This Article is as per THE COMPANIES (AMENDMENT) ACT, 2019, hereinafter referred to as the Act.
When a company requires funds, financial assistance, working capital finance as loan or debt, or to raise capital for financing large scale projects and expanding its business they certainly approach the banks and the financial institution for the same. On the other hand the banks and the financial institution requires security (i.e., property, vehicle, etc.,) for the loan / fund provided.
If a proper security is created over the assets of the company, then the bank or financial institution can take possession of the assets secured and conduct sale, to repay the loan. The Companies Act, 2013 requires all companies to file the requisite particulars with the ROC for all security created over the assets of the company. The process of creating a security over assets of the company is referred to as creation or registration of charges. In this article, we look at all aspects of charge registration in a company.
As defined in the Companies Act, 2013, (“Act“) “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.
The Companies Act, 2013 prescribes for registration of charges of Companies with the Registrar of Companies. The provisions for registration of Charges has be given under chapter VI from Section 77 to 87 and Companies (Registration of Charges) Rules, 2014.
The provisions of the Act relating to registration of charges shall, so far may be, apply to a company acquiring any property subject to a charge or any modification in the terms or conditions or the extent or operation of any charge registered within the meaning this Act; Where a charge is registered with the Registrar of Companies, he shall issue a certificate of registration of such charge to the company and/ or to the person in whose favor the charge is created.
Form and manner of Registration
According to Section 77(1) of the Act, it is 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 signed by the company and the charge-holder together with the instruments, if any, creating such charge in Form CHG-1 and CHG-9(in case of Debentures) as the case may be, with the Registrar of Companies within thirty days of its creation.
The application for registration of charge is to be submitted to the Registrar of Companies in such form, on payment of such fees and in such manner as prescribed in the Companies (Registration of Charge) Rules, 2014.
For registration of charge as provided in Section 77(1), Section 78 and Section 79 of the Act, the particulars of the charge (together with a copy of the instrument, if any, creating or modifying the charge) shall be filed with the Registrar of Companies within a period of thirty days of the date of creation or modification of charge along with the fee, in Form No.CHG-1 (for other than Debentures) or Form No.CHG-9 (for debentures including rectification), as the case may be, duly signed by the company and the charge holder.
Extension of time for Registration
The proviso to Section 77(1) of the Act provides for extension of time for filing particulars for registration of charge.
Earlier i.e., before the commencement of Companies (Amendment), 2019, total time limit available with the companies to file the charge application is 300 days. Within 30 days of the charge creation with normal filing fee and after 30 days but within 270 days companies can file with the additional fees and any time further after 300 days of the charge creation they can file with permission of Central Government (Power delegated to RD) for condonation of delay (under section 87) in filing form for creation or satisfaction of charge. Rule 4 provides that the application for delay shall be made in Form No.CHG-1 and supported by a declaration from the company signed by its secretary or director that such belated filing shall not adversely affect the rights of any other intervening creditors of the company.
However with the commencement of Companies amendment Act, 2019. In case of Charges created before the commencement of the Companies (Amendment) Ordinance, , within a period of three hundred days of such creation. Provided further that in case the registration is not made within the period specified than within six months from the date of commencement of the Companies (Amendment) Ordinance, , on payment of additional fees; Or,
In case of charges created on or after the commencement of the Companies (Amendment) Ordinance, , within a period of sixty days of such creation, on payment of additional fees: provided further that in case the registration not made within the period specified above the Registrar may, on an application, allow such registration to be made within a further period of sixty days after payment of advalorem fees.
In simple words with the commencement of Companies amendment Act, 2019. A total of 120 days is available to register a charge with the Registrar of Companies failing which there is no way out for the same.
Note: Date of commencement of the Companies (Amendment) Ordinance, , is 2nd November, 2018
Effect of non-registration of charge
Section 86 of the Act, provides for punishment for contraventions of any provision of this chapter. It is stated that
1. 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.
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.
About the author: CS Kartikay Tripathi, Practicing Company Secretary from Delhi can be contacted at email@example.com.
Disclaimer: This write-up is meant for informational purpose only and does not purport to be advice or opinion, legal or otherwise, whatsoever. The information provided is not intended for advertising or soliciting. Kartikay Tripathi does not intend to advertise its services or solicit work through this write-up. The views expressed in the above article(s) / write-up are the personal views and understanding of the author.