ACS Divesh Goyal

Definition of Charge: ― As per Section-2 (16) Charge means- 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;

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.

  • within or outside India,
  • on its property or assets or any of its undertakings,
  • whether tangible or otherwise, and
  • situated in or outside India

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 VIThe Companies (Registration of Charges) Rules, 2014 

DUTY OF REGISTRATION OF CHARGE:

  • As per Section 77 it is duty of Company to Create charge.
  • As per Section 78 if Company fails to file form for registration of charge then, the person in whose favour charge is created will file form for creation of charge. The person is entitled to recover from the company the amount of fees.

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:

  • Where the instrument creating or modifying a charge is not filed within a period of Three Hundred Days from the date of its creation or modification the Registrar shall not register the same unless the delay is condoned by the Central Government.
  • Where the instrument satisfaction of the charge is not filed within Thirty Days from the date on which such payment of satisfaction, the Registrar shall not register the same unless the delay is condoned by the Central Government.
  • The application for condonation of delay shall be filed with the Central Government in Form No.CHG-8 along with the fee. [ By Notification F. No. 1/6/2014-CL.V Dated: 21-5-2014 THIS POWER HAS BEEN DELEGATED TO REGIONAL DIRECTOR)
  • The order passed by the Central Government under sub-section (1) of section 87 of the Act shall be required to be filed with the Registrar in Form No.INC.28.

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:

  • 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.

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.

  • Conduct a Board meeting to arrive at a positive decision to avail the facility including security of Charges. In the said business of availing facility, authority to execute necessary documents is also required to be given.
  • File extracts of the said resolution with the Registrar of Companies in form [1]MGT 14 within 30 days of its passing.
  • Execute necessary documents for availing the facility including the security being given.
  • Make entries in the register of Charges maintained in form CHG-7 forthwith after the creation/ modification/ satisfaction and get it authenticated by Director or Secretary of the company or any person authorized by the board.
  • Submit form CHG-1 (for other than debentures) or Form CHG-9 (for debentures including rectification) with the prerequisite fees within a period of 30 days from the date of creation/ modification of charge.
  • Attach the following documents with e-form No. CHG- 9/ CHG -1: 9/ CHG -1 A certified true copy of every instrument evidencing any creation or modification of charge. In case of joint charge and consortium finance, particulars of other charge holders. Instrument(s) evidencing creation or modification of charge in case of acquisition of property which is already subject to charge together with the instrument evidencing such acquisitions
  • After due compliance, Registrar shall issue certificate of registration in form CHG-2, where charge is registered under section 77(1) or 78 or in form CHG-3, where charge is registered under section 79.
  • If CHG-1 (for other than debentures) or Form CHG-9 (for debentures including rectification) is not being submitted within the period of 30 days, however within the period of 300 days, prepare an application for condonation in form CHG-10 which shall be supported by a declaration by the secretary or director of the company that delay shall not affect the rights of creditors. After due compliance, Registrar shall issue certificate of registration in form CHG-2, where charge is registered under section 77(1) or 78 or in form CHG-3, where charge is registered under section 79.
  • Where a charge is registered with the Registrar obtain a certificate of registration of such charge in Form No.CHG- 2. Where the particulars of modification of charge is 2 registered the Registrar shall issue a certificate of modification of charge in Form No. CHG-3
  • If CHG-1 (for other than debentures) or Form CHG-9 (for debentures including rectification) is after 300 days, prepare an application for condonation in form CHG-8 and submit the same with Regional Director having territorial jurisdiction over the registered office of the company under The Companies Act, 2013.
  • Pay the requisite penalty imposed by the Regional Director having territorial jurisdiction over the registered office of the company. Normally 15 days time is being given for the payment of penalty.
  • After payment of requisite penalty, submit the Chalans with Regional director office with the covering letter containing request to issue and order allowing condonation of delay.
  • Submit the order issued by the regional director with the ROC within the stipulated time given in the order itself in form INC 28.
  • After the approval of the form INC 28, get the form CHG-1 (for other than debentures) or Form CHG-9 (for debentures including rectification) approved. After due compliance, Registrar shall issue certificate of registration in form CHG-2, where charge is registered under section 77(1) or 78 or in form CHG-3, where charge is registered under section 79.

