CHARGE
CHARGE - Companies act, 2013
DEFINITION
OF CHARGE: ― As per Section-2 (16) 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;
Principle rule of Creation of Charge is that “Charge will be creating on
the
Assets of the Company”, Assets as
defined in Schedule III of the CA-2013
PROVISIONS
OF CHARGE GIVEN UNDER CHAPTER VI OF COMPANIES ACT 2013 COVER THE SECTION- 77 –
87.
NEED
FOR CREATING A CHARGE ON COMPANY’S ASSETS:
Almost all the large and small companies
depend upon share capital and borrowed capital for financing their projects.
Borrowed capital may consist of funds raised by issuing debentures, which may
be secured or unsecured, or by obtaining financial assistance from financial institution
or banks.
The financial institutions/banks do not
lend their monies unless they are sure that their funds are safe and they would
be repaid as per agreed repayment schedule along with payment of interest. In
order to secure their loans they resort to creating right in the assets and
properties of the borrowing companies, which is known as a charge on assets.
This is done by executing loan agreements, hypothecation agreements, mortgage
deeds and other similar documents, which the borrowing company is required to
execute in favour of the lending institutions/ banks etc
Type of
Charges to be registered:
Old Act: Section 125 specifies only 9 types
of charges to be registered.
New
Act: Section
77 states that Companies are required to register ALL TYPES OF CHARGES, with ROC within 30 days of its
creation.
- within
or outside India,
- on
its property or assets or any of its undertakings,
- whether
tangible or otherwise, and
- situated in or
outside India
For Creation of Charge
Form CHG-1 will be filed with fees prescribed under Act. Form should be signed
by the Company and the Charge-holder and should be filed together with
instrument creating charge.
ADDITIONAL
PERIOD TO REGISTER THE CHARGE:
Section 77- ROC may on
application by the company, allow the registration of charge within 300 days
(30 days + additional period of 270 days). If form will file after 30 days then
form will file with additional fees.
Application
to be supported by a declaration in Form CHG-10 from the CS or Director that
such belated filing will not adversely affect the rights of any creditors of
the company.
Rule 4(2) chapter VI
DUTY OF
REGISTRATION OF CHARGE:
v As per
Section 77 it is duty of Company to Create charge.
v As per
Section 78 if Company fails to file form for registration of charge then, the
person in whose favour charge is created will file form for creation of
charge. The person is entitled to
recover from the company the amount of fees.
But
before filling of form person will give 14 days’ notice to Company. If company
doesn’t register the charge or show sufficient cause then person himself will
file the form with ROC.
This
is not responsibility of Person (in whose favour charge is created) to file
form. Therefore if company fail to file form for registration of charge and
person also not filed form then person will not liable to pay any penalty.
CERTIFICATE
OF REGISTRATION OF CHARGE:
After filling of Creation of charge ROC
will issue a certificate of registration of charge in form CHG-2. The
certificate issued by the Registrar under CHG-2 shall be conclusive evidence
that the requirements of Chapter VI of the Act and the rules made there under
as to registration of creation of charge, as the case may be, have been
complied with.
TIME LIMIT
FOR FILLING FOR CREATION OF CHARGE
CONDONATION
OF DELAY FOR REGISTRATION OF CHARGE:
v
Where
the instrument creating
or modifying
a charge is not filed within a period of Three
Hundred Days from the date of its creation or modification the Registrar shall not register the
same unless the delay
is condoned by the Central Government.
v
Where
the instrument satisfaction of the charge is not
filed within Thirty Days from the
date on which such payment of satisfaction, the Registrar shall not register the
same unless the delay is condoned by the Central Government.
v
The
application for condonation of delay shall be filed with the Central Government in Form No.CHG-8 along with the fee. [ By
Notification F. No. 1/6/2014-CL.V Dated: 21-5-2014 THIS POWER HAS BEEN DELEGATED TO REGIONAL DIRECTOR)
v
The
order passed by the Central Government under sub-section (1) of section 87 of
the Act shall be required to be filed with the Registrar in Form No.INC.28.
MODIFICATION
OF CHARGE:
Provisions
of Modification of charge are completely same as provisions of Creation of
Charge. After filling form for Modification of Charge registrar will issue
certificate for modification of charge in form CHG-3.
Any
modification in the terms or conditions or the extent or operation of any
charge registered under that section also required registration.
