Creation of charge is one of the essential elements for raising finance/funds from institutes so that the lender is ensured that the right in asset/property is established as well as in case of failure of repayment, funds can be generated from said charged assets. Earlier, under Companies Act, 1956, list of charges was specifically given. Charge in terms of Companies Act, 2013 (the “Act”) stands for “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”. Hence, meaning of charge is not restricted to mere hypothecation, mortgage, lien, and the like.
Registration of Charge by (Section 77 of the Act)person creating charge :
- Every person creating charge shall file form CHG-1 within 30 days of such creation
- However, extension for filing can be granted by RoC to the extent of :
- 300 days for charges created prior to 2nd November, 2018 (commencement of Ordinance, 2018). Further extension of 6 months can be granted in this case on payment of additional fees as may be prescribed.
- 60 days for charges created on or after 2nd November, 2018. Further extension of 60 days can be granted if application is made and additional fees is paid to RoC.
- However, delay in registration shall not affect any right acquired with respect to such property.
- Certain charges shall not be registered, if consulted with Reserve Bank of India.
- RoC will issue certificate of registration of charge in Form CHG-2.
Effect of non-registration of charge :
- No charge to be taken into consideration by liquidator or creditor unless duly registered with RoC and certificate thereto is provided by RoC.
- However, registration does not prejudice contract or obligation to repay money secured by charge.
Registration of Charge by (Section 78 of the Act)person in whose favour charge is created :
- If the person creating charge fails to furnish Form CHG-1 within 30 days of its creation, then person in whose favour the charge is created can file the same.
- After receipt of such form, RoC register such charge and may send notice to show cause to person creating charge for non-filing of such form.
- Such other person shall be entitled to recover from the person creating charge for registration of charge the amount so paid.
Modification of charge :
- Any modification in any terms or conditions or the extent of operations of any charge registered shall be registered with RoC.
- Procedure to register the modification of charge is same as that of creation.
- However, in this case, RoC will issue the certificate of registration in Form CHG-3.
Other points of registration :
- Form CHG-1 to be filed for company acquiring any property subject to charge.
- Person acquiring any property, assets or undertakings or part thereof or any share or interest therein shall be deemed to have notice of charge from the date of registration.
Register of charges :
- Registrar shall maintain a register of charges for every company and shall keep it open for inspection by any person on payment of prescribed fees.
- Company shall maintain register of charges in Form CHG-7 along with instrument creating charge at its registered office and keep it open for inspection during business hours by members or creditors without fees.
Satisfaction of charge :
- Company shall intimate satisfaction of charges in Form CHG-4 within 30 days as extended till 300 days on approval and on payment of additional fees.
- In case of delayed filing, RoC may issue show cause notice to Company for such delay within 14 days of such receipt.
- RoC may consider non-filing of CHG-4 for making entries in register of charges, if it is proved through documents that :
- Debt for which charge was created is satisfied, fully or partially.
- Part of asset or undertaking under charge has been released or has ceased to form part of the Company
- After making entries RoC shall intimate affected parties within 30 days of making entry therein.
Punishment for contravention :
- Penalty of amount not less than one lakh and not more than ten lakh and
- Every officer in default shall be punishable with imprisonment to the extent of six months or fine not less than twenty five thousand extending to one lakh or both.
- Further, wilfull furnishing of false or incorrect information or knowing suppression of material information shall be liable as :
- For amount of fraud of at least 10 lakh or 1% of turnover, person shall be punishable with imprisonment not less than 6 months extending till 10 years and fine of not less than amount involved in fraud extending 3 times of such amount for fraud. However, if the fraud involves public interest, terms of imprisonment shall not be less than 3 years
- In other cases, guilty person shall be punishable with imprisonment upto 5 years or fine upto 50 lakh rupees or both.
Condonation of delay :
- In case form CHG-1/ CHG-4 is not filed within prescribed time, it has to be filed after condonation of delay.
- Such application shall be made through form CHG-8 with prescribed fees.
- However, once order in this regard is passed, the same is required to be filed in Form INC 28.