Registration of Charges

February 18, 2023

This article has been written by Pallavi Jindal, a student of NEF Law College, Guwahati

INTRODUCTION:

When a security is provided for securing loans or debentures by giving mortgage on the assets of the company is known as charge or creating a charge. It is basically a right created by a company, where the company (borrower) can take loan by mortgaging their assets, properties or undertakings. It also means providing the assets, properties, undertaking as collateral for the debt taken by them from financial institution or a bank or any other lender.

Under Section 2(16) of the Companies Act, 2013 “charge” means 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. The charge consists of following essential features:

There are minimum two parties to the transaction, the creator of the charge and the charge-holder.
The subject-matter of charge may be on current or future assets and properties of the borrower.
The intention of the borrower to offer one or more of its specific asset or properties as security for repayment of the borrowed money together with payment of interest at the agreed rate etc.

KINDS OF CHARGES:

The charges are classified into two parts:

Fixed or Specific Charge: A fixed charge is a charge which is created over the assets which are definite or ascertained or are capable of being ascertained or defined at the time of creating a charge.
Floating Charge: A floating charge is a charge which is created on a class of assets present and future which in the ordinary course of business is changing from time to time and leaves the company free to deal with the property as it sees fit until the holder of charge take steps to enforce their security.

PROVISIONS REGARDING REGISTRATION OF CHARGES:

Section 77 of the Companies Act, 2013 deals with the duty to register charges.

Duty to register charges, etc.—(1) It shall be the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, to register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating such charge in such form, on payment of such fees and in such manner as may be prescribed, with the Registrar within thirty days of its creation:

Provided that the Registrar may, on an application by the company, allow such registration to be made within a period of three hundred days of such creation on payment of such additional fees as may be prescribed:

Provided further that if registration is not made within a period of three hundred days of such creation, the company shall seek extension of time in accordance with section 87:

Provided also that any subsequent registration of a charge shall not prejudice any right acquired in respect of any property before the charge is actually registered.

(2) Where a charge is registered with the Registrar under sub-section (1), he shall issue a certificate of registration of such charge in such form and in such manner as may be prescribed to the company and, as the case may be, to the person in whose favour the charge is created. (3) Notwithstanding anything contained in any other law for the time being in force, no charge created by a company shall be taken into account by the liquidator or any other creditor unless it is duly registered under sub-section (1) and a certificate of registration of such charge is given by the Registrar under sub-section (2).

(4) Nothing in sub-section (3) shall prejudice any contract or obligation for the repayment of the money secured by a charge.

Section 78 to 87 of the Companies Act, 2013 deals with the provisions of creating a charge on the assets of the company.

Application for Registration of Charges (Section 78): Where a company fails to register the charge within the period specified in section 77, without prejudice to its liability in respect of any offence under this Chapter, the person in whose favour the charge is created may apply to the Registrar for registration of the charge along with the instrument created for the charge, within such time and in such form and manner as may be prescribed and the Registrar may, on such application, within a period of fourteen days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause why such charge should not be registered, allow such registration on payment of such fees, as may be prescribed:

Provided that where registration is effected on application of the person in whose favour the charge is created, that person shall be entitled to recover from the company the amount of any fees or additional fees paid by him to the Registrar for the purpose of registration of charge.

