While running business, whenever companies are short of capital and where there is a need to enhance the growth and to increase the capital, the simplest way is company borrows money from financial institutions or banks keeping its security as collateral. In this event charge is created for securing loans or debentures by way of mortgage on the assets of the company.
The main purpose of registration of charge is to give notice to the Registrar of Companies (RoC) and also to the people who advance money to the company about the encumbrance created on the assets of the company. Chapter VI of Company Act, 2013 (the CA, 2013) governs the registration of charges (Section 77 to 87).
1. WHAT IS CHARGE?
2. TYPES OF CHARGES?
Ref: Maturi U. Rao v. Pendyala (A.I.R 1970 A.P 225) In this case, it was held that when floating charge crystallizes it becomes fixed and the assets comprised are subject to the same restrictions as the fixed charge.
OVERVIEW OF CHAPTER VI – REGISTRATION OF CHARGES
> Section 77: Duty to Register Charges, etc.:
1. Whose duty to register the charge: Section 77 cast the duty to register the charge on the Company which creates such charge.
2. What type of charge to be register:
3. Procedure to register the charge:
4. In which form:
5. What if delay in registering within 30 days;
Registrar may, on an application by the company, allow such registration to be made:
Provided further that if registration is not made within the period specified:
6. Subsequent registration of a charge shall not prejudice any right acquired in respect of any property before the charge is actually registered.
7. Issue of certificate of registration:
8. No charge created by a company shall be taken into account by the liquidator or any other creditor unless it is duly registered but shall not prejudice any contract or obligation for the repayment of the money secured by a charge.
Ref: ONGC Ltd v official liquidator of Ambica Mills Co Ltd (2006)
On failing to prove ONGC as secured creditor it was held that ONGC couldn’t be treated as a secured creditor, but it has also noted in the same case that the fact that it is not secured creditor doesn’t mean that charge is void nor debt is not recoverable.
> Section 78: Application for registration of charge by the charge holder:
1. Option to register the charge by charge holder:
2. However it shall be noted that company will still be liable in respect of any offence under this Chapter.
3. The charge holder shall be entitled to recover from the company the amount of any fees or additional fees paid by him to the Registrar for the purpose of registration of charge.
> Section 79 : Section 77 to Apply in Certain Matters:
The provisions of section 77 relating to registration of charges shall, so far as may be, apply to—
1. a company acquiring any property subject to a charge within the meaning of that section; or
2. any modification in the terms or conditions or the extent or operation of any charge registered under that section.
> Section 80: Date of Notice of Charge:
Where any charge on any property or assets of a company or any of its undertakings is registered under section 77, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration.
> Section 81: Register of Charges to be kept by Registrar:
1. The particulars of charges maintained on MCA shall be deemed to be the register of charges for the purposes of section 81 read with Rule 7 of the Companies (Registration of Charges) Rules 2014.
2. The register shall be open to inspection by any person on payment of fee.
> Section 82: Company to Report Satisfaction of Charge:
1. Within 30 days from the date of payment or satisfaction in full of any registered charge, Company shall give intimation to registrar in form CHG-4. Provided the same can be filed within 300 (30+270) days with additional fees. If company fails to file within 300 days then it shall file the form CHG-8 for condonation of delay.
(It shall be noted that CHG-8 can be filed for condonation w.r.t. creation, modification, satisfaction as the case may be)
2. Once the Registrar enters a memorandum of satisfaction of charge in full, he shall issue certificate of registration of satisfaction of charge in Form No.CHG-5.
> Section 83: Power of Registrar to Make Entries of Satisfaction and Release in Absence of Intimation from Company:
In the absence of intimation from company and on being satisfied, Registrar have a power to enter Memorandum of satisfaction in Register of Charge.
> Section 84: Intimation of Appointment of Receiver or Manager:
1. If any person obtains an order for the appointment or appoints (w.r.t power given under instrument) a receiver or manager for managing the property, subject to a charge, of a company, then he shall give intimation of such appointment to the company as well as to Registrar.
2. Such intimation shall be given in form CHG-6 within a period of thirty days from the date of the passing of the order or of the making of the appointment. (Also at the time of cessation)
3. Registrar shall register the particulars of such receiver/manager.
> Section 85: Company’s Register of Charges:
Every company shall keep at its registered office a register of charges in form CHG-7 and shall be open for inspection in business hours for any members and creditors without payment or by any other person on payment of such fees as may be prescribed.
> Section 86: Punishment for Contravention:
1. If any company contravenes any provision of this Chapter:
2. Recently pursuant to recommendation from the Company Law Committee, the Companies Amendment Bill, 2020 has been introduced which majorly aims to decriminalization of certain offenses and to improve the ease of doing business.
3. With this bill section 86 has also been amended and now the offence w.r.t. this chapter is now been kept civil wrong and changes made from fine to penalty to make it in house adjudication by Registrar or Regional Director.
4. Wherein section 86(2) states that 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.
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