Ms. Jaya Sharma-Singhania and Mr. Akash Deepak Tekale

Ms. Jaya Sharma-Singhania and Mr. Akash Deepak Tekale

CONCEPT OF “CHARGE”:

The Companies Act, 2013 defines a Charge as an interest or lien created on the assets or property of a Company or any of its undertaking as security and includes a mortgage U/s 2(16). In the earlier Act of 1956, the word “Mortgage” was not mentioned. Section 124 to section 145 of the companies act, 1956 dealt with charges. Under the Companies Act, 2013 section 77 to section 87 deals with charges.

The company may borrow monies by providing security of its assets and may create a lien on the properties of the Company. The Company may also issue Debentures to raise funds which may carry a right/ interest in the Assets/Properties of the company. A charge is a way of security to the creditor/lender of his interest/right on the properties of the company for the amounts due to him by the company.

NEED FOR CREATING CHARGE:

Almost all the large and small companies depend upon share capital and borrowed capital for financing their projects. Borrowed capital may consist of funds raised by issuing debentures, which may be secured or unsecured, or by obtaining financial assistance from financial institution or banks.

The financial institutions/banks do not lend their monies unless they are sure that their funds are safe and they would be repaid as per agreed repayment schedule along with payment of interest. In order to secure their loans they resort to creating right in the assets and properties of the borrowing companies, which is known as a charge on assets. This is done by executing loan agreements, hypothecation agreements, mortgage deeds and other similar documents, which the borrowing company is required to execute in favour of the lending institutions/ banks etc.

DUTY TO REGISTER CHARGE:

A company creating charge, shall, register the particulars of the said charge with the RoC within 30 days of its creation.

This charge could be :

  • On its property or assets or
  • Any of its undertakings
  • Whether tangible or otherwise

> Situated in or outside India

> Signed by both the Company and the charge-holder

> Together with the instruments creating the charge

REGISTRATION OF CHARGE:

image 2

REGISTRATION OR MODIFICATION OF CHARGE:

  • For registration of particulars of the charge together with a copy of the instrument, if any, creating or modifying the charge in Form No.CHG-1 (for other than Debentures) or Form No. CHG-9 (for debentures including rectification), as the case may be, duly signed by the Company and the charge holder and filed with the Registrar within a period of thirty days of the date of creation or modification of charge along with the fee.
  • The additional fee shall be levied, if the particulars of a charge are not filed within the aforesaid period, but filed within a period of three hundred days of the date of such creation or modification.
  • A copy of every instrument evidencing any creation or modification of charge and required to be filed with the Registrar shall be verified as follows-

> where the instrument or deed relates solely to the property situated outside India, the copy shall be verified by a certificate issued either under the seal of the company, or under the hand of any director or company secretary of the company or an authorized officer of the charge holder or under the hand of some person other than the company who is interested in the mortgage or charge;

> where the instrument or deed relates, whether wholly or partly, to the property situated in India, the copy shall be verified by a certificate issued under the hand of any director or company secretary of the company or an authorized officer of the charge holder.

  • Where a charge is registered with the Registrar, the Registrar shall issue a certificate of registration of such charge in Form No.CHG-2. Where the particulars of modification of charge are registered, the Registrar shall issue a certificate of modification of charge in Form No. CHG-3.image 3

SATISFACTION OF CHARGE:

  • A company shall within a period of thirty days from the date of the payment or satisfaction in full of any charge registered, give intimation of the same to the Registrar in Form No. CHG-4 along with the fee.
  • Where the Registrar enters a memorandum of satisfaction of charge in full in pursuance of section 82 or 83, he shall issue a certificate of registration of satisfaction of charge in Form No. CHG-5.

REGISTER TO BE MAINTAINED BY THE COMPANY:

The particulars of every charge shall be entered in a register of charges to be kept at the registered office of the company in Form No. CHG-7 wherein all particulars of charge shall be entered. Such entries shall be authenticated by secretary or any person authorized by the Board for the purpose. Such register shall be open for inspection by any member or creditor without any fee and by any other person on payment of fee.

