Charge as per section 2(16) of Companies Act, 2013 refers to creation of interest or a right on a property or asset of a company or any of its undertaking as a security against loan provided to the company in respect of such interest.

Charge is created by Companies who are in need of financial assistance for making their companies productive and in doing so creating any right or interest in assets of companies. Charge also includes mortgage. Charge is created so that the financial institutions such as banks have security for the loans provided by creation of charge on assets of company and having it registered with the Registrar.


Hypothecation refers to charge created on any movable property wherein the borrower has the possession of the property but the creditor has the right to enforce and take possession and ownership of the said property in case of a default by the borrower. Therefore, in case of hypothecation, the borrower holds the asset on behalf of the bank. Though the terms of hypothecation agreement may entitle the bank to take possession of the goods and sell them in case of default, it is possible only when the borrower cooperates with the bank.

According to Section 2 in The Securitisation and Reconstruction of Financial Assets and enforcement of Security Interest Act, 2002, hypothecation means “a charge in or upon any movable property, existing or future, created by a borrower in favour of a secured creditor without delivery of possession of the movable property to such creditor, as a security for financial assistance and includes floating charge and crystallization of such charge into fixed charge on movable property”.

In the case of M/S Indian Oil Corporation vs M/S Nepc India Ltd., & Ors on 20 July, 2006 it was held that:

It makes no difference whether the charge created by the deed of hypothecation is a floating charge or a fixed charge. Where a specific existing property is hypothecated what is created is a ‘fixed’ charge. The floating charge refers to a charge created generally against the assets held by the debtor at any given point of time during the subsistence of the deed of hypothecation. For example, where a borrower hypothecates his stock-in-trade in favour of the Bank creating a floating charge, the stock-in-trade, held by the borrower as on the date of hypothecation may be sold or disposed of by the debtor without reference to the creditor. But as and when new stock-in-trade is manufactured or received, the charge attaches to such future stock- in-trade until it is disposed of. The creditor has the right at any given point of time to exercise his right by converting the hypothecation into a pledge by taking possession of the stock-in-trade held by the debtor at that point of time. 

Registration Process: –

A company creating a charge on its property situated within India or outside India shall register its charge with the Registrar within 30 days of creation or modification (in terms and conditions) of such charge along with particulars of Charge and a copy of instrument creating the charge signed by the Company and Charge-Holder in such Form specified below:

1. CHG-1: – For other than Debentures.

2. CHG-9: – For Debentures.

3. CHG-7: – Register of Charge (only to be maintained by company for its members).

Therefore, by the deed of hypothecation and following the same procedure as followed in the case of immovable property a charge is created and the applicability is the same as of charge. 


The article is written by Team Anupama Tripathi & Associates and solely for the purpose of education and comment, for more you can connect us # 8800839633 or #[email protected]

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Qualification: CS
Company: Anupama Tripathi & Associates
Location: New Delhi, Delhi, India
Member Since: 07 Apr 2021 | Total Posts: 19
Anupama Tripathi, the co-founder of Alliance Professional, she is a Company Secretary in Practice and pursuing Law from University of Delhi and did her graduation from Jesus & Mary Collage, University of Delhi. She has an experience of more than 5+ years. She did her internships from PSU liste View Full Profile

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June 2021