Provision of Charge as per Companies Act, 2013

DEFINITION:

According to section 2 (16) of Companies Act, 2013 – Charge means :

-an interest or lien

-created on the property or assets of a company or any of its undertakings or both

-as security and includes a mortgage

TYPES OF CHARGE:

Fixed Charge	Floating charge
Charge created on specific & identifiable assets. Eg: – Charge on building, plant & machinery, etc. If company want to deal with charged assets than it is only possible with the permission of charge holder. Created on non-current assets. At the time of dissolution fixed charge is given first preference for re-payment.	Charge which is not particular to any asset of company, is called floating charge. Example: Charge on stock of goods, receivables, bills of exchanges, etc. No need to take permission, the company can deal with the charged asset. Created on current assets. At the time of dissolution, floating charge is given second preference.

CRYSTALLIZATION OF FLOATING CHARGE:

• Crystallization of floating charge means that the floating charge becomes fixed and now the company cannot use the charged property without the permission of the charge holder.

1. When the company goes into liquidation;

2. When the company ceases to carry on its business;

3. When the creditors or the debenture holders take steps to enforce their security e.g. by appointing receiver to take possession of the property charged.

4. On the happening of the event specified in the deed.

REGISTRATION OF CHARGE: (SECTION – 77):

• Every company needs to register all types of charge with the Registrar within 30 days of creation of charge.
• Charge created on any property or asset (on tangible or any other) of Company within or outside India.
• Form to be Filed: (Duly signed by charge holder & company)

CHG-1	For other than debenture
CHG-9	For debenture including rectification

Additional time for Registration of Charge:

On or before commencement of Companies (Amendment) Ordinance, 2019	On or after commencement of Companies (Amendment) Ordinance, 2019
300 days with normal fees 6 months with additional fees	30 days with normal fees Further 30 days with additional fees (total 60 days) Further 60 days with  ad-valorem fees

For further 30 days = 3 times the fees and 0.0025% of the amount of charge created.

Verification of Instrument evidence of charge:

Property in India (Wholly or Partly)	Property Outside India (Solely)
In the hand of any director or CS of company or An authorized person of charge holder  (AO)	The seal of company; if any or In the hand of any director or CS of company or An authorized officer of charge holder or The hand of some person other than who is interested in charge

Certificate of Registration:

CHG-2	Certificate of Registration
CHG-3	Certificate of  Modification of  Registration

• Registered charge gets priority over prior unregistered charge.
• Charge will not be taken into account by liquidator or any creditor unless duly registered.
• Certificate of registration of charge issued by ROC shall be conclusive evidence that all provisions of this chapter are duly complied with.

REGISTRATION OF CHARGE BY CHARGE HOLDER: (SECTION – 78):

If company fails to register the charge as per section 77 (within 30 days)

The Charge-Holder shall apply to ROC to register the charge (form as per sec-77)

The Registrar shall send a 14 days’ notice to the company to show cause why such charge shouldn’t be registered

If Company don’t takes any action to register the charge ROC will allow the registration of such charge

Charge Holder shall be entitled to recover the fees from company

APPLICABILITY OF SECTION 77 (SECTION – 79):

• A company acquiring any property subject to charge or
• Any modification in terms of any charge registered

 DATE OF NOTICE OF CHARGE (SECTION – 80):

• Any person acquiring such property which is subject to any charge shall be deemed to have notice of charge from the date of registration.

REGISTER OF CHARGE TO BE KEPT BY REGISTRAR (SECTION – 81):

• ROC shall keep a Register containing particulars of charge. (Particulars of charge maintained on MCA portal)
• Register shall be open to inspection by any person on payment of fees.

COMPANY TO REPORT SATISFACTION OF CHARGE (SECTION – 82):

Form/Certificate:

CHG-4	Satisfaction of Charge
CHG-5	Memorandum of Satisfaction of Charge

• Registrar on receipt of notice issue same to the Charge-Holder to show cause within 14 days why the satisfaction or partial payment should not be recorded (if the form CHG 4 is already signed by Charge Holder than no such show cause notice is required to be send)
• Within 14 days:

Show Cause  Notice	No  Show Cause  Notice
ROC  take it into record and inform to company	ROC will make entry into  Register & issue certificate to  Company in form CHG-5

• Provided that if Charge holder has signed the required form than such show cause notice is not required.

POWER OF REGISTRAR TO MAKE ENTRIES OF SATISFACTION(SECTION – 83):

Registrar on evidence of:

• Debt being paid
• Part of property or undertaking released from charge
• Property ceased to become a part of company
• Will register in the memorandum of satisfaction.
• If the company has not intimated the same than the Registrar have the power to register the same.
• Registrar may intimate the effected parties within 30 days of making the entry in the registrar

INTIMATION OF APPOINTMENT OF RECEIVER (SECTION – 84):

• Person on obtaining any order or through power contained in the instrument appoint receiver or manager to the property
• The same needs to be intimated to Registrar within 30 days of his appointment (cessation, if any) in Form CHG-6.
• Registrar on receiving the notice register the same.

COMPANY’S REGISTER OF CHARGES (SECTION – 85):

• Company to keep Register of Charge in Form CHG-7
• Entries made in the register to be authenticated by CS, Director or any other authorised person by board
• Register to be maintained permanently and instrument relating to such charge to be preserved for 8 years from satisfaction of charge.

RECTIFICATION BY CENTRAL GOVERNMENT IN REGISTER OF CHARGE (SECTION – 87):

• CG on being satisfied that :
• Omission to give intimation of payment or satisfaction
• Omission of any particulars register by ROC previously made
• Was accidental or inadvertent & not prejudice to interest of creditor
• CG by order instructs to extend the time for satisfaction and make correction into Register.

FORM:

Form	Particulars
CHG-1	Application for registration of creation or modification of  the charge (Other than debentures)
CHG-2	Certificate of registration
CHG-3	Certificate of modification of registration
CHG-4	Intimation of satisfaction to ROC
CHG-5	Memorandum of Satisfaction of Charge
CHG-6	Notice for appointment & cessation of receiver
CHG-7	Register of Charge maintained by the company
CHG-8	Application to CG for Condonation of delay (In case of delay in satisfaction or misstatement in Creation/Modification/Satisfaction)
CHG-9	Application for registration of creation or modification of  the charge (For debentures)