortgage deed was executed. The decisions of English courts making a distinction between the debt preceding the deposit and that following it can at best be only a guide; but the said distinction itself cannot be considered to be a rule of law for application under all circumstances. Physical delivery of documents by the debtor to the creditor is not the only mode of deposit. There may be a constructive deposit. A court will have to ascertain in each case whether in substance there is a delivery of title deeds by the debtor to the creditor. If the creditor was already in possession of the titledeeds, it would be hyper-technical to insist upon the formality of the creditor delivering the title deeds to the debtor and the debtor redelivering them to the creditor. What would be necessary in those circumstances is whether the parties agreed to treat the documents in the possession of the creditor or his agent as delivery to him for the purpose of the transaction.”
Thus, in such a situation where a transaction does not amount to a mortgage but nevertheless can be construed as a preliminary step towards the preparation of a mortgage which will be security thereafter with nothing else done for conveyance or transfer of title or interest, there three re-courses may be available to the lender: –
(i) He may simply claim that the transaction amounts to an equitable mortgage as it was for the purpose of creating a present or immediate security which a court of equity ought to consider; or
(ii) He may claim that there has been a sufficient part performance of the contract, with attending circumstances which a court ought to relieve by permitting the lender to ‘perfect its mortgage’ i.e., to take further steps for the transfer of conveyance of title or interest in order to create a mortgage; or
(iii) He may bring a suit for recovery of money and base his claim simply on the ab initio intention of the parties to create a security in the first place and the resultant part-performance of the contract insofar as the loan was extended based on such promise or consideration of security.
Reference
The Cosmos Co. Operative Bank Ltd Versus Central Bank of India & Ors. (2025)