Charges – Meaning And All Procedure (Companies (Amendment) Ordnance 2019 Promulgated on 12th January 2019 To Be Effective From 2ND November 2018)

1.) MEANING OF CHARGES – 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.

TYPES  OF CHARGES :-

  • Fixed Charge:
    • A charge which is identifiable with specific and clear asset/property at the time of creation of charge.
    • The Company cannot transfer such identified and defined property unless the charge holder (creditor) is paid off his dues.
  • Floating Charge:
    • It covers the floating and circulating nature of properties of a company, like sundry debtors, stock in trade etc.
    • The nature of the property charged may change from time to time.
    • The floating charge crystallizes into fixed charge if the Company crystallizes or the undertaking ceases to be a going concern.

Source- https://taxguru.in/company-law/overview-registration-charges-companies-act-2013.html

2.) Crystallisation of Floating Charge

This conversion of floating charge into a fixed charge is usually called Crystallisation of floating charge. Such an event happens under the following circumstances:

  • The debtor is unable to pay off the debts.
  • The business couldn’t be carried out when the creditor/debenture Holder takes action against the debtor for not repaying the debts and in all such circumstances which are listed out under the relevant provisions of the Companies Act, 2013.
  • Company goes into liquidation
  • Company cease to carry on its business
  • On the happening of any event as specified in deed of agreement.

3.) 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.

4.) DUTY TO REGISTER CHARGE:

Section 77(1) provides that it shall be the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India.

To register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating such charge in such Form CHG-1 (for other than debentures) or Form CHG-9 (for debentures including rectification), on payment of such fees and in such manner as may be prescribed in the Rules, with the Registrar within 30 days of its creation.

Provided that the Registrar may, on an application by the company, allow such registration to be made by two ways:-

A.) If the charge is created before the Ordinance – within 300 days – If not registered, to be completed within 6 months from the date of Ordinance on paying fee

B.) If the charge is created after the Ordinance– within 60 days. If not registered – ROC may grant another 60 days on application on payment of advalorem fee.

5.) 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.

6.)  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.

7.) 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.

8.) 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.

9.) 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.

LIST 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 rectification)
10. CHG-10 Application for delay to the registrar.

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.

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