Kashish Khattar is a fourth-year law student at Amity Law School, Delhi. This article revolves around Creation of Charges under the Companies Act, 2013. 

Introduction

Charge is defined in Section 2 (16) of the Companies Act, 2013 (“CA, 2013”) which basically says that charge can be –

(i) an interest or lien;

(ii) created on the property or assets of a company; and

(iii) any of its undertakings or both as security and includes a mortgage.

The provisions concerning charge are given under Chapter VI of the CA, 2013 and are spread through Section 77 to 87 and Charges are also governed by the Companies (Registration of Charges) Rules, 2014.

Charge is defined in the Transfer of Property Act, 1882 also where Section 100 says that an immovable property of one person is by act of parties or operation of law made security for the payment of money to another and the transaction does not amount to a mortgage, the latter person is said to have a charge on that particular property.

Typically, all large and small companies mainly depend upon share capital and borrowed capital for financing their projects. Borrowed capital for a company can be funds which are mainly raised by issuing debentures, which may be secured or unsecured or by obtaining assistance from a financial institution or banks. Provisions of Chapter VI also applies mutatis mutandis to One Person Company. Mutatis mutandis simply means that some changes will be made, but that will not affect the main point at issue.

There are some forms which are used in the e-filing of the Charge, the fee is paid in accordance with Annexure ‘B’ of Companies (Registration offices and fees) Rules, 2014. The list of forms is as follows:-

Particulars of Charges – Features of a Charge

The following details are required to be filed with the Registrar:

(a) date and description of the instrument creating charge;

(b) total amount secured by the charge;

(c) date of the resolution authorising the creation of the charge;

(d) general description of the property charged;

(e) a copy of the deed/instrument containing the charge duly certified or if there is no such deed, any other document evidencing the creation of the charge to be enclosed;

(f) list of the terms and conditions of the loan; and

(g) name and address of the charge holder.

Kinds of Charges

They are mainly of two kind –

1. Fixed charge: Which is identified with a specific and clear asset at the time of the creation of such charge. The company is not supposed to transfer this kind of a charge unless the charge holder is paid off his due for the same.
2. Floating charge: Floating or the circulating nature of properties of a company, like sundry debtors or stock in trade, can be deemed as floating charges. The nature of these kinds of charges keeps changing from time to time. The floating charge can convert into a fixed charge if there is a crystallisation of the company or the undertaking cease to be a going concern.

Types of charges to be registered

Section 77 of the CA, 2013 says that the company has to register all types of charges with the Registrar of Companies (“ROC”) within 30 days of the creation of that particular charge. It does not matter if the charge created is –

(i) within or outside India;

(ii) on its property or assets or any of its undertakings;

(iii) whether tangible or otherwise; and

(iv) situated in or outside India.

Section 77 in fact also says that the additional period can extend to 300 days (30 days in addition with 270 additional days). If the form is filed after 30 days of the usual registration period, it has to be paid with an additional fee. An application has to be filed in CHG- 10 from the CS (Company Secretary) or Director of the company that this late filing will not adversely affect any of the creditors involved in this.  

The duty of registration of the charge

According to Section 77, it is the duty of the company to register charge.

According to Section 78, if the company for any reason fails to register for the charge, the person in whose favour the charge is being created will form for a file of charge. The person has the right to recover the registration fee from the company. However, the person filing for the charge has to give a notice of 14 days to the company.

Modification of charge

Provisions regarding the modification are same as the creation of charge. After filing the form for the modification of charge, ROC will issue the certificate for modification of charge in form CHG-3.

Satisfaction of charge

A charge is typically created as the security for loans or debentures or as some kind of a security. If the amount of that particular loan is repaid or debentures have been fully paid or the primary purpose is fulfilled, there is no need of that charge. This is known as the satisfaction of charge. Section 82 states that form for the satisfaction of charge will be filed in form CHG-4.

Particular Charges where filing with the ROC is not required

1. Guarantee;
2. Due to the operation of law;
3. Hundi which is a Negotiable Instrument is not required to be registered; and
4. Pledge with an exception of companies being required to register pledge over shares.

Effect of registration of this charge

Register of Charge by ROC: According to Section 81, the ROC has to maintain a register of charges with regards to all the companies containing all the particulars regarding the charge. The register is open for inspection by any person on the payment of some prescribed fee.

Deemed Notice: Any person who is thinking of lending money or who has lent money to a company can know which of the company’s assets are charged and the extent of this charge.

Effect of non-registration of charge

According to Section 77, If the charge is not registered with the ROC, the charge will not be taken into account by the liquidator or any other creditor. This is only the case when the company is winding up, the company is obligated to repay the money even if the charge was not registered. The penalty for contravening any provision of the CA, 2013 are that the company shall be punishable with a fine which will not be less than Rs. 1 Lakh and may extend to Rs. 10 Lakhs and every officer shall be punishable with fine which will not be less than Rs. 25000 which may also extend to Rs. 1 Lakh or with an imprisonment of a term which may extend to six months or both.

Register of Charge by Company

1. Every company is expected to maintain at their registered office, a register of charge in the form CHG-7.
2. Copy of the instrument creating the charge has to be kept at the registered office of the company along with the register of charge.
3. The entry in the register has to be authenticated by a director or secretary of the company or any other authorised person.
4. The company has to maintain this register for the lifetime of the company and the instrument creating this charge is expected to be kept for a period of 8 years from the date of satisfaction of the charge by the company.
5. Inspection: Register of charge and copy of the instrument is open for inspection to the members and creditors at the registered office of the company without any fees. The register is also open to inspection by any other person on payment of the some prescribed fees. The register and copies of the instrument will be opened during business hours of the company.