GIST OF E-FILING UNDER CHARGE MANAGEMENT:

S.No. E-Form Purpose
1. CHG-1 Creating or Modifying charge (for other than Debentures)
2. CHG-2 Certificate of Registration of charge.
3. CHG-3 Certificate of Modification of charge.
4. CHG-4 Intimation of the satisfaction to the Registrar.
5. CHG-5 Memorandum of satisfaction of charge.
6. CHG-6 Notice of appointment or cessation or receiver or manager.
7. CHG-7 Register of charges.
8. CHG-8 Application for condonation of delay shall be filed the Central Government.
9. CHG-9 Creating or modifying the charge in (for debentures including ractification)
10. CHG-10 Application for delay to the registrar.

CHARGES FILING OF WHICH WITH ROC IS NOT NECESSARY:

  • Guarantee doesn’t require Registration;
  • Charge created by operation of law need not be filed;
  • Negotiable Instrument (Hundi) is not a ‘Charge’ and registration not required.

CHARGES FILING OF WHICH IS REQUIRED:

In the Companies Act, 1956 there was a list of transactions on which registration of charge was mandatory. With the enactment of the Companies Act, 2013, the list of charges requiring mandatory registration has been done away with. Thus, in the absence of a specific list of charges to be registered, and the wide definition of the word “charge”, ‘pledges’ and ‘liens’ are also required to be registered.

As per section 125(4) of the Companies Act 1956, the following charges are required to be filed with the Registrar of Companies (ROC).

1. a charge for the purpose of securing any issue of debentures;

2. a charge on uncalled share capital of the company;

3. a charge on any immovable property, wherever situate, or any interest therein;

4. a charge on any book debts of the company;

5. a charge, not being a pledge, on any movable property of the company

6. a floating charge on the undertaking or any property of the company including stock in trade

7. a charge on calls made but not paid;

8. a charge on a ship or any share in a ship;

9. a charge on goodwill, on a patent or a license under a patent, on a trade mark, or on a copyright or a license under a copyright.

PARTICULARS OF CHARGES:

The following particulars in respect of each charge are required to be filed with the Registrar:

  • date and description of instrument creating charge;
  • total amount secured by the charge;
  • date of the resolution authorizing the creation of the charge (in case of issue of secured debentures only);
  • general description of the property charged;
  • a copy of the deed/instrument containing the charge duly certified or if there is no such deed, any other document evidencing the creation of the charge to be enclosed;
  • list of the terms and conditions of the loan; and
  • name and address of the charge holder.

REGISTRATION OF CHARGES- COMPARISON BETWEEN COMPANIES ACT, 1956 AND COMPANIES ACT, 2013:

S.No Particulars Companies Act, 1956 Companies Act, 2013
1. Reference Section 124 to Section 145 of Companies Act, 1956 Section 77-87 of the Companies Act, 2013 read with the Companies (Registration of Charges) Rules, 2014
2. Definition Inclusive definition of Charge given in this Act as “Charge includes a Mortgage” Charge defined as “Charge means an interest or lien created on the property or assets of the Company or both as security and includes a mortgage”.
3. Type of Charges to be registered Section 125 specifies only 9 types of charges to be registered. Section 77 states that Companies are required to register all types of Charges:·