**WHETHER FUNDED
INTEREST IS MODIFICATION OF CHARGE?
Solu:
In Andhra Pradesh State Financial Corpn v. Guruvayurappan Swamy Oils, appellant
financial institution had created charge over properties of
company-in-liquidation in respect of principal amount plus interest. Some of
the interest was kept in a separate account called “Funded Interest Account”.
Hence, there is no modification of charge required to secure such funded
interest.
SATISFACTION
OF CHAREGE:
Charge
is created as security for loan or debentures or as security for some other
purpose. If the amount of loan is repaid or debentures are fully paid or other
purpose is fulfilled, there remains no necessity of the charge. This is called
satisfaction of charge.
As
per Section 82 – Form for Satisfaction of charge will be file in form CHG-4
within 30 days of satisfaction of charge. If company fail to file
form CHG-4 within 30 days of creation of charge then company have to go for condonation
of delay for satisfaction of charge.
CHARGES
FILING OF WHICH WITH ROC IS NOT NECESSARY:
·
Guarantee
of promoters doesn’t require Registration.
·
Charge
created by operation of law need not be filed
·
Negotiable
Instrument (Hundi) is not a ‘Charge’ and registration not required.
Pledge
is required to be filed for Registration:
Earlier
there was list of transaction on which charge was required to create. With the
enactment of the Companies Act, 2013, tire list of charges requiring
registration done away with. Thus, in the absence of a specific list of charges
to be registered, and the wide definition of the word “charge”, ‘pledges’ and
‘liens’ were also required to be registered.
The companies creating pledge over
shares are compulsorily required to register the charge, which was not the case
with its predecessor. This is unfair, for example, there is absolutely no
sanctity in registration of a pledge as a pledge is a possessory security
interest and the asset is already with the lender. A pledge on movables neither
creates an interest or a lien but rather is a special property.
EFFECT
OF REGISTRATION OF CHARGE:
A.
Maintain Register of
Charge by ROC: As per Section- 81 ROC
will maintain Register of Charges in respect of each company, containing
particulars of all charges registered
B.
Inspection of Register
of Charge: The
Register of charges maintained by ROC is open for inspection by any person on
payment of prescribed inspection fees.
C.
Deemed Notice:** Any person intending
to lend moneys or who has lent money to a company can know which of company’s
assets are already charged and extent to which type are charged.
D.
Charge binding even on
subsequent purchaser: Provisions relating to charge apply even to a subsequent
purchaser, even if he had not purchased property directly from company. The
purchaser is required to make reasonable enquiries as to title of vendor.
PENALTY
FOR NOT FILING CHARGES:
If any company contravenes any provision
of this Chapter, 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 twenty-five thousand rupees but which may extend to one lakh rupees, or with
both.
EFFECT
OF NON REGISTRATION OF CHARGE:
As
per Section 77(3) If charge is not registered with ROC, the charge shall not be
taken into account by the liquidator or any other Creditor. [The words are
Registered’ and not ‘filed’. Thus, mere filing of charge with Registrar would
not be sufficient. It has to be actually registered by ROC and certificate of
registration should be issued.
However,
this is so only if company is under winding up. Otherwise, contract or
obligation for repayment of the money secured by charge is there even if charge
was not registered. 77(4)
REGISTER
OF CHARGE BY COMPANY:
a)
Every
company shall maintain, at registered office a register of charge in form No.
CHG-7.
b)
Copy
of the instrument creating the charge shall also be kept at the registered
office of the company along with register of charge- (Proviso of Section 85(1)
c)
The
entry in the registered authenticated by a director or secretary of the company
or the other person authorized.
d)
**Company
will maintain this register for life time of Company.
e)
**
Instrument creating charge or modification of charge shall be preserved for a
period of 8 year from the date of satisfaction of charge by the Company.
INSPECTION
OF REGISTER OF CHARGE: SECTION-85
a)
Register
of Charge and Copy of the entire instrument creating charge will be open for inspection
to Members and Creditor at the registered office of company, without any fee.
b)
The
registered will also be opened for inspection of any other person on payment of
prescribed fee.
c)
The
register and copies of instrument shall be opened during business hours.
