Charges Under Companies Act, 2013 and Rules

In this article, the author shall confer about the Charges and its related provisions as given under the Companies Act, 2013.

A CHARGE is stated in Section 2(16) of the Companies Act, 2013 which expresses that charge could be –

• an interest or lien;
• created on the property or assets of a corporation; and
• any of its undertakings or both as security

and includes a mortgage

Who shall register the Charge (Section 77)

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 –

• within 30 days of its creation
• together with the instruments
• signed by the company and the charge-holder
• in e-Form CHG-1 (for other than Debentures) or e-Form CHG-9 (for debentures including rectification)

Procedure to be followed for Charge Registration

• Issue not less than 07 (seven) days notice and agenda of a Board Meeting to consider the borrowing of money and creation of charge on the assets or properties of the company
• Hold a meeting of Board of Directors to pass the necessary resolution and authorizing the Director to execute the necessary documentation as needed
• Execute the paperwork related to charge creation in favor of the chargeholder
• File the appropriate e-Form (CHG-1 or CHG-9 as applicable) along with the fees as specified

Extension of time period to register the charge

After the expiry of said 30 days for charge registration, the company has an option to- file an application with the Registrar for extension of time a in Form CHG-1 supported by a declaration from the company a signed by its secretary or director that such delayed filing shall not adversely affect the rights of any of the company’s creditors

S. No.	Application for extension (upon payment of additional fees as prescribed)	Further Extension (if registration not made within extended time period)
(1)	Within a period of 300 days in case of Charge created before the commencement of the Companies (Amendment) Ordinance 2019*	The registration of the charge shall be made within 06 (six) months from the date of commencement of the Companies (Amendment) Ordinance, 4[2019], on payment of such additional fees as may be prescribed and different fees may be prescribed for different classes of companies
(2)	Within a period of 60 days in case of charge created on or after the commencement of the Companies (Amendment) Ordinance 2019	An application shall be made within a further period of 60 days after payment of such advalorem fees as may be prescribed

*[Note:- effective date of the Companies (Amendment) Ordinance, 2019 is 02.11.2018]

Provided also that any subsequent registration of a charge shall not prejudice any right acquired in respect of any property before the charge is actually registered

Registration of charge by chargeholder (Section 78)

Failure of company to file for registration of Charge within 30 days as referred to in section 77, the person in whose favor the charge is created (‘charge-holder’)  may apply to the Registrar for registration of the charge along with the instrument created for the charge, within such time and in such form and manner as may be prescribed

The Registrar may, on such application, within a period of 14 days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause why such charge should not be registered, allow such registration on payment of such fees, as may be prescribed

In such a case, the Charge-holder has the right of recovering, from the company, the amount of any fees or additional fees paid by him to the Registrar for the purpose of registration of such charge

Non-applicability

To such charges as may be prescribed in consultation with the Reserve Bank of India (RBI)

Effect of Registration

The Registrar shall register the charge and issue a certificate of registration in FORM CHG-2; or modification of charge in FORM CHG-3, to the person in whose favor the charge is created

Effect of Non-Registration

Unless specified in any other law, for the time being in force, no such charge created by a company shall be taken into account by the liquidator appointed under this Act or the Insolvency and Bankruptcy Code, 2016;  or any other creditor unless it is duly registered and a certificate of registration of such charge is given by the Registrar

Register of Charges

By Company:

• To make necessary enteries in the Register of Charges in Form CHG-7 and maintain the same at its registered office
• Enteries shall be authenticated by a director or secretary or any other authorised person
• Such register shall be open for inspection during business hours by any member or creditor (without any fee) or any other person (on payment of Rs. 100/-)

By Registrar:

The Registrar maintains the particulars of charges on the MCA (Ministry of Corporate Affairs) portal, which is deemed as the Register of Charges. It shall be open to inspection by any person on payment of fee

Nothing in here shall prejudice any contract or obligation for the repayment of the money secured by a charge.

