Registration of Charges under Companies Act, 2013

Charge is the security given for securing the loan or debentures. Security can be provided wither by way of Mortgage/Pledge/Hypothecation.

There are two types of Charges

a) Fixed Charge:- Fixed charge mean charge which is created in respect of assets which is identified & ascertainable at time of in creation of charge. It is created in respect of specific asset of the company. Company loses its right to sell off such asset until loan is repaid in full. Normally it is created in respect of Term loan facility from the Banks. (Plant & Machinery , Land & Building)

b) Floating Charge:- Floating Charge mean charge which is created in respect of the Present & Future assets of company which is changing in normal course of business from time to time. It is not created in respect of specific property but cover property of fluctuating nature like Stock, Debtors.(Working Capital Facilities). It become crystallise & fixed only when

• Company goes into liquidation
• Company cease to carry on its business
• Creditor/debenture Holder enforce their security.
• On the happening of any event as specified in deed of agreement.

Registration of Charges (Sec 77)

Company shall file the statement of particulars of every charge created with the ROC in form CHG 1 within 30 Days from the date of creation of charge on the properties of the company along with deed/ instrument creating charge. (CHG 9 in case of Debentures). ROC has the power to condone the delay in filing statement of particulars of charge created upto 300 days from the date of creation of charge on properties of the companies. Beyond 300 days power vested with Central Government to condone the delay in registration of charges.

Effect of Registration of (Charges Sec 80)

Registration of Charge deemed to have notice to people who deal with the company in respect of such properties who is the subject matter of charge from the date of such registration.

Effect of Non-Registration of Charges

If charge which required registration but not registered shall have the following consequences:-

a) At time of liquidation, Creditors with unregistered charge will assume the status of unsecured creditors.

b) Security become void but it will not affect the contract/obligation of the company to repay the money.

c) Company shall be punishable with fine from 1lacs to 10lacs & every officer of the company shall be punishable with imprisonment for a term upto 6 months along with fine as may be prescribed. (Sec 86)

ROC Register of charges (Sec 81)

ROC has to keep a register of charges in respect of each company showing full particulars of charges created by the company which is open for inspection to any person.

Satisfaction of Charges(Sec 82)

On the payment of loan in full/ satisfaction of charge in full, Company shall be required to file form CHG 4 intimating the ROC along with no due letter so attached in form with in 30 Days from the date of satisfaction of charges in full. Only Central Government has the power to condone the delay in filing CHG 4 beyond 30 days.

Company Register of Charges (Sec 85)

Company is required to keep at its registered office a register in form CHG-7 containing particulars of creating/modifying/satisfaction of charges.

Condonation of delay/Power of Central Government to grant extension Sec 87)

If central government is satisfied that delay to do within prescribed time is

Accidental, is due to inadvertence or not in nature that prejudice the interest of creditors/shareholders & it is just and equitable to grant relief

Then Application in Form CHG-9 has to move forward to C.G along with following docs :-

a)     Copy of agreement/modifying/no due letter as case.

b)    Copy of Resolution so passed for borrowing the money by the company & creation of charges.

c)     Affidavit verifying the petition

d)    Memorandum of appearance along with board resolution authorizing one of the Director/C.S to appear before Central Government.

About the author  

CA Shushant Singhal is working in the domain of Corporate Finance, Taxation, Debt Syndication & Secretarial Advisory. He can be contact at ShushantSinghal@hotmail.com & at 7838169970.

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