PROCESS
OF CREATION/ MODIFICATION OF CHARGE IS AS UNDER:-
If a company has passed
special resolutions under Section 180(3)(c) of the Companies Act, 2013,
authorising its Board of directors to borrow funds for the requirements of the
company and under Section 180(1)(a) of the Companies Act, 2013, authorising its
Board of directors to create charge on the assets and properties of the company
to provide security for repayment of the borrowings in favour of the financial
institutions/banks or lenders and in exercise of that authority has signed the
loan documents and now proposes to have the charge, created by it registration
with the ROC, should follow the procedure detailed below
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.
·
Conduct
a Board meeting to arrive at a positive decision to avail the facility
including security of Charges. In the said business of availing facility,
authority to execute necessary documents is also required to be given.
·
File
extracts of the said resolution with the Registrar of Companies in form [1]MGT
14 within 30 days of its passing.
·
Execute necessary documents for availing the
facility including the security being given.
·
Make
entries in the register of Charges maintained in form CHG-7 forthwith after the
creation/ modification/ satisfaction and get it authenticated by Director or
Secretary of the company or any person authorized by the board.
·
Submit
form CHG-1 (for other than debentures) or Form CHG-9 (for debentures including
rectification) with the prerequisite fees within a period of 30 days from the
date of creation/ modification of charge.
·
Attach
the following documents with e-form No. CHG- 9/ CHG -1: 9/ 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. Instrument(s) evidencing creation or modification of charge in
case of acquisition of property which is already subject to charge together
with the instrument evidencing such acquisitions
·
After
due compliance, Registrar shall issue certificate of registration in form
CHG-2, where charge is registered under section 77(1) or 78 or in form CHG-3,
where charge is registered under section 79.
·
If CHG-1 (for other than debentures) or Form
CHG-9 (for debentures including rectification) is not being submitted within
the period of 30 days, however within the period of 300 days, prepare an
application for condonation in form CHG-10 which shall be supported by a
declaration by the secretary or director of the company that delay shall not
affect the rights of creditors. After due compliance, Registrar shall issue
certificate of registration in form CHG-2, where charge is registered under
section 77(1) or 78 or in form CHG-3, where charge is registered under section
79.
·
Where
a charge is registered with the Registrar obtain a certificate of registration
of such charge in Form No.CHG- 2. Where the particulars of modification of
charge is 2 registered the Registrar shall issue a certificate of modification
of charge in Form No. CHG-3
·
If
CHG-1 (for other than debentures) or Form CHG-9 (for debentures including
rectification) is after 300 days, prepare an application for condonation in
form CHG-8 and submit the same with Regional Director having territorial
jurisdiction over the registered office of the company under The Companies Act,
2013.
·
Pay
the requisite penalty imposed by the Regional Director having territorial
jurisdiction over the registered office of the company. Normally 15 days time
is being given for the payment of penalty.
·
After
payment of requisite penalty, submit the Chalans with Regional director office
with the covering letter containing request to issue and order allowing
condonation of delay.
·
Submit
the order issued by the regional director with the ROC within the stipulated
time given in the order itself in form INC 28.
·
After
the approval of the form INC 28, get the form CHG-1 (for other than debentures)
or Form CHG-9 (for debentures including rectification) approved. After due
compliance, Registrar shall issue certificate of registration in form CHG-2,
where charge is registered under section 77(1) or 78 or in form CHG-3, where
charge is registered under section 79.
PROCESS
OF SATISFACTION OF CHARGE IS AS UNDER:-
·
Gets
the letter of satisfaction from the bank containing declaration that there are
no dues towards the facility provided.
·
Conduct
a Board meeting to consider the letter of satisfaction and after taking note of
the same in the said board meeting pass the resolution containing authorization
to file form CHG-4 with letter of satisfaction as an attachment. It must be
noted that the said form CHG-4 is required to be submitted within 30 days of
satisfaction. The period of 300 days is applicable in case of
creation/modification of charges only and for satisfaction of charges, there is
no relaxation of time period.
·
Make
entries in the register of Charges maintained in form CHG-7 forthwith after the
satisfaction and get it authenticated by Director or Secretary of the company
or any person authorized by the board.
·
Submit
form CHG-4. After due compliance, Registrar shall issue certificate of registration
of satisfaction in form CHG-5.
·
If
CHG-4 is not being submitted within the period of 30 days, prepare an
application for condonation in form CHG-8 and submit the same with Regional
Director having territorial jurisdiction over the registered office of the
company under The Companies Act, 2013.
·
Process
same like above after filling of CHG-8.
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