A charge is stated in Section 2 (16) of the Companies Act, 2013 (“CA, 2013”) which expresses that charge could be –
• an interest or lien;
• created on the property or assets of a corporation; and
• any of its undertakings or both as security and includes a mortgage
It is the obligation of every corporation to register with the Registrar of Companies specific charges made by the corporation on its assets. The reason for registration of charge is to offer public notice towards those who contemplate giving credit to the corporation on how far the property of the corporation is encumbered.
As consistent with Companies Act, corporations are required to file particulars of a charge within 30 days of the creation thereof; or else the charge is void against the liquidators and the creditors of the corporation.
Types of Charges
There are mainly two classes that charges on a corporation fall into. These are:
• Fixed Charges- Charge against a specific and identifiable property whose identity cannot change throughout the period of the loan
• Floating Charges – These charges are not against any specifically identifiable property as well as cover properties floating or uncertain such as stock-in trades, debtors etc.
Types of charges to be registered
As per Section 77 of the Companies Act, 2013, it states that the corporation must register all types of charges with the Registrar of Companies (“ROC”) within 30 days of the creation of that particular charge. It doesn’t matter if the charge created is –
• within or outside India;
• on its property or assets or any of its undertakings;
• whether tangible or otherwise; and
• situated in or outside India.
Section 77 also states that the additional period could extend to 300 days (30 days in addition with 270 additional days). If the form is filed after 30 days of the normal registration period, it requires to be paid with an additional fee. An application is required to be filed in CHG- 10 from the Company Secretary or Director of the corporation that this late filing would not adversely affect any of the creditors involved in this.
The duty of registration of the charge
As per Section 77, it is the duty of the corporation to register charge.
As per Section 78, if the corporation for any reason fails to register for the charge, the individual in whose favour the charge is being created would form for a file of charge. The individual has the right to recovering the registration fee from the corporation. However, the individual filing for the charge has to give a notice of 14 days to the corporation.
Registration of Charge by (Section 77 of the Act) individual creating charge:
• Every individual creating charge must file form CHG-1 within 30 days of such creation
• Though, the extension for filing could be granted by RoC towards the extent of :
o 300 days for charges formed prior to 2nd November 2018 (commencement of Ordinance, 2018). Furthermore, an extension of 6 months could be granted in this case on payment of additional fees as might be prescribed.
o 60 days for charges created on or after 2nd November 2018. Furthermore, an extension of 60 days could be granted if the application is made and additional fees are paid to RoC.
o Though, delay in registration must not affect any right acquired regarding such property.
• Certain charges must not be registered if consulted with Reserve Bank of India.
• RoC would issue a certificate of registration of charge in Form CHG-2.
Effect of registration of this charge
Register of Charge by ROC: As per Section 81, the ROC must maintain a register of charges with regards to every corporation comprising all the particulars concerning the charge. The register is open for examination by any individual on the payment of some prescribed fee.
Deemed Notice: Any individual who is thinking of lending money or who has given money to a corporation could know which of the corporation’s assets are charged and the extent of this charge.
Effect of non-registration of charge
As per Section 77, if the charge is not registered with the ROC, the charge would not be taken into account by the liquidator or any creditor. This is only the case when the corporation is winding up; the corporation is indebted towards repaying the money even if the charge was not registered. The punishment for violating any provision of the Companies Act, 2013 is that the corporation would be punishable with a fine which would not be below Rs. 1 Lakh and might extend to Rs. 10 Lakhs and every officer should be punishable with fine which would not be below Rs. 25000 which might also extend to Rs. 1 Lakh or with an imprisonment of a term which might extend to 6 months or both.
Registration of Charge by (Section 78 of the Act) individual in whose favour charge is created :
• If the individual creating charge fails towards furnishing Form CHG-1 within 30 days of its creation, then individual in whose favour the charge is created could file the same.
• After receipt of such form, RoC registers such charge and might send notice towards showing cause to individual creating a charge for non-filing of such form.
• Such other individual would be entitled to recover from the individual creating a charge for the 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 should be registered with RoC.
• The process to register the modification of charge is same as that of creation.
• Though, in this case, RoC would issue the certificate of registration in Form CHG-3.
Other points of registration:
• Form CHG-1 must be filed for corporation acquiring any property subject towards the charge.
• Individual acquiring any property, assets or undertakings or part thereof or any share or interest therein should be deemed to have notice of charge from the date of registration.
Register of charges:
• Registrar must maintain a register of charges for every corporation and must keep it open for inspection by any individual on payment of prescribed fees.
• The corporation must maintain a register of charges in Form CHG-7 with instrument creating charge at its registered office and keep it open for inspection in the course of business hours by members or creditors without fees.
Satisfaction of charge
• The corporation must intimate satisfaction of charges in Form CHG-4 within 30 days as extended till 300 days on approval as well as on payment of additional fees.
• In case of delayed filing, RoC might issue show cause notice to Corporation for such delay within 14 days of such receipt.
• RoC might consider non-filing of CHG-4 for making entries in register of charges if it is shown through documents that :
o Debt for which charge was formed is satisfied, fully or partially.
o Part of asset or undertaking undercharge was released or has ceased to form part of the Corporation
• After making entries RoC must intimate affected parties within 30 days of making entry therein.
Punishment for contravention:
• The penalty of an amount not below 1 lakh and not above 10 lakh and
• Every officer in default should be punishable with imprisonment towards the extent of 6 months or fine not below 25 thousand extending to 1 lakh or both.
• Further, willful furnishing of false or improper information or knowing suppression of material information must be liable as :
o For the amount of fraud of at least 10 lakh or 1% of turnover, the individual must be punishable with imprisonment not below 6 months extending till 10 years and a fine of not below amount involved in fraud extending 3 times of such amount for fraud. Though, if the fraud includes public interest, terms of imprisonment will not be below 3 years
o In additional cases, a guilty individual must be punishable with imprisonment up to 5 years or fine up to 50 lakh rupees or both.
Condonation of delay:
• If form CHG-1/ CHG-4 is not filed within the prescribed time, it must be filed after condonation of delay.
• Such an application would be made through form CHG-8 with prescribed fees.
• However, once the order for this has been passed, the same must be filed in Form INC 28.
FAQ
1. If the Corporation fails to register the charge when the charge holder got right to file the form with ROC?
i. Section 78 - where a corporation fails to register the charge within the period stated in section 77, without prejudice towards its liability regarding any offence under this Chapter, the individual in whose favour the charge is created might apply to the Registrar for registration of the charge
ii. Section 77 - It must be the duty of every corporation creating a charge in such form, on payment of such fees and in such manner as might be prescribed, with the Registrar within 30 days of its creation
2. Whether register of charge could be maintained at any place other than the registered office of the Corporation?
As specified in rule 10(1) registers should be kept at the registered office of the Corporation. The corporation cannot maintain the register of Charge at any other place.
3. Who could authenticate the entry in the Register of Charge?
Entries in the register must be authenticated through a director or the secretary of the Corporation or any other individual authorized by the Board for the purpose
4. Who could inspect the register of Charge of the Company?
• Any member or creditor of the corporation without fees;
• Any other individual on payment of a fee.
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