GENERAL MEANING OF CHARGE ON ASSETS
The right of a lender to be paid from a borrower's assets, if the debt is not paid on time.
AS PER SECTION 2(16) OF 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.
NEED FOR CHARGE CREATION
The financial institutions/banks lend their monies on being satisfied that their funds are safe and would be repaid as per agreed repayment schedule along with payment of interest. In order to secure loans borrowing companies create right in the assets and properties, which is known as a charge on assets, done by executing loan agreements and other similar documents, in favour of the lending institutions/ banks etc.
COMPANIES ACT 2013 AND CHARGE
CHAPTER VI i.e. Registration of Charge containing sections 77 to 87 of companies Act 2013 deals with Charge. And Rules 1 to 12 of Companies (Registration of Charges) Rules, 2014, Companies (Registration of Charges) Amendment Rules, 2015 contains the various provisions related with charge.
DUTY TO REGISTER CHARGE
The duty to register charge is, on every company creating a charge, shall register within thirty days from the date of its creation. [As Section 77]
If the company fails to register the particulars of the charge with the Registrar within the period of thirty days of its creation or modification, such charge may be filed by the charge-holder. [As per Section 78]
TERRITORIAL LIMITS FOR REGISTRATION OF CREATED CHARGE
Any charge created within or outside India.
SUBJECT MATTER OF CHARGE CREATION
Any property or assets or any undertaking, whether tangible or otherwise, and situated in or outside India.
SIGNING OF PARTICULARS OF CHARGE
Particulars of Charge to be Signed by the company and the charge-holder together with the charge creating instruments, if any.
INTIMATION TO REGISTRAR
i. Every Company acquiring any property subject to charge or ;
ii. Every company modifying the terms or conditions or extent or operation of registered charge;
Shall intimate such acquisition or modification to Registrar within thirty days of the event in Form CHG-1.[As per Section 79]
VERIFICATION OF INSTRUMENTS EVIDENCING ANY CREATION OR
MODIFICATION OF CHARGE
As per Rule 3 sub rule (4) of Companies (Registration of Charges) Rules, 2014, A copy of every instrument evidencing any creation or modification of charge and required to be filed with the Registrar shall be verified as follows-
(a) 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, if any*, of the company, or under the hand of any director or company secretary of the company or an authorised officer of the charge holder or under the hand of some person other than the company who is interested in the mortgage or charge;
(b) 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 authorised officer of the charge holder. * As per Companies (Registration of Charges) Amendment Rules, 2015.
SATISFACTION OF CHARGE
[ As per Section 82]
Company shall give intimation of the payment or satisfaction in full of any registered charge to the Registrar in the form CHG-4, within a period of thirty days from the date of such payment or satisfaction.
The Registrar shall, on receipt of such intimation, sent a show cause notice to the charge holder calling upon him to show cause within time as may be specified in such notice not exceeding fourteen days, as to why payment or satisfaction in full should not be recorded as intimated to the Registrar.
If no cause is shown, by such holder of the charge, the Registrar shall enter memorandum of satisfaction in the register of charges kept by him and shall inform the company.
If any cause is shown, the Registrar shall record a note to that effect in the register of charges and shall inform the company.
Provided that the show cause notice shall not be required to be sent, in case the intimation to the Registrar in this regard is in the specified form and signed by the holder of charge.
POWER OF REGISTRAR TO MAKE ENTRIES OF SATISFACTION IN ABSENCE OF INTIMATION FROM THE COMPANY
[As per section 83 of the Act]
There may be times where a company may fail to send intimation of satisfaction of charge to the Registrar, registrar may enter in the register of charges memorandum of satisfaction, on receipt of evidence to his satisfaction that –
(a) The debt for which the charge was given has been paid or satisfied in whole or in part; or
(b) Part of the property or undertaking charged has been released from the charge or has ceased to form part of the company’s property or undertaking.
The Registrar shall inform affected parties within thirty days of making the entry in the register of charges.
TIME LIMIT FOR FILING CHG-1, CHG-9 AND CHG-4 WITH THE REGISTRAR
o Within thirty days from the date of its creation or modification or payment or satisfaction on payment of normal fee.
o Beyond thirty days within a period of three hundred days from the date of such creation or modification on payment of additional fees, if delay is condoned by Registrar.
Condonation of delay by Registrar: The Registrar may on an application by the company after thirty days but within a period of three hundred days of the date of creation of charge or modification of charge on payment of additional fee.