Fees payable

• For the charges created or modified before the 2nd November, 2018, fees payable is as under:

S. No.	Period of delay	Additional Fee applicable
(a)	up to 30 days	2 times of normal fees
(b)	More than 30 days and up to 60 days	4 times of normal fees
(c)	More than 60 days and up to 90 days	6 times of normal fees
(d)	More than 90 days and up to 180 days	10 times of normal fees
(e)	More than 180 days	12 times of normal fees

• For the charges created or modified on or after the 2nd November, 2018, the additional or advalorem fees payable with effect from 1^st August, 2019 is as under:

S. No	Period of delay	Small Companies and One Person Company	Other than Small Companies and One Person Company
(a)	up to 30 days	3 times of normal fees	6 times of normal fees
(b)	More than 30 days and up to 90 days	3 times of normal fees plus an ad valorem fee of 0.025 % of the amount secured by the charge, subject to the maximum of one lakh rupees.	6 times of normal fees, plus an ad valorem fee of 0.05 % of the amount secured by the charge, subject to the maximum of five lakh rupees”.]

SATISFACTION OF CHARGE

Registration in 30 days

A company shall, within a period of 30 days from the date of such payment or satisfaction, give intimation to the Registrar in e-Form CHG-4, of the payment or satisfaction in full of any charge already registered

Extension upto 300 days

The Registrar may, on an application by the company or the charge holder, allow such intimation of payment or satisfaction to be made within a period of 300 days of such payment or satisfaction on payment of such additional fees as may be prescribed

Registrar to issue notice

• The Registrar shall, on receipt of such intimation about the payment in full, cause a notice to be sent to the holder of the charge calling upon him to show cause within the timeframe not exceeding 14 days maximum, as to why payment or satisfaction in full should not be recorded as intimated to the Registrar
• In case no cause is shown, by such holder of the charge, the Registrar shall order that a memorandum of satisfaction shall be entered in the register of charges kept by him under section 81 and shall inform the company that he has done so
• But if any cause is shown, the Registrar shall record a note to that effect in the register of charges and shall inform the company

Provided that such notice referred above shall not be required to be sent, in case the intimation to the Registrar in this regard is in the specified form and signed by the holder of charge.

Nothing shall affect the powers of the Registrar to make an entry in the register of charges unless on receipt of an intimation from the company.

Power of Registrar to Make Entries of Satisfaction and Release in Absence of Intimation from Company

(1) The Registrar may, on evidence being given to his satisfaction with respect to any registered charge,—

(a) that the debt for which the charge was given has been paid or satisfied in whole or in part ;                                                                                              or

(b) that part of the property or undertaking charged has been released from the charge or has ceased to form part of the company’s property or undertaking, enter in the register of charges a memorandum of satisfaction in whole or in part, or of the fact that part of the property or undertaking has been released from the charge or has ceased to form part of the company’s property or undertaking, as the case may be, notwithstanding the fact that no intimation has been received by him from the company.

(2) The Registrar shall inform the affected parties within 30 days of making such entry in the register of charges.

APPOINTMENT OF RECEIVER

In relation to the charge-

• If any person obtains an order for the appointment of a receiver or of a person to manage the property; or
• If any person appoints such receiver or person under any power conatined in any intsrument

he shall, within 30 days of doing so, give notice of such appointment-

• to the company and the Registrar
• alongwith a copy of order or instrument
• on payment of the prescribed fee

Further, the Registrar shall enter particulars of such appointment in the register of charges.

APPLICATION WITH THE CENTRAL GOVERNMENT

Application in e-Form CHG-8 can be filed with the Central Government for-

• Rectification in particulars entered, in respect to any charge created or modification; and
• Extension of time for filing of satisfaction of charge, if not done within 300 days from the date of such payment

PUNISHMENT FOR CONTRAVENTION

(1) If any company is in default in complying with any of the provisions, it shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.

(2) If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered in accordance with the provisions of section 77, he shall be liable for action under section 447.

