Under the Companies Act 2013, a “charge” signifies an interest or lien created on a company’s assets as security, impacting various stakeholders. This article delves into the definition, types, and legal provisions surrounding charges.
What is a Charge?
- Definition: As per Section 2(16) of the Companies Act 2013, a “charge” refers to an interest or lien created on the property or assets of a company or its undertakings as security, including a mortgage.
Relation to Pledge and Hypothecation
- Pledge: As per Section 172 of the Indian Contract Act, 1872, a “pledge” means the bailment of goods as security for payment of a debt or performance of a promise.
- Hypothecation: As per Section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, “hypothecation” means a charge on any movable property, created by a borrower in favor of a secured creditor without delivering possession to the creditor, as security for financial assistance. It includes floating charges and their crystallization into fixed charges on movable property.
- Comparison: In a pledge, the possession of the asset is transferred. In hypothecation, the possession remains with the debtor.
Provisions under Companies Act 2013 & Companies (Registration of Charges) Rules, 2014
| Section & Rule | Description |
| Section 77 with Rule 3 & Rule 6 | Duty to Register Charges: Every company must register the charge with the Registrar of Companies (ROC) within 30 days of creation or modification, along with the fee.
(the Company is legally obliged to register all types of Charges whether created within or outside India.) |
| Purpose | Form |
| Creation/Modification of charge other than Debenture | CHG-1 |
| Creation/Rectification of charge for Debenture | CHG-9 |
| Registration Process | |
| If charge is created before Companies (Amendment) Ordinance 2019 | Within 300 days of creation |
| If charge is created on or after the commencement of Companies (Amendment) Ordinance 2019 | Within 60 days of creation on payment of additional fees |
| Post Registration | The ROC shall give a registration certificate to the person in whose favour the charge is created. |
| Purpose | Registration Certification in Form |
| Registration | CHG-2 |
| Modification | CHG-3 |
Note: No charge shall be taken into account by any liquidator or creditor unless it is duly registered and a certificate is issued.
| Section & Rule | Description |
| Section 78 | Application for Registration of Charge: If the company fails to register the charge, the person in whose favor the charge is created may apply to ROC. ROC will give a 14-day notice to the company and allow registration on payment of fees if the company has not done it or provided a valid reason for not registering. The applicant can claim filing fees and costs from the company. |
| Section 81 with Rule 7 | Register of Charges: The Registrar shall maintain a Register of Charges on the MCA portal, open for inspection on payment of fees. |
| Section 82 with Rule 8 | Company to Report Satisfaction of Charge: The company must intimate the ROC in Form CHG-4 within 30 days of payment or satisfaction of charge. The ROC may allow an intimation within 300 days on payment of additional fees. If no cause is received, the ROC shall enter a memorandum of satisfaction and issue a certificate in Form CHG-5. |
| Purpose | Form |
| Intimation of payment or satisfaction of charge | CHG-4 |
| Certificate of registration of satisfaction of charge | CHG-5 |
| Section 84 with Rule 9 | Intimation of Appointment of Receiver or Manager: Any appointed person must inform the company and ROC in Form CHG-6. Cessation of such person must also be informed in Form CHG-6. |
| Section 85 with Rule 10 | Register of Charges: Every company must maintain a Register of Charges in Form CHG-7 at its registered office permanently, authenticated by a director/secretary/authorized person. The company must also keep a copy of the instrument creating/modifying the charge for eight years after satisfaction of charge. |
| Section 87 | Rectification by Central Government in Register of Charges: Companies may apply for an extension to the Central Government in Form CHG-8 for late filings or misstatements. The CG may extend the time for filing or rectifying misstatements. |
| Rule 12 | All fees shall be paid as per Rule 12. |
PUNISHMENT FOR CONTRAVENTION – SECTION 86
| Category | Violation | Penalty Amount |
| Company’s Liability | If a company violates any provisions of this section. | Five lakh rupees |
| Officer’s Liability | Officers in default, meaning those responsible for the contravention. | Fifty thousand rupees |
| False or Incorrect Information | Intentionally providing false or incorrect information or knowingly withholding material information required under section 77. | Consequences fall under Section 447 |
| Action under Section 447 | Providing false or incorrect information or suppressing material information. | Deals with fraud, actions, and penalties in cases of fraud |
Summary of Charge Forms
| Form | Purpose |
| CHG-1 | Creation/Modification of charge other than Debenture |
| CHG-2 | Registration Certification of charge in case of new Registration |
| CHG-3 | Registration Certification of charge in case of Modification |
| CHG-4 | Satisfaction of Charge |
| CHG-5 | Certificate of registration of satisfaction of charge |
| CHG-6 | Appointment/Cessation of Receiver |
| CHG-7 | Register of Charges |
| CHG-8 | Application for extension of time to Central Government |
| CHG-9 | Creation/Rectification of charge for Debenture |
Conclusion: Understanding the intricacies of charges under the Companies Act 2013 is crucial for ensuring legal compliance and avoiding penalties. Proper registration, maintenance of registers, and timely intimation are vital to uphold corporate governance and transparency.
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