The application for delay shall be made in Form No.CHG-10 and supported by a declaration from 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. [As per Rule 4 of Companies (Registration of Charges) Rules, 2014]
o Beyond three hundred days of creation (including acquisition of a property subject to a charge) or modification and where the satisfaction of the charge is not filed within thirty days from the date on which such payment of satisfaction the company shall seek extension of time from the central government.[As per Rule 12 of Companies (Registration of Charges) Rules, 2014]
Condonation of delay by the Central Government: The Central Government on being satisfied may on the application of the company or any person interested and on such terms and conditions as it may seem just and expedient, direct that the time for the filing of the particulars or for the registration of the charge or for the giving of intimation of payment or satisfaction shall be extended or, as the case may require. [As per Section 87]
The application may be filed by the company or any other person interested with the Central Government in Form No.CHG-8 along with the fee.
The order passed by the Central Government shall be required to be filed with the Registrar in Form No.INC.28 along with the fee as per the conditions stipulated in the said order.
The provisions relating to condonation of delay shall apply, mutatis mutandis, to the registration of charge on any property acquired subject to such charge.
The power of condonation of delay is delegated to Regional Director by Notification F. No. 1/6/2014-CL-V Dated: 21-5-2014.
CERTIFICATE OF REGISTRATION BY REGISTRAR
After Registration of the particulars of Creation of Charge, the Registrar shall issue a certificate of registration of such charge in form CHG-2 to the company and, as the case may be, to the person in whose favour the charge is created.
After Registration of the particulars of modification of charge, the Registrar shall issue a certificate of modification of charge in Form No. CHG-3.
Where the Registrar enters a memorandum of satisfaction of charge in full, he shall issue a Certificate for satisfaction of charge in Form No.CHG-5.
CERTIFICATE OF REGISTRATION IS CONCLUSIVE EVIDENCE
The certificate of registration and certificate of modification of charge issued by the Registrar shall be conclusive evidence that the requirements of Chapter VI of Companies Act, 2013 and the rules made there under as to registration of creation or modification of charge, as the case may be, have been complied with.
EFFECT OF REGISTRATION OF CHARGE
Notwithstanding anything contained in any other law for the time being in force, Charge shall be taken into account by the liquidator or any other creditor after it is duly registered and a certificate of registration of such charge is given by the Registrar.
Unregistered Charge 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.
Unregistered Charge 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 latter charge if registered would enjoy priority.
NOTICE OF CHARGE
If any person acquires a property, assets or undertaking for which a charge is already registered, it would be deemed that he has complete knowledge of charge from the date the charge is registered.[As per Section 80]
POSITION IN CASE OF SUBSEQUENT CHARGE
When the same assets are charged for a second and subsequent times it is called as second or subsequent charge with the consents of earlier lending Institution, the charges of all the lending institutions ranks pari passu, i.e. on the same footing.
However, the earlier lending institution may not give its consent to the creation of second charge on the ground that the realisable value of the asset charged in its favour is not adequate to cover its loan and as such it cannot share its right of charge with the lending institutions which seek second and subsequent charges.
COMPANY’S REGISTER OF CHARGES
As per Section 85 of companies Act 2013, every company shall keep at its registered office a register of charges in form CHG-7.
Following particulars of charge shall enter in Register of Charge:
a. All the charges registered with the Registrar on any of the property, assets or undertaking of the company.
b. The particulars of any property acquired subject to a charge.
c. Particulars of any modification of a charge.
d. Particulars of satisfaction of charge.
The entries in the register of charges maintained by the company shall be made forthwith (immediately) after the creation, modification or satisfaction of charge, as the case may be.
A copy of the instrument creating the charge shall also be kept at the registered office of the company along with the register of charges.
All the entries in the register shall be authenticated by a director or the secretary of the company or any other person authorised by the Board for the purpose.
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.
Inspection of Register of Charge: The register of charges and the instrument of charges kept at the registered office by the company shall be open for inspection during business hours -
(a) by any member or creditor of the company without fees;
(b) by any other person on payment of fee. subject to reasonable restriction as the company by its article impose.
INTIMATION OF APPOINTMENT OF RECEIVER OR MANAGER
Any person, who appoint receiver or manager, by obtaining order or by power contained in instrument, shall give intimation to the company and Registrar of such appointment or cessation, of receiver or manager of the property subject to a charge, within a period of thirty days from the date of the passing of the order or of the appointment. Such intimation is to be filed with
Registrar in Form No. CHG. 6 along with fee. [As per Section 84]
PUNISHMENT FOR CONTRAVENTION
As per Section 86 of Companies Act, 2013, If any company contravenes any provision of Chapter VI of Companies Act, 2013.