BOARD RESOLUTION

• To approve the creation of charge-

“RESOLVED THAT a first pari passu charge by way of assignment/hypothecation/mortgage on the property of the company i.e. land/building admeasuring ____ sq. ft. situated at ________(address)________ be created in favour of (Name of Financial Institution), ____________ branch at __________(address)__________ to secure the term loan of Rs. ______________ (Rupees _________________________only) at an interest rate of ___% p.a. for a tenure of ______years/months.

RESOLVED FURTHER THAT any of the directors of the company be and are hereby severally or jointly authorised to finalize and execute such deeds, applications, declarations etc. on behalf of the company, to give effect to the aforementioned resolution.

RESOLVED FURTHER THAT any of the director(s) of the company be and are hereby severally or jointly authorised to file the said deed with the Registrar and to do all such acts, things, matters etc. as may be incidental in this regard.

RESOLVED FURTHER THAT the common seal of the company be affixed on the above mentioned document(s) in the presence of (Officer), who shall countersign the same in token thereof.

RESOLVED FURTHER THAT any two directors of the company be and are hereby authorised to sign and forward a true copy of the foregoing resolution to concerned authorities as may be necessary.”

To approve the modification of charge-

“RESOLVED THAT pursuant to the provisions of section 77, 79 and other applicable provisions, if any, of the Companies Act, 2013 read with Rule 3 and 6 of the Companies (Registration of Charges) Rules, 2014, including any amedment thereto, the consent of the Board be and is hereby accorded to modify the charge, which was created on ____________ by way of enhancement/reduction of the sum borrowed from (Name of the Financial Institution) from Rs. ____________ to Rs. __________________ with interest rate at _____% per annum against the assignment/hypothecation/mortgage on the property of the company i.e. land/building admeasuring _____sq. ft. situated at ____________________.

RESOLVED FURTHER THAT Mr. _____________________, Director of the company be and is hereby authorised to finalise and execute such deed/ forms/ documents etc. on behalf of the company as may be required to modify the said charge.

RESOLVED FURTHER THAT Mr. _______________________, Director of the company be and is hereby authorised to file the said documents with the concerned authority and generally to do all such acts, deeds, matters and things as may be considered ancilliary or incidental thereto for giving effect to the said resolution and also to forward the true copy of this resolution to the concerned authorities as may be necessary.”

To take note of the satisfaction or release of charge-

“RESOLVED THAT the Board hereby take the note of charge release letter or letter of satisfaction dated ____________ received from _____________________ Bank for the Charge ID __________________ as registered with the Registrar of Companies (RoC).

RESOLVED FURTHER THAT the Bank be hereby requested to release the title deeds mortgaged with them at the time of obtaining the financial assistance .

RESOLVED FURTHER THAT Mr. _________________, Director of the company be and is hereby severally authorised file for such satisfaction of charge with the Registrar of Companies (RoC) and generally to do all such acts, deeds, matters and things as may be incidental in this regard.”

LIST OF FORMS RELATED TO CHARGE

S.NO.	FORM	PARTICULARS
1	CHG-1	Application to register the creation or modification of charge (other than debentures)
2	CHG-2	Certificate of registration of charge
3	CHG-3	Certificate of modification of charge
4	CHG-4	Intimation to the Registrar regarding particulars for the satisfaction of charge
5	CHG-5	Certificate of registration of satisfaction of the charge
6	CHG-6	Notice of appointment or cessation of a receiver or a manager
7	CHG-7	Register of charges created, modified and satisfaction by the company
8	CHG-8	Application to Central Government requesting an extension of time to file details of registration of creation or modification or satisfaction of charge as well as rectification any omission or misstatement of any details
9	CHG-9	Application for registering the creation or modification of charge for debentures including its rectification

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Author: ARSHPREET K. & CO., Practicing Company Secretaries based at Chandigarh.

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Disclaimer: The contents of this article are based upon the provisions and information existing currently.  This is just for easing the interpretation  of provisions of law and not to be treated as any professional advice and is further subject to change without notice. Therefore, I do not assume any responsibility for the consequences arising out of use of such information.