PROCESS OF SATISFACTION OF CHARGE IS AS UNDER:-

  • Gets the letter of satisfaction from the bank containing declaration that there are no dues towards the facility provided.
  • Conduct a Board meeting to consider the letter of satisfaction and after taking note of the same in the said board meeting pass the resolution containing authorization to file form CHG-4 with letter of satisfaction as an attachment. It must be noted that the said form CHG-4 is required to be submitted within 30 days of satisfaction. The period of 300 days is applicable in case of creation/modification of charges only and for satisfaction of charges, there is no relaxation of time period.
  • Make entries in the register of Charges maintained in form CHG-7 forthwith after the satisfaction and get it authenticated by Director or Secretary of the company or any person authorized by the board.
  • Submit form CHG-4. After due compliance, Registrar shall issue certificate of registration of satisfaction in form CHG-5.
  • If CHG-4 is not being submitted within the period of 30 days, prepare an application for condonation in form CHG-8 and submit the same with Regional Director having territorial jurisdiction over the registered office of the company under The Companies Act, 2013.
  • Process same like above after filling of CHG-8.

[1] Not required to file MGT-14 in case of private Limited Company for borrowing.

(Author can be reached at csdiveshgoyal@gmail.com )

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(Republished with Amendments)

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36 responses to “Creation of Charges under Companies Act, 2013”

  1. Pranjul Shukla says:

    In my company there is much need to issue LCs day after 5 days, the bank requires a resolution passed in the BM of company for issuing LC, the problem is, monthly 5-6 meetings need to be held, is there any method to enhance the limit of LC or resolving this issue, so that day today resolutions need not to be passed in BMs. should I go through the sec185, 180?

  2. Shruti says:

    Overdraft against LIC Policy of Director as security. Is charge registration needed?

  3. Maala says:

    What is ‘Margin’ and ‘Extent and operation of charge’ in CHG-1

  4. prakash swamy says:

    Whether corporate guarantee by a company extended for any loan to its sister concern requires charge registration in ROC

  5. satyanarayana burra says:

    very useful. thanks a lot

  6. SK .Minajur Rahaman says:

    pls Tax Guru,Pls confirm me the identification of type of Loan/charged through Service Request Number (SRN) shows in MCA Services.Example-S0000000007,or Y 32323232055 what it mean the
    Name of taken Loan both the cases.

  7. Biru says:

    Can anyone clarify the below situation:
    Bank A created hypothecation but the charge was not filed with the ROC for 4months. Bank B created hypothecation after that and registered the charge with ROC before Bank A.
    In this case who will be the first charge holder Bank A or B.

  8. CS says:

    Will anyone clear 3rd Proviso of Section 77(1) that any subsequent registration of charge shall not prejudice any right acquired on asset before the charge is actually registered .

    • Teena says:

      As per 3 proviso of section 77(1)
      If any charges are already registered on any property, then the subsequent registration of charge on such property is not possible until the first charge is satisfied or discharge

  9. sam pereira says:

    If the Director of the Company has offered his asset as mortgage for the loan taken by the company and his individual name. Do we have to create a ROC charge on the said asset of the Director for both the loans.

    • Biru says:

      ROC charge registration is not required in this case because the property does not belong to the company and the charge will be registered only for the assets of the company given security.

  10. Arjav Trivedi says:

    CHG-1 would definitely be filed in case of Pledge, What is ‘Interest’ defined in Charge,,!!! According to me its the security intrest.A securityinterest is a type of property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the securityinterest certain preferential rights in the disposition of secured asset.
    Accordingly my interpretation to the definition of Charge is that it means an interest (which includes Pledge), or lien created on the property or assets of a Company

  11. Shantanu Bist says:

    Can a charge be create thru Promissory Note.

