Charges under Companies Act 2013: Types, Obligations, Forms, Time Limits & Consequences

Introduction: In the realm of corporate governance, the Companies Act 2013 outlines crucial provisions regarding the registration of charges. Section 2(16) of the Act defines a charge as an interest or lien on a company’s property or assets, serving as security. This article delves into the types of charges, the obligation to register, the forms involved, time limits, and the consequences of non-compliance.

MEANING

Section 2(16) of the Companies Act 2013 defines Charge as “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”.

The Companies Act further requires all companies to register any Charges created by the Company and maintain a register of it.

TYPES OF CHARGES UNDER THE COMPANIES ACT, 2013

Charges can be classified into 2 main types of Charges:

1. Fixed Charges– A Charge against a specific -identifiable property. The identity of such property will not change throughout the loan period.

2. Floating Charges –  A Charge which is not against any specifically identifiable property as such. It includes all the properties floating or uncertain such as debtors, stock-in trades, etc. In floating Charge, a specific asset may not be identified.

OBLIGATION TO REGISTER CHARGES- SECTION 77(1)

1. As per section 77 of the Companies Act 2013, the Company is legally obliged to register all types of Charges whether created within or outside India.

2. As per Section 78, if the Company for any reason fails to register for the charge, the individual in whose favour the charge is being created may apply to the ROC for registration of the charge. The individual has the right to recover the registration fee from the company. However, the individual filing the charge has to give prior notice of 14 days to the company.

FORM- SECTION 77(1)

The company shall file E-form CHG-1 (for other than debentures), or CHG-9 (in case of debentures) with the Registrar of Companies.

TIME LIMIT- SECTION 77(1)

The company shall file the E-form CHG-1 within thirty days from the date of creation of charge.  If the form is not filed within the prescribed time, then it must be filed after condonation of delay.

EFFECT OF REGISTRATION OF CHARGE- SECTION 77(2)

As per Section 77(2), the ROC shall issue a certificate of registration of such charge to the company or as the case may be, to the person in whose favour the charge is created.

REGISTER OF CHARGES WITH THE ROC- SECTION 81

As per Section 81, the ROC shall maintain a register of charges with regard to every company containing all the particulars relating to the charge. The register is open for examination by any individual on the payment of some prescribed fee.

REGISTER OF CHARGES WITH THE COMPANY- SECTION 85

1. Every company shall maintain at its registered office, a register of charges in Form CHG-7 which shall include therein all charges and floating charges affecting any property or assets of the company or any of its undertakings.

2. A copy of the instrument creating charge shall also be kept at the registered office along with the register of charges.

3. The register of charges shall be open for inspection during business hours by any member or creditors without any fees or by any other person on payment of prescribed fees.

PUNISHMENT FOR CONTRAVENTION- SECTION 86

1. Company’s Liability:
   • If a company violates any provisions of this section, it is subject to a penalty.
   • Penalty Amount: The penalty for the company is five lakh rupees.
2. Officer’s Liability:
   • Every officer of the company who is found to be in default, meaning those responsible for the contravention, will also face penalties.
   • Penalty Amount for Officers: Officers in default will be liable to pay a penalty of fifty thousand rupees.
3. False or Incorrect Information:
   • If any person intentionally provides false or incorrect information or knowingly withholds material information, especially information required to be registered under section 77, there are consequences.
4. Action under Section 447:
   • The consequences for providing false or incorrect information or suppressing material information fall under the purview of Section 447.
   • Section 447 likely deals with fraud and provides for certain actions and penalties in cases of fraud.

In essence, Section 86 imposes penalties on both the company and its officers for contraventions related to charges. Additionally, it emphasizes the seriousness of providing false or incorrect information, which can lead to more severe actions under Section 447, possibly involving legal proceedings related to fraud.

CONDONATION OF DELAY

This provision outlines the circumstances under which the Registrar may allow the registration of charge documents even if they were not filed within the initially stipulated period.

Here’s a breakdown:

1. Time Limit for Filing:
   • The company is required to file particulars and instruments of charge within 30 days of the creation of the charge.
2. Extension Period:
   • The Registrar has the discretion to condone the delay and allow the registration of the charge.
   • This extension can be granted after the initial 30 days but within a maximum period of 300 days from the date of the creation or modification of the charge.
3. Additional Fee:
   • To avail of this extension, the company is required to pay an additional fee.
4. Application Process:
   • The company needs to submit an application for condonation of delay using Form No.CHG-1 or Form CHG-9, depending on the specific requirements.
5. Supporting Declaration:
   • The application must be accompanied by a declaration from the company, signed by its secretary or director.
   • This declaration should assert that the belated filing will not adversely affect the rights of any other intervening creditors of the company.

In summary, this provision allows for flexibility in the registration process of charges by providing a mechanism for condoning delays under certain circumstances.

Conclusion: Understanding the nuances of charge registration under the Companies Act 2013 is essential for companies and their officers to ensure compliance and avoid penalties. The legal framework provides a structured process for registering charges, safeguarding the interests of stakeholders and upholding corporate transparency.

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DISCLAIMER:- This Blog is for the purposes of information/knowledge and shall not be treated as solicitation in any manner or for any other purposes whatsoever.

Feel free to contact the author for further clarification at 9953808432 or via mail at [email protected]. The author is the founder of SINGHANIA & ASSOCIATES (Practicing Company Secretaries Firm) based in Delhi.