A charge is a right created by any person including a company referred to as “the borrower” on its assets and properties, present and future, in favour of a financial institution or a bank, referred to as “the lender”, which has agreed to extend financial assistance.
In order to access loan capital, companies enter into agreements with lending institutions or banks and provide collateral in the form of assets. These collateral arrangements provide a level of security for the lenders, assuring them that their funds are protected and will be repaid as per the agreed terms.
According to section 2(16) of the Companies act 2013, 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.
When a company creates or modifies a charge on its property, whether within India or outside India, it is required to register that charge with the Registrar within 30 days. The registration process involves submitting relevant information about the charge along with a copy of the instrument signed by the company and the charge holder. The specific form to be used depends on the type of charge:
For charges other than debentures, the company is required to use the CHG-1 form for registration purposes.
In the case of debentures, the company should use the CHG-9 form for registration.
The charge register, which is maintained by the member company, should be recorded using the CHG-7 form.
Registration with the ROC, should follow the procedure detailed below:
1. Where the special resolution is passed as required under section 180 of the Companies Act, 2013, form MGT14 of the Companies (Management and Administration) Rules, 2014 is to be files with the registrar.
2. File particulars of the charge with the concerned Registrar of Companies within thirty days of creating the Form No.CHG -1 (for other than Debentures) or Form No.CHG - 9 (for debentures including m No.CHG - 9 rectification), as the case may be.
3. Attach the following documents with e-form No. CHG9/ CHG -1:
A certified true copy of every instrument evidencing any creation or modification of charge. In case of joint charge and consortium finance, particulars of other charge holders.
4. Payment of fees can be made online in accordance with Annexure ‘B’ of Companies (Registration offices and fees) Rules, 2014. Electronic payments through internet can be made either by credit card or by internet banking facility.
5. In case of delay of registration, the same shall be made in Form No.CHG-10 and supported by a declaration form -10 the company signed by its secretary or director that such belated filing shall not adversely affect rights of any other intervening creditors of the company.
6. Verification of every instrument evidencing any creation or modification of charge, where the instrument or deed relates solely to the property situated outside India, the copy shall be verified by a certificate issued either under the seal of the company, or under the hand of any director or Registration of Charges company secretary of the company or an authorized officer of the charge holder or under the hand of some person other than the company who is interested in the mortgage or charge.
7. Verification of every instrument evidencing any creation or modification of charge, where the instrument or deed relates, whether wholly or partly, to the property situated in India, the copy shall be verified by a certificate issued under the hand of any director or company secretary of the company or an authorized officer of the charge holder.
8. Where a charge is registered with the Registrar obtain a certificate of registration of such charge in Form No.CHG2. Where the particulars of modification of charge is registered the Registrar shall issue a certificate of modification of charge in Form No. CHG-3.
9. A company shall within a period of thirty days from the date of the payment or satisfaction in full of any charge registered, give intimation of the same to the Registrar in Form No.CHG-4 along with the fee as prescribed in with -4 Annexure ‘B’ of Companies (Registration offices and fees) Rules, 2014.
10. Where the Registrar enters a memorandum of satisfaction of charge in full obtain a certificate of registration of satisfaction of charge in Form No.CHG-5.
11. Incorporate changes in relation to creation, modification and satisfaction of charge in the register of charges maintained by the company in Form No. CHG.7 and m No. CHG.7 enter therein particulars of all the charges registered with the Registrar on any of the property, assets or undertaking of the company and the particulars of any property acquired subject to a charge as well as particulars of any modification of a charge and satisfaction of charge. Such register is to be kept at its registered office of the company.
12. The register of charges shall be preserved permanently and the instrument creating a charge or modification thereon shall be preserved for a period of eight years from the date of satisfaction of charge by the company.
13. Where the satisfaction of the charge is not filed with the Registrar within thirty days from the date on such payment Registration of Charges 13 of satisfaction, an application for condonation of delay shall be filed with the Central Government in Form No.CHG-8 along with the fee as prescribed in with Annexure ‘B’ of Companies (Registration offices and fees) Rules, 2014.
16. Where the instrument creating or modifying a charge is not filed with the Registrar within a period of three hundred days from the date of its creation (including acquisition of a property subject to a charge) or modification an application for condonation of delay shall be filed with the Central Government in Form No.CHG-8 along with the -8 fee as prescribed in with Annexure ‘B’ of Companies (Registration offices and fees) Rules, 2014.
According to Section 77 of the Companies Act, 1956, all types of charges created by a company are to be registered by the ROC, where they are non-compliant and are are not filed with the Registrar of Companies for registration, it shall be void as against the liquidator and any other creditor of the company.
This does not, however, mean that the charge is altogether void and the debt is not recoverable. So long as the company does not go into liquidation, the charge is good and may be enforced. Void against the liquidator means that the liquidator on winding up of the company can ignore the charge and can treat the concerned creditor as unsecured creditor. The property will be treated as free of charge i.e. the creditor cannot sell the property to recover its dues.
Void against any creditor of the company means that if any subsequent charge is created on the same property and the earlier charge is not registered, the earlier charge would have no consequence and the 10 Registration of Charges latter charge if registered would enjoy priority. In other words, the latter charge holder can have the property sold in order to recover its money. Thus, non-filing of particulars of a charge does not invalidate the charge against the company as a going concern. It is void only against the liquidator and the creditors at the time of liquidation. The company itself cannot have a cause of action arising out of nonregistration
If any company contravenes any provision , 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 twentyfive thousand rupees but which may extend to one lakh rupees, or with both.
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