The company shall be punishable with fine which shall not be less than 1 lakh rupees but which may extend to 10 lakh rupees and
Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than 25 thousand rupees but which may extend to 1 lakh rupees, or with both.
E-FILING UNDER CHARGE MANAGEMENT
PROCEDURE FOR REGISTRATION OF CREATION/ MODIFICATION OF CHARGE
a. Conduct a Board meeting to decide about taking financial assistance and securing payment of such financial assistance by creating charge on property or asset or any undertaking, in case creation of charge or to decide about the change in registered charge, in case of modification of charge and authorize any director of the company to execute necessary documents and filing of E-form with Registrar along with the instrument as attachment, if any.
b. If Required, Conduct General meeting and pass necessary special resolution as required under section 180 of the Companies Act, 2013 for borrowing together with already borrowed money in excess of aggregate of paid up Share capital and free reserves. Resolution is to be filed in form MGT 14 with the registrar.
c. Execute necessary documents for taking financial assistance including the security.
d. Submit Particulars of charge in E- form CHG-1 (for other than debentures) or E- Form CHG-9 (for debentures including rectification) within a period of 30 days from the date of creation/ modification of charge along with instrument with prerequisite fees. On approval of E-form, Registrar shall issue certificate of registration in form CHG-2, in case of creation of charge or in form CHG-3, in case of modification of charge.
e. If E-Form CHG-1 (for other than debentures) or E-Form CHG-9 (for debentures including rectification) is to be submitted beyond 30 days and within 300 days, Company shall prepare an application for condonation of delay by registrar in form CHG-10 which shall be supported by a declaration by the company that delay shall not affect the rights of creditors and signed by secretary or director of the company. On approval Registrar shall issue certificate of registration in form CHG-2, in case of creation of charge or in form CHG-3, in case of modification of charge.
f. If E-Form CHG-1 (for other than debentures) or E-Form CHG-9 (for debentures including rectification) is to be submitted beyond 300 days. Company shall prepare an application for condonation of delay in form CHG-8 and submit the same with Regional Director having territorial jurisdiction over the registered office of the company.
g. After payment of Penalty imposed by Regional Director, Submit the order issued by the regional director with the ROC within the stipulated time given in the order itself in E-form INC 28.On approval Registrar shall issue certificate of registration in form CHG-2, in case of creation of charge or in form CHG-3, in case of modification of charge.
h. Make entries in the register of Charges maintained in form CHG-7 forthwith (immediately) after the creation/ modification and get it authenticated by Director or Secretary of the company or any person authorized by the board.
PROCEDURE FOR REGISTRATION OF PAYMENT/SATISFACTION OF CHARGE
a. Receive no dues letter i.e. letter of satisfaction from the bank/ financial Institution containing declaration that there are no dues pending.
b. Conduct a Board meeting and take note of letter of satisfaction and authorize any director to file form with Registrar along with letter of satisfaction as attachment.
c. Submit form CHG-4 with requisite fee. On approval, Registrar shall issue certificate of registration of satisfaction in form CHG-5.
d. If CHG-4 is not being submitted within the period of 30 days, prepare an application for condonation of delay to Regional Director in form CHG-8 and submit the same with Regional Director having territorial jurisdiction over the registered office of the company.
e. After payment of Penalty imposed by Regional Director, Submit the order issued by the regional director with the ROC within the stipulated time given in the order itself in E-form INC 28.On approval, Registrar shall issue certificate of registration of satisfaction in form CHG-5.
f. Make entries in the register of Charges maintained in form CHG-7 forthwith (immediately) after the satisfaction and get it authenticated by Director or Secretary of the company or any person authorized by the board.
Disclaimer of Author: The entire contents of this article have been prepared on the basis of relevant provisions and as per the information existing at the time of preparation and are purely based on my understanding. Though utmost care has been taken to provide authentic information, it is suggested that to have better understanding kindly cross-check the relevant sections, rules under companies act, 2013. The information/articles are provided purely for informational and educational purposes only. The do not constitute legal advice or legal opinions. Therefore I cannot take any responsibility for the results or consequences of any attempt to use any information presented on this article.
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