REGISTRATION OF CHARGES
Normally debentures and other borrowings of the company are secured by charge on the fixed assets owned by the company. When property inclusive of both existing and future, is agreed to be enclosed for the repayment of debt or other borrowings of the company, at that instance a charge is being created. The legal right of the creditor can only be enforced at some future date if certain conditions governing the loan are not met. The creditor can only get the right to have security enforced by an order of the Court but no rights can be claimed absolute or specific of the proper charged.
DEFINITION OF CHARGE
Section 2(16) of the Act states that,
Charge is an interest or lien created on the property or assets of a company or both as security or any of its undertakings and includes a mortgage.
The main essential features of a charge are:
- There are minimum two parties i.e. creator of the charge and the charge holder.
- The subject matter of the charge can be current or future assets and properties of the borrower.
- The intention of the borrower is to offer one or more of its specific asset as a security for the repayment of the borrowed money.
Meaning of ‘Interest’ and ‘Lien’
As per Black’s Dictionary,
Interest is the legal share to an equitable claim to right in property, right in title and right in interest.
Lien is a legal right or interest that a creditor has in another’s property until a debt is satisfied.
NEED FOR CREATING A CHARGE
While obtaining financial assistance, financial banks and institutions as they need an assurance that the monies lend would be repaid as per the schedule along with the interest rates thus by executing loan agreements, mortgage deeds, hypothecation agreements in favor of the lending institution.
For the convenience, when there arises an exigency for funds they approach the same institutions or new institutions offering the same assets for security loans. When a charge is initiated subsequently a dilemma arises to the priority in respect of order of charges or the in the favour of repayment of different institutions. Consent of the earlier institutions is obtained prior to the second charge and with all the consents the charges of the lending institutions are ranked pari passu i.e. on the equal footing.
Registration of Charge as Constructive Notice
All the charges registered with the Registrar of Companies are public documents thus any money lent to the company against the security of such property are to be reflected to the MCA Portal to ensure if any charge is initiated against the Company’s assets.
Constructive Notice means deemed knowledge which means though a third person has not referred to the public document he would still be considered to have the knowledge of the public document.
Thus a person who enters into the transaction with the company without enquiring faces a loss because of the charge and cannot claim for damages of the loss from the company.
Kinds of the Charges
On the basis of nature of charge,
- Fixed Charge or Specific Charge
- Floating Charge
A charge is said to be specific charge or fixed charge when it is created to cover the assets which are ascertained at the time of crating the charge. Like for instance when a charges is created on the Land, Or the Building, Or the Machinery of the company the assets being defined is fixed charge.
A floating charge as a type of security is not definitely attached to any property but covers the property of a fluctuating type like stock-in-trade thus making it equitable. The advantage of the floating charge is that the company may continue to deal in any way with the property is charged thus enabling the company to sell, mortgage or lease such property in the ordinary course of business subject to the authorization in the Memorandum of Association.
REGISTRATION OF CHARGES
Section 77 of the Companies Act, 2013 deals with the provisions of registration of charges with the Registrar of Companies.
Registration of Charges
The company creating charge within or outside the company on its assets or property whether tangible or intangible assets has to register the particulars of the charge. The subject matter of the charge may exist with or outside India. The charge which is created by the deposit of title deeds is also registrable by the borrowing company.
Registration by the Charge Holder
In in the instance the company fails to register the charges of the company, within the prescribed period of 30 days, the person in whose favour the charge is created can get the charge registered.
Registration by the Purchaser
Section 79 explains that when a charge is already registered where the company purchased some property, the company purchasing the property shall be registered in its name in the place of records of the Registrar.
How to Register Charge
The particulars of the charge in form CHG-1 together with the copy of the instrument creating the charge duly signed by the company and the charge holder with prescribed fee shall to be filed with the Registrar of Companies.
A copy of every instrument creating ay charge are required to be filed with the Registrar has to be verified as
- Where the instrument or deed relates to the property situated outside India, the copy shall be verified by a certificate issued either;
- Under the seal of the company, if any,
- Under the hand of any director or company secretary of the company or an authorized officer of the charge holder
- Whether the instrument or deed relates to the property situated in India, the copy shall be verified by a certificate issued under the authorization of any director or company secretary of the company or an authorized officer of the charge holder.
Extension of Time Limit
The original period within which a charge is to be registered is 30 days from the date of creation of the charge though after the Companies (Amendment) Second Ordinance, 2019 has amended the provisions as
- Charges created before 02/11/2018.
The process would be in ascending order as
- Charge created before 02-11-2018
- Register within 30 days of creation (If not registered in 30 days)
- Register within 300 days of creation on payment of additional fees.
(If not registered in 300 days)
- Register within six months from 02/11/2018 with additional fees.
- Charges created on or after 02/11/2018.
The process would be in ascending order as
- Charges created on or after 02-11-2018 (Within 30 days)
- Register Charge ( If not registered in 30 days)
- Register in next 30 days (i.e. within 60 days from creation) with additional fees ( If not registered in next 30 days)
- Register within a further period of 60 days with ad valorem fees.
Author: Aathira Pillai,
Dr.D. Y. Patil College of Law, BLS LLB 4th year