Companies act section 125

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shweta (Querist)
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25 October 2013 advantages and disadvantages for company on charge created through form 8 in section 125 whicle creating charge on property by financial institutions

Ajay Mishra

Ajay Mishra (Expert)
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25 October 2013
CREATION OF CHARGE (Section 125)

If a charge created by the company falls within any of the classes as specified in section 125 (4), its particulars shall be filed with the Registrar of Companies Act, 1956 within 30 days of creation of
charge. If particulars of charge could not be filed within 30 days, the ROC has power to extend the said period by 30 more days subject to payment of additional filing fee by the Company.
Particulars of creation of charge shall be filed in Form No. 8 & 13, in 3 sets, alongwith all the papers / instruments relating to creation of charge. Form No. 8 includes the following details :
· Description of instrument creating the charge
· Amount secured
· Property charged
· Terms & conditions of charge
· Name & address of person entitled to charge

Registrar of Companies (ROC) will verify the particulars filed under Form No. 8 & 13 and thereafter shall register charge which is conclusive evidence of compliance with the equirements as to registration of the charge. ROC shall deliver 2 sets duly registered under seal and signature, one for lender and second for borrower.

Ajay Mishra

Ajay Mishra (Expert)
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25 October 2013
Effects of registration of charge:

Once the particulars of charge has been registered by the Registrar of Companies, it has the following effects:—
(a) that while dealing with the company in respect of any property subject to a registered charge, the dealer is deemed to have notice of such charge as from the date of such registration.
(b) Where any person acquires a property or any part thereof, or any share or interest therein, which is subject to charge under section 125(4) and charge has been registered with Registrar, the acquirer shall be deemed to have notice of the charge as from the date of such registration. [Section 126]

In absence of any registration of charge u/s 125, on date of winding up order, Official Liquidator would be justified in treating such charge as ordinary creditor. [Rajasthan Financial Corporation v Official Liquidator, Jaipur Spinning & Weaving Mills Ltd. (In liquidation) (1997) 88 Comp Cas 192 (Raj)].

Ajay Mishra

Ajay Mishra (Expert)
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25 October 2013
Consequences and penalties of non-filing/registration of particulars of charge with Registrar:

It is a duty of company to file the particular of charges with the Registrar within the stipulated time for registration of particulars of charges. However, the interested parties to the charge may also file these particulars with the Registrar within the stipulated time.

Unless and until a charge is registered with the Registrar of Companies, it has no sanctity notwithstanding the fact that such charge was brought into vogue by reason of agreement inter-parties between the two creditors or by registration of guarantee bond. [A.P. State Financial Corpn. v Mopeds India Ltd. (2005) 124 Comp Cas 833 (AP)].

Ajay Mishra

Ajay Mishra (Expert)
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25 October 2013 In case of non-filing and registration of these particulars the following consequences shall arise:—

(a) all the charges covered under section 125(4) shall become void unless registered by the Registrar and when a charge becomes void under section 125, the money secured thereby shall immediately become payable by the company;

(b) the charge will be void as against the liquidator (in the event of the company being wound up) and against the creditors, if any, so far as the company is concerned, the charge will be good and it can be enforced so long as the company does not go into liquidation;

(c) the security becomes void but non-registration does not affect any contract or obligation of the company as to repayment of the money secured by the charge;

(d) the company, and every officer of the company or other person who is in default, shall be punishable with fine which may extend to Rs. 5,000 for every day during which the default continues [section 142(1)]. A further fine of Rs. 10,000 may also be imposed on the company and every officer of the company who is in default of any other requirements of the Act concerning registration of a charge created by company. [Section 142(2)]

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