The charge is created on the property or assets of the borrowing company. Two parties are involved in the creation and registration of charge – one is the creator of the charge (borrower), and the second is the charge-holder (the one who lends money). Applicable provisions for registration of charge are defined under chapter VI of the Companies Act, 2013.
In this law note, you will study the process and requirement of the registration of charge.
Note: If you do not know about charge, please make sure you read our law note charge under the Companies Act.
- Duty to Register Charges (Section 77)
- Application for Registration of Charge (Section 78)
- Section 77 to Apply in Certain Matters (Section 79)
- Date of Notice of Charge (Section 80)
- Register of Charges to be Kept by Registrar (Section 81)
- Company to Report Satisfaction of Charge (Section 82)
- Power of Registrar to Make Entries of Satisfaction and Release in the Absence of Intimation From the Company (Section 83)
- Intimation of Appointment of Receiver or Manager (Section 84)
- Company’s Register of Charges (Section 85)
- Punishment for Contravention (Section 86)
Duty to Register Charges (Section 77)
As per section 77 of the Companies Act, 2013, it is the duty of a company to register the charge.
According to the Companies Amendment (Ordinance), 2019, once the charge is created, it has to be registered with the registrar of companies within 30 days from the date of creation. If the charge is not registered within 30 days, then an additional fee has to be paid by the company for registering the charge. Still, if a company has not registered the charge, they have the last chance to register it within the next 60 days, along with ad valorem fees. Overall, this means a company has a total of 120 days for registration of charge with the ROC (registrar of companies).
Note: Ad Valorem fees here mean that the value of additional fees will depend upon the loan amount for which the charge has been created.
Even after 120 days, if the company has not registered the charge, then further extension will be granted. Moreover, the company will be punished under section 86 of the Companies Act, 2013.
Registration of creation of charge is submitted to the ROC in form CHG-2, and any modification of charge is submitted in form CHG-3.
Once a charge is registered, ROC will issue the certificate of registration of such charge in the prescribed form and manner as may be prescribed to the one in whose favour the charge has been created.
Application for Registration of Charge (Section 78)
In case the company fails to register the charge as per the time provided in section 77 of the Companies Act, then the charge-holder has the power to give notice to the company for registering the charge. But still, if the company does not register the charge even after 14 days of notice, then the charge-holder has the power to register the charge with the ROC.
Section 77 to Apply in Certain Matters (Section 79)
Section 79 of the Companies Act, 2013 states that the provisions given under section 77 of the Companies Act, 2013 will apply to:
the companies who borrowed money and a charge has been created on their assets or property kept as security, or
if there is any modification or change in the terms or conditions of the already registered charge.
Examples of modification of charge include:
- Change in rate of interest.
- Change in the repayment time limit of the loan.
- Partial release of charge and release of some property.
Date of Notice of Charge (Section 80)
If any person wishes to acquire the property, assets, etc., of the company on which a charge is registered, then it will be assumed that the person already has notice (knowledge) of the registered charge on such property from the date of its registration.
Example: Tata motors has taken a loan from ICICI bank and kept their Bhopal office as security with the bank. The charge has been created and registered with the ROC on the Bhopal property of Tata motors. Now, Rajesh wants to buy the Bhopal property of Tata motors even though a charge has been created on that property. Here, it will be deemed that Rajesh has the knowledge or notice of charge created on the same property.
Register of Charges to be Kept by Registrar (Section 81)
The register of charges containing all the information of charges registered shall be maintained by the registrar of the companies (ROC) in the prescribed manner.
This register will be open for inspection, and any person can inspect it on the payment of prescribed fees. The particulars of this register will also be available on the Ministry of Corporate Affairs website.
Company to Report Satisfaction of Charge (Section 82)
Satisfaction of charge means the company will repay the borrowed amount to the charge holder and take his property or assets back, which were kept as security.
Within thirty days from the date of such payment or satisfaction, a company must inform the registrar (ROC) in the required form of the complete payment or satisfaction of any charge.
If the intimation given to the registrar is not signed by the charge holder, then the registrar will send a notice to the charge holder to record the satisfaction of the charge, and if no response has been received by the company within 14 days, then the registrar will order that the satisfaction of charge will be entered in the register maintained by him under section 81 of the Companies Act, 2013 and inform the company once it is done.
Power of Registrar to Make Entries of Satisfaction and Release in the Absence of Intimation From the Company (Section 83)
In case the registrar has not been informed about the satisfaction of charges, then under section 83 of the Companies Act, 2013, he has the power to make entries in respect of the satisfaction of charge and release of charge if he has evidence that proves that the borrowing for which the charge was created has been repaid and the property or asset kept as security has been released.
Intimation of Appointment of Receiver or Manager (Section 84)
In case of insolvency of a company, all the assets of a company will be collected, and the authorities or tribunal will send an officer known as the official liquidator or manager or receiver.
The person appointed as receiver shall give notice to the company and the registrar within 30 days from the date of passing such order, along with a copy of the order or instrument.
In normal circumstances, the power of selling assets of the company belongs to the company. But if the company becomes insolvent, then the company’s power to sell assets will lie upon a neutral person appointed by the company known as the official liquidator or receiver.
The notice of appointment of a receiver or a person for managing the property of a company, who has become insolvent, shall be filed with the registrar in the form CHG-6 along with the prescribed fees.
Company’s Register of Charges (Section 85)
According to this section, every company is also required to maintain the register of charges in the manner as may be prescribed. The register must include all the floating and fixed charges arising on the assets or property of the company. This register shall be kept at the company’s registered office, and entries made in this register shall be maintained according to the creation, modification, or satisfaction regularly.
The register of charges shall be open for inspection during business hours. The members and creditors of the company can inspect the register without any charges. If any other person wishes to inspect the registration, he can do so only after paying the prescribed fees.
Such register will be preserved permanently, and the charge or modification has to be preserved for 8 years after the charge has been satisfied.
Punishment for Contravention (Section 86)
If a company does not follow any of the provisions related to registration of charges provided under Chapter IV of the Companies Act, 2013, then such a company will be punishable with a fine of at least rupees one lakh extending up to rupees ten lakh and every office of the company involved in such default will be punished with a fine of at least rupees twenty-five thousand and may extend to rupees one lakh or imprisonment extending up to six months, or both.
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