Query

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

20 August 2015 Dear Sir :

We are an Automobile Car dealership of a leading brand, For purchase of our Car stock we have got an INF (Inventory Funding facility) from a financier (say X) & cars brought from the manufacturer are through the financier. (thus all are stock in trade cars are hypothecated to The Financier,X). Now, we are using our Stock in trade cars for Demo purpose & thus getting another loan from a financier. Now, do we have to file a charge against the 2nd loan also (as for the 1st INF facility, Charge has been created on my whole stock value)

kindly help

Querist : Anonymous

Querist : Anonymous (Querist)

21 August 2015 Thanks for your reply.
We are getting another loan from a same financier.One thing i want to know that demo car are getting registered with Public Vehicle Department are treated as assets and cars which are not registered are treated as stock, so is there any connection with creation of Charge and registration of car because charge is created on assets.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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10 August 2024 In your scenario, you’re dealing with two types of financial arrangements involving stock-in-trade vehicles and demo vehicles. Here’s a detailed explanation of the charge creation requirements and the implications of vehicle registration:

### Understanding Charges and Registration

1. **Charge Creation:**
- **Charge on Stock-in-Trade:** When you obtain an Inventory Funding Facility (INF) from a financier (Financier X), you typically create a charge on your stock-in-trade vehicles. This charge is registered with the Registrar of Companies (RoC) and is an official record of the financier’s interest in the stock.
- **Charge on Assets (Including Demo Vehicles):** If you take another loan against demo vehicles, you need to assess whether this loan is secured against these vehicles and if so, whether it necessitates the creation of an additional charge.

2. **Demo Vehicles vs. Stock Vehicles:**
- **Stock-in-Trade Vehicles:** These are vehicles that are part of your inventory, typically held for sale or for financing purposes. They are hypothecated to the financier under the initial INF facility.
- **Demo Vehicles:** Once these vehicles are used for demonstration purposes and registered with the Public Vehicle Department, they are considered as assets rather than stock-in-trade.

### Registration and Creation of Charges

**1. Charge Creation for Demo Vehicles:**
- **Separate Charge:** If you are securing a loan against demo vehicles, which are now treated as assets (and not as part of your stock-in-trade), you need to create a separate charge on these demo vehicles. This is because the financier has an interest in these assets, and this charge should be registered with the RoC.
- **Charge Registration:** According to the Companies Act, 2013, any charge created on assets, including stock and fixed assets, needs to be registered. This ensures that the lender’s interest is legally protected and recorded.

**2. Connection with Vehicle Registration:**
- **Registered Vehicles as Assets:** The registration of demo vehicles with the Public Vehicle Department signifies their use as assets rather than stock. Therefore, they are treated differently in terms of charge creation.
- **No Direct Connection:** There is no direct connection between the registration of vehicles with the Public Vehicle Department and the creation of charges with the RoC. However, the fact that demo vehicles are registered indicates that they are no longer part of the stock-in-trade but are now considered assets.

**3. Additional Loan from the Same Financier:**
- **Existing Charge:** If you’re obtaining another loan from the same financier against the demo vehicles, it is important to check if the charge already created under the original loan covers these vehicles. Often, if the charge was created specifically for stock and includes all vehicles, you might not need to create an additional charge.
- **Review Terms:** Review the terms of the initial charge to determine if it encompasses the demo vehicles. If not, or if the terms of the new loan require it, you may need to create a new or additional charge.

### Steps to Take:

1. **Review Existing Charges:**
- Check the terms of the charge created for the initial INF facility to see if it includes demo vehicles.

2. **Consult with Legal Advisors:**
- Speak with legal or compliance advisors to understand the necessity of creating an additional charge for the demo vehicles. They can provide guidance based on the specifics of your financing arrangements.

3. **Register the Charge:**
- If required, register the new charge with the RoC for the demo vehicles. Ensure all necessary documentation and compliance requirements are met.

4. **Update Records:**
- Keep your records updated to reflect the current status of charges and ensure that all charges are accurately recorded.

By following these steps and seeking appropriate legal advice, you can ensure that all charges are properly created and registered, protecting both your and the financiers' interests.

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