  12. Bhavesh says:

    Hi… Need help and clarification.
    If a Pvt Ltd company has registered office at Mumbai but factory an all other operations are at silvassa… Will client have to pay stamp duty on form chg 1 for cc and term loan as per silvassa or as per Maharashtra stamp act

  13. Priya Sharma says:

    Suppose, XYZ (P) Ltd. registered under companies act, 2013 (Solar Company) is into power supply by renewable source of energy to its clients or execute power projects on behalf of our clients.

    One of our client issued LC in favour of M/s XYZ in their current account rather giving any advance payment for execution of power project.

    Do we need to register a charge on LC issued in favour of M/s XYZ Pvt. Ltd.?

  14. DEEPAK TOSHNIWAL says:

    DEAR SIR

    Which types of documents required for filing of CHG-1, (MODIFICATION )

  15. Manoj Kumar says:

    Hii my question is if securities are given as security for taken loan, registration is mandatory or not ???

  16. AAKASH says:

    Dear Sir,

    Can you please tell me that whether the loan taken against corporate guarantee is a secured loan??

  17. AAKASH says:

    sir,

    can you please tell me that whether the loan taken against corporate is a secured loan?

  18. Anuj Kumar Rana says:

    I am not a commerce background just want to know the merits and demerits of charge creation or thr requirements of its.

  19. Sharad Mohan Krishna says:

    If the directors hypthecate their personal property for taking a loan for company business, is that charge also to be registered?

  20. Ashish says:

    Is creation of charge applicable on all assets and all kind of loans and mortgages or are some assets and loans are exempted from creation of charge?

  21. Priyanka says:

    No, But a declaration in CHG-10 should be filed in this case.

    As Certificate is generated need not to worry

  22. Kailansh Gupta says:

    Whether Charge will be Created on Fixed Deposit Given for Letter of Credit / bank Guarantee .

  23. Kailansh Gupta says:

    Charge will be Created on Fixed Deposit given as Margin Maoney for Letter of Credit / Bank Guarantee.

  24. Name says:

    what happens if the chargeholders name is entered wrong?

  25. Priyanki says:

    If we file Application for condonation of delay, and if Central Government denied to condone the delay. then what is next??

  26. Akansha Mittal says:

    Dear Sir,

    My company create a charge and is not able to file within 30 days but it filled before 300days, so so we still required to file petition to RD, as certificate of registration of charge is generated.

    kindly advice.

  27. NAINA JAIN says:

    Could you please clarify on the procedure for seeking condonation for failure to intimate to ROC the Satisfaction of charge within 30days. Which forms and what attachment are required? Whether any petition needs to be dispatched physically to the RD and ROC.

    Thanks 🙂

  28. raj says:

    yes it will require to file CHG-I

  29. Yogesh Parswani says:

    Sir How can you say that filing of charge is not required against Fixed Deposits because there may be a case where FD can be treated as undertaking of the company?

  30. Amarpuri says:

    Dear Kanwaljit, This form is STP form and the certificate is generated at the time of making payment of the challan.
    It is approved when we make payment.

  31. narendra k agarwal says:

    Sir,
    Is there is any time limit by when the ROC should issue certificate for Registration of charge? Also for modification and satisfaction of charge?

    Regards,
    Narendra K Agarwal

  32. kanwaljit singh says:

    Dear Sir,

    Our company has taken loan for the purchase of Innova car in the name of company, is it required to file e-form CHG-1 for this or not???

    please advice

    • Yogendra Arora says:

      Hi Mr Dinesh
      Please confirm if company has taken 2 cars then can 1 form can be filed for both cars or separate form required for each .
      If yes single form can be filed then please confirm is any limits for 1 form or not.

      Regards

      Yogendra Arora

    • Biru says:

      If the car is hypothecated for the loan, then definitely Chg-1 to be filed to register the charge. Because any of the property of the company given as security has to be filed with registrar for creation of charge on it.

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