A company’s borrowings are often backed by securities, on the strength of which loans are given by the banks and financial institutions. The security is given for securing loans or debentures by way of mortgage on the assets of the company when the Charge is created. The Companies Act, 2013 covers the provisions relating to registration, modification, the satisfaction of Charges, consequences of failure in registration inclusive of delay in registration.
The main purpose of registration of a Charge is to give notice to the Registrar of Companies (“RoC”) and to people who intend to advance money to the company about the encumbrance created on the assets of the company. The prospective lender may inspect the index of Charges and forms on the Ministry of Corporate Affairs portal.
“Section 2(16) of the Companies Act, 2013 defines “Charge” as 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.”
In simple terms, a Charge is a right created by a company i.e. “Borrower” in favour of a financial institution or a bank or any other lender, i.e. “creditor” who has agreed to extend financial assistance to the company on its assets or properties or any of its undertakings present and future.
On the basis of the nature of the Charge, its kinds may be as follows:
On the basis of the conditions of the Charge, its kinds may be as follows:
Section 77 to 87 of the Companies Act 2013 provides the procedure for the registration of Charges.
Every company, creating or modifying a Charge on its property, assets or undertakings, whether it is tangible or intangible situated within or outside India, shall register the particular of Charge with the Registrar within 30 days of such creation by applying Form No. CHG-1 (for other than debentures) and Form No. CHG-9 (for debentures).
Along with the Form CHG-1 or CHG-9 as the case may be, the documents such as a certified true copy of every instrument evidencing creation or modification of the Charge, particular of other Charge holders in case of joint Charge and consortium finance, and in case of acquisition of property which is already subject to Charge instrument evidencing such acquisitions, are filed.
Payment of fees can be made online in accordance with Annexure B of Companies (Registration offices and fees) Rules, 2014.
If the particulars of the Charge is not registered with the Registrar within the prescribed period of 30 days then the extension of time may be sought by filing Form 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.
The application for extension shall be allowed in case of Charge created before the commencement of the Companies (Amendment) Ordinance 2019 within a period of 300 days and on or after the commencement of the Companies (Amendment) Ordinance 2019 within 60 days upon payment of additional fees as prescribed.
Further, if the Charge created is not registered within the condoned 300 days or 60 days then the Charge holder shall file Form No. CHG-8 with the central government for further condonation of delay of 300 days if the Charge was created before the commencement of the Companies (Amendment) Ordinance 2019 and 60 days if the Charge was created on or after the commencement of the Companies (Amendment) Ordinance 2019.
Once the Charge is registered, Registrar will issue a certificate of registration of such Charge in Form No. CHG-2 and if the particulars of modification of Charge are registered with the Registrar, then the Registrar shall issue a certificate of modification of Charge in Form No. CHG-3.
The company shall within the period of 30 days intimate the Registrar of companies through Form CHG-4 along with the fee as prescribed in Annexure B of Companies (Registration offices and fees) Rules, 2014. The Registrar shall enter the memorandum of satisfaction of Charge and issue the certificate of registration of satisfaction of Charge in Form No. CHG-5.
Further, the company shall incorporate the changes in the creation, modification or satisfaction of the Charges in the form no. CHG-7 in the Register of Charges maintained by the company.
Further, if the Charge satisfied is not registered within the condoned 300 days or 60 days then the Charge holder shall file Form No. CHG-8 with the central government for further condonation of delay of 300 days if the Charge was created before the commencement of the Companies (Amendment) Ordinance 2019 and 60 days if the Charge was created on or after the commencement of the Companies (Amendment) Ordinance 2019
Non-registration of the Charges with the Registrar of Companies shall not invalidate the Charge created but the same shall not be taken into account by the liquidator appointed under the Companies Act, 2013 or the Insolvency and Bankruptcy Code, 2016 on winding up of the company and the creditor. However, this does not prejudice any contract or obligation for the repayment of the money secured by the Charge.
Section 86 of the Companies Act,2013 provides for the punishment and contraventions of Section 77. If the company defaults the provision, it shall be punishable with a fine, not less than one lakh rupees and which may extend to 10 lakh rupees. If the officer of the company is in default then he shall be punishable with imprisonment for a term which may extend to six months or with fine not less than twenty five thousand rupees which may extend to one lakh rupees or with both.