  • within or outside India,·
  • on its property or assets or any of its undertakings,
  • whether tangible or otherwise, and
  • situated in or outside India with ROC within 30 days of its creation.
4. Additional period to register the Charge Section 125-ROC may allow filing within the additional period of 30 days after the expiry of 30 days from the date of creation on payment of additional fee. Section 77- ROC may on application by the company, allow the registration of charge within 300 days (30 days + additional period of 270 days).   Application to be supported by a declaration in Form CHG-10 from the CS or Director that such belated filing will not adversely effect the rights of any creditors of the company.
5. Notice by Registrar in case any person other than Company applies for registration of Charge The Charge can be registered by any person interested in the Charge and there was no requirement of sending any notice to the Company. Section 78- In case the Company fails to get the Charge registered, then the person in whose favour the Charge is to be registered may apply to the registrar.   The Registrar shall send 14 days notice to the Company and on not receiving any response after the expiry of 14 days, the registrar shall register the Charge.
6. Modification of Charge Different provisions existed for Modification and for creation. As per Section 77, the same provisions as applicable to Creation of Charge applies to modification.
7. Registration of Satisfaction of Charges Report satisfaction to the Registrar within a period of 30 days from the date of its Satisfaction Section 82 – ROC may on application by the company, allow the registration of satisfaction of charge within 300 days (30 days + additional period of 270 days) from the date of satisfaction. Note : As Section 82 specifies that the provisions of sub-section 77(1)  shall , as far as may be apply, to an intimation given under this section, the extension period of 270 days is also being considered for registration of satisfaction of charge.
8. Condonation of delay Section 141- Application to Central Government for extension of time for registration of charge after the expiry of the prescribed period of 60 days from the date of creation or 30 days from the date of satisfaction. Section 87- Application in Form CHG-8 to be filed to the Central Government for extension of time for registration of charge if the charge is not registered within 300 days from the date of its creation/modification/satisfaction.
9. Certificate of registration No specific Form was specified for certificate of registration. Rule 6 – Certificate of registration of such charge in Form No.CHG-2   Certificate of modification of charge in Form No. CHG-3   Certificate of registration of satisfaction of charge CHG-5
10. Register of Charges Section 143- To be maintained by Company Section 85 read with Rule 10- Company’s Register of charges to be maintained by the Company in Form CHG-7 and  Rule -7, particulars of charges maintained by the Registrar on the MCA portal shall be deemed to be the Register of Charges.
11. Penalty  – Multi fold increase in the penalty. Section 142- Default in filing the registration particulars, the company and every officer in default shall be punishable with fine  which may extend to Rs. 5,000/- for every day during the default continues.   Default in complying with any other provisions of this chapter, the company and every officer in default shall be punishable with fine which may extend to Rs. 10,000. Section 86- Penalty on the company for non-compliance with the provisions of this chapter shall not be less than Rs. 1 Lakh which may extend to Rs. 10 Lakh and on the officer in default, is imprisonment which can extend to 6 months or fine not less than Rs. 25,000 which can extend to Rs. 1 Lakh, or with both.

CONCEPT OF CHARGE IN UNITED KINGDOM (UK):

For registration of chargers in UK, form AP1 is required to be lodged along with:

  • Certified copy of charge.
  • A copy of the certificate of registration issued by Companies House. This will be an electronic copy if the application is lodged through e-DRS (electronic Document Registration Service) or a paper copy when sent by post. A paper copy does not need to be certified
  • Written confirmation or a certificate by the company, lender or a conveyancer that the charge lodged for registration is:

> a certified copy the original charge of which a copy has been filed at Companies House

> a certified copy of the charge to which the accompanying certificate of registration relates.

WHETHER FUNDED INTEREST IS MODIFICATION OF CHARGE?

In Andhra Pradesh State Financial Corpn v. Guruvayurappan Swamy Oils, appellant financial institution had created charge over properties of company-in-liquidation in respect of principal amount plus interest. Some of the interest was kept in a separate account called “Funded Interest Account”. Hence, there is no modification of charge required to secure such funded interest.

HOW DO WE HELP?

Being a practicing professional, we provide professional advice and ensure compliance with the said act and compliances required to be done under the said law.

CONCLUSION:

Every company creating a charge needs to file E-Form CHG-1 with the Registrar of Companies for registration of charge within 30 days of creation of charge.

Penalty for contraventions of any provision of Registration of Charges under the Companies Act, 2013 shall not be less than 1 lakh rupees but which may extend to 10 lakh rupees and every officer of the Company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with a fine not less than 25,000 rupees but which may extend to 1 lakh rupees.

BIBLIOGRAPHY:

  • mca.gov.in
  • icsi.edu
  • wikipedia.org
  • gov.uk

CONTRIBUTED BY:

Ms. Jaya Sharma-Singhania

Mr. Akash Deepak Tekale

Jaya Sharma and Associates, Practicing Company Secretary Firm, Mumbai.

DISCLAIMER: The entire contents of this article have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. We assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL WE SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION. This is only a knowledge sharing initiative and author do not intend to solicit any business or profession.

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4 Comments

  1. Sadik Ali says:

    Foreign liquor permit issued in year 1973 to my Father name registered in MCA but don’t no company is in partnership firm or not how can we no

  2. Sadik Ali says:

    Foreign liquor permit issued in year 1973 to my Father name registered in MCA but don’t no company name how could I search entire copy of files other government department thanks

  3. Kavita Joshi says:

    Bank created lien on Mutul Funds against credit facility. However credit facility was never availed by the Company and the Company always unlien the MF as per requirement to use the owned funds. Do we need to file CHG 1 for creation of charge in this case?

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