Charges under companies act, 2013 | An analysis

The “CHARGES” under the Companies Act 2013 are governed by the Sections 77,78,79,,89 and the Rules  2014.

Relevant forms for charges are CHG-1 to CHG-10 (Totally 10 Forms)

WHAT IS A CHARGE:

The company may borrow monies by providing security of its assets and may create a lien on the properties of the Company. The Company may also issue Debentures to raise funds which may carry a right/ interest in the Assets/Properties of the company. A charge is a way of security to the creditor/lender of his interest/right on the properties of the company for the amounts due to him by the company.

The Companies Act,2013 defines a Charge as an interest or lien created on the assets or property of a Company or any of its undertaking as security and includes a mortgage U/s 2(16). In the earlier Act of 1956, the word “Mortgage” was not mentioned.

The Assets stated in the above definition covers all assets including Goodwill, Patents and All assets whether situated in India or abroad.

KINDS OF CHARGES:

The charges are of two kinds:

1. Fixed Charge: A charge which is identifiable with specific and clear asset/property at the time of creation of charge. The Company cannot transfer such identified and defined property unless the charge holder (creditor) is paid off his dues.

2. Floating Charge : It covers the floating and circulating nature of properties of a company, like sundry debtors, stock in trade etc., The nature of the property charged may change from time to time .The floating charge crystallizes into fixed charge if the Company crystallizes or the undertaking ceases to be a going concern.

FORMS FOR CHARGES:

The relevant sections for CHARGES under the The Companies Act,2013 are Section 77,78 and 79. The forms notified for “charges” are CHG-1 to CHG 10.

To understand and remember these forms easily, these can be divided into three categories.

1. FORMS FOR FILING: CHG-1,CHG-4,CHG-6,CHG-8,CHG-9,CHG-10

2. CERTIFICATES ISSUED BY ROC: CHG-2,CHG-3,CHG-5

3. REGISTER TO BE MAINTAINED

BY COMPANIES:CHG-7

OBLIGATION OF THE COMPANY TO REGISTER CHARGE:

Whenever such charge is created, the Company shall register the charges created with the concerned Registrar of Companies.

Forms: CHG-1 is the form to file with ROC ( for all charges other than debentures)

Forms: CHG- 9 (for Debentures including rectification)

Time limit: Within 30 days of creation or modification along with fee, duly signed by the company and charge-holder.

Fee : As prescribed in the Companies Act (Registration Offices and Fees)Rules,2014.

EFFECTS OF CHARGE REGISTRATION:

Once charge is registered with ROC, it is a public notice that the charge holder has interest in the charged property. So no person can act against the interest of the charge holder. 

In case of not filing or delay in charge registration:

If charge is not registered at all , the creditor/lender cannot have hold on security charged. Though the liability to repay the debt exists on the company to the creditor/lender as per the Indian Contract Act, the creditor/lender will not have security/priority in discharging the dues.

DELAY IN REGISTRATION:

The time limit is 30 days from the creation of charge to get the same registered with the concerned ROC. If there is delay beyond 30 days, the particulars of charge can be filed with the ROC within 300 days of creation/modification but with additional fee. Form No. CHG-10 along with a duly signed declaration by the company secretary/director stating that such belated filing shall not adversely affect rights of any other intervening creditors of the company.

In case of creating or modifying a charge Delay beyond 300 days:

CERTIFICATE OF REGISTRATION:

CHG-2 is the certificate of registration issued by ROC on creation of charge.CHG-3 is the certificate issued on registration of modification of charges. The certificate issued by ROC is the conclusive evidence of creation of charge.

SATISFACTION OF CHARGE:

Within 30 days of payment or satisfaction in full of any charge registered, the company shall give intimation of the same in CHG-4 along with fee. Then the ROC shall issue a certificate of registration of satisfaction of charge in Form no. CHG-5

REGISTER TO BE MAINTAINED BY COMPANY:

The particulars of every charge shall be entered in a register of charges to be kept at the registered office of the company in Form No. CHG-7 wherein all particulars of charge shall be entered. Such entries shall be authenticated by secretary or any person authorized by the Board for the purpose. Such register shall be open for inspection by any member or creditor without any fee and by any other person on payment of fee.

I , B Shivaji Prasad, hereby affirm and state that the above article on “ Charges under Companies Act,2013 is written by me on my own and it is not published elsewhere so far) 

Article by :

CA. B.SHIVAJI PRASAD

PLOT NO.95, Mandela Park Road,

LIC Colony, Vijayawada-520 008