ACS Divesh Goyal
Definition of Charge: ― As per Section-2 (16) Charge means- An
Principle rule of Creation of Charge is that “Charge will be creating on the Assets of the Company”, Assets as defined in Schedule III of the CA-2013
PROVISIONS OF CHARGE GIVEN UNDER CHAPTER VI OF COMPANIES ACT 2013 COVERS SECTION- 77 to 87.
NEED FOR CREATING A CHARGE ON COMPANY’S ASSETS:
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
Type of Charges to be registered:
Companies Act, 1956 : Section 125 specifies only 9 types of charges to be registered.
Companies Act, 2013 : Section 77 states that Companies are required to register ALL TYPES OF CHARGES, with ROC within 30 days of its creation.
For Creation of Charge Form CHG-1 will be filed with fees prescribed under Act. Form should be signed by the Company and the Charge-holder and should be filed together with instrument creating charge.
Additional period to register the Charge:
Section 77- ROC may on application by the company, allow the registration of charge within 300 days (30 days + additional period of 270 days). If form will file after 30 days then form will file with additional fees.
Application to be supported by a declaration in Form CHG-10 from the CS or Director that such belated filing will not adversely affect the rights of any creditors of the company.
Rule 4(2) chapter VI –The Companies (Registration of Charges) Rules, 2014
DUTY OF REGISTRATION OF CHARGE:
But before filling of form person will give 14 days’ notice to Company. If company doesn’t register the charge or show sufficient cause then person himself will file the form with ROC.
This is not responsibility of Person (in whose favour charge is created) to file form. Therefore if company fail to file form for registration of charge and person also not filed form then person will not liable to pay any penalty.
CERTIFICATE OF REGISTRATION OF CHARGE:
After filling of Creation of charge ROC will issue a certificate of registration of charge in form CHG-2. The certificate issued by the Registrar under CHG-2 shall be conclusive evidence that the requirements of Chapter VI of the Act and the rules made there under as to registration of creation of charge, as the case may be, have been complied with.
Time Limit for filling for Creation of Charge
With in 30 days -Application should be made within 30 days of creation of charge in form CHG-1 without any late fees.
After expiry of 30 days but not beyond 300 days – Application should be made before 300 days of creation of charge in CHG-10 attached in CHG-1.
After Expiry of 300 days -Application for Condonation of Delay to Regional Director in form CHG-8.
Condonation of delay for Registration of charge:
MODIFICATION OF CHARGE:
Provisions of Modification of charge are completely same as provisions of Creation of Charge. After filling form for Modification of Charge registrar will issue certificate for modification of charge in form CHG-3.
Any modification in the terms or conditions or the extent or operation of any charge registered under that section also required registration.
**WHETHER FUNDED INTEREST IS MODIFICATION OF CHARGE?
Solu: 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.
SATISFACTION OF CHARGE:
Charge is created as security for loan or debentures or as security for some other purpose. If the amount of loan is repaid or debentures are fully paid or other purpose is fulfilled, there remains no necessity of the charge. This is called satisfaction of charge.
As per Section 82 – Form for Satisfaction of charge will be file in form CHG-4 within 30 days of satisfaction of charge. If company fail to file form CHG-4 within 30 days of creation of charge then company have to go for condonation of delay for satisfaction of charge.
CHARGES FILING OF WHICH WITH ROC IS NOT NECESSARY:
Pledge is not required to be filed for Registration:
Earlier there was list of transaction on which charge was required to create. With the enactment of the Companies Act, 2013, tire list of charges requiring registration 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’ were also required to be registered.
The companies creating pledge over shares are compulsorily required to register the charge, which was not the case with its predecessor. This is unfair, for example, there is absolutely no sanctity in registration of a pledge as a pledge is a possessory security interest and the asset is already with the lender. A pledge on movables neither creates an interest or a lien but rather is a special property.
Effect of registration of charge:
a. Maintain Register of Charge by ROC: As per Section- 81 ROC will maintain Register of Charges in respect of each company, containing particulars of all charges registered
b. Inspection of Register of Charge: The Register of charges maintained by ROC is open for inspection by any person on payment of prescribed inspection fees.
c. Deemed Notice:** Any person intending to lend moneys or who has lent money to a company can know which of company’s assets are already charged and extent to which type are charged.
d. Charge binding even on subsequent purchaser: Provisions relating to charge apply even to a subsequent purchaser, even if he had not purchased property directly from company. The purchaser is required to make reasonable enquiries as to title of vendor.
Penalty for not filing charges:
If any company contravenes any provision of this Chapter, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to ten lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.
Effect of non registration of charge:
As per Section 77(3) If charge is not registered with ROC, the charge shall not be taken into account by the liquidator or any other Creditor. [The words are Registered’ and not ‘filed’. Thus, mere filing of charge with Registrar would not be sufficient. It has to be actually registered by ROC and certificate of registration should be issued.
However, this is so only if company is under winding up. Otherwise, contract or obligation for repayment of the money secured by charge is there even if charge was not registered. 77(4)
REGISTER OF CHARGE BY COMPANY:
a) Every company shall maintain, at registered office a register of charge in form No. CHG-7.
b) Copy of the instrument creating the charge shall also be kept at the registered office of the company along with register of charge- (Proviso of Section 85(1)
c) The entry in the registered authenticated by a director or secretary of the company or the other person authorized.
d) **Company will maintain this register for life time of Company.
e) ** Instrument creating charge or modification of charge shall be preserved for a period of 8 year from the date of satisfaction of charge by the Company.
Inspection of register of charge: Section-85
a) Register of Charge and Copy of all the instrument creating charge will be open for inspection to Members and Creditor at the registered office of company , without any fee.
b) The registered will also be opened for inspection of any other person on payment of prescribed fee.
c) The register and copies of instrument shall be opened during business hours.
PROCESS OF CREATION/ MODIFICATION OF CHARGE IS AS UNDER:-
If a company has passed special resolutions under Section 180(3)(c) of the Companies Act, 2013, authorising its Board of directors to borrow funds for the requirements of the company and under Section 180(1)(a) of the Companies Act, 2013, authorising its Board of directors to create charge on the assets and properties of the company to provide security for repayment of the borrowings in favour of the financial institutions/banks or lenders and in exercise of that authority has signed the loan documents and now proposes to have the charge, created by it registration with the ROC, should follow the procedure detailed below
Where the special resolution is passed as required under section 180 of the Companies Act, 2013, form MGT14 of the Companies (Management and Administration) Rules, 2014 is to be files with the registrar.
PROCESS OF SATISFACTION OF CHARGE IS AS UNDER:-
 Not required to file MGT-14 in case of private Limited Company for borrowing.