Section 77 to apply in certain matters (Section 79): The provisions of section 77 relating to registration of charges shall, so far as may be, apply to— (a) a company acquiring any property subject to a charge within the meaning of that section; or (b) any modification in the terms or conditions or the extent or operation of any charge registered under that section.
Date of notice of charge (Section 80): Where any charge on any property or assets of a company or any of its undertakings is registered under section 77, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration.
Register of charges to be kept by Registrar (Section 81): (1) The Registrar shall, in respect of every company, keep a register containing particulars of the charges registered under this Chapter in such form and in such manner as may be prescribed. (2) A register kept in pursuance of this section shall be open to inspection by any person on payment of such fees as may be prescribed for each inspection.
Company to report satisfaction of charge (Section 82): (1) A company shall give intimation to the Registrar in the prescribed form, of the payment or satisfaction in full of any charge registered under this Chapter within a period of thirty days from the date of such payment or satisfaction and the provisions of sub-section (1) of section 77 shall, as far as may be, apply to an intimation given under this section. (2) The Registrar shall, on receipt of intimation under sub-section (1), cause a notice to be sent to the holder of the charge calling upon him to show cause within such time not exceeding fourteen days, as may be specified in such notice, as to why payment or satisfaction in full should not be recorded as intimated to the Registrar, and if no cause is shown, by such holder of the charge, the Registrar shall order that a memorandum of satisfaction shall be entered in the register of charges kept by him under section 81 and shall inform the company that he has done so:

Provided that the notice referred to in this sub-section shall not be required to be sent, in case the intimation to the Registrar in this regard is in the specified form and signed by the holder of charge.

(3) If any cause is shown, the Registrar shall record a note to that effect in the register of charges and shall inform the company.

(4) Nothing in this section shall be deemed to affect the powers of the Registrar to make an entry in the register of charges under section 83 or otherwise than on receipt of an intimation from the company.

Power of Registrar to make entries of satisfaction and release in absence of intimation from company ( Section 83): (1) The Registrar may, on evidence being given to his satisfaction with respect to any registered charge,— (a) that the debt for which the charge was given has been paid or satisfied in whole or in part; or (b) that part of the property or undertaking charged has been released from the charge or has ceased to form part of the company‘s property or undertaking, 62 enter in the register of charges a memorandum of satisfaction in whole or in part, or of the fact that part of the property or undertaking has been released from the charge or has ceased to form part of the company‘s property or undertaking, as the case may be, notwithstanding the fact that no intimation has been received by him from the company. (2) The Registrar shall inform the affected parties within thirty days of making the entry in the register of charges kept under sub-section (1) of section 81.
Intimation of appointment of receiver or manager (Section 84): (1) If any person obtains an order for the appointment of a receiver of, or of a person to manage, the property, subject to a charge, of a company or if any person appoints such receiver or person under any power contained in any instrument, he shall, within a period of thirty days from the date of the passing of the order or of the making of the appointment, give notice of such appointment to the company and the Registrar along with a copy of the order or instrument and the Registrar shall, on payment of the prescribed fees, register particulars of the receiver, person or instrument in the register of charges. (2) Any person appointed under sub-section (1) shall, on ceasing to hold such appointment, give to the company and the Registrar a notice to that effect and the Registrar shall register such notice.
Company‘s register of charges (Section 85): (1) Every company shall keep at its registered office a register of charges in such form and in such manner as may be prescribed, which shall include therein all charges and floating charges affecting any property or assets of the company or any of its undertakings, indicating in each case such particulars as may be prescribed: Provided that a copy of the instrument creating the charge shall also be kept at the registered office of the company along with the register of charges. (2) The register of charges and instrument of charges, kept under sub-section (1) shall be open for inspection during business hours— (a) by any member or creditor without any payment of fees; or (b) by any other person on payment of such fees as may be prescribed, subject to such reasonable restrictions as the company may, by its articles, impose.
Punishment for contravention (Section 86): If any company contravenes any provision of this Chapter, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to ten lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty five thousand rupees but which may extend to one lakh rupees, or with both.
Rectification by Central Government in register of charges (Section 87): (1) The Central Government on being satisfied that— (i) (a) the omission to file with the Registrar the particulars of any charge created by a company or any charge subject to which any property has been acquired by a company or any modification of such charge; or (b) the omission to register any charge within the time required under this Chapter or the omission to give intimation to the Registrar of the payment or the satisfaction of a charge, within the time required under this Chapter; or (c) the omission or mis-statement of any particular with respect to any such charge or modification or with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83, was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors or shareholders of the company; or (ii) on any other grounds, it is just and equitable to grant relief, it may on the application of the company or any person interested and on such terms and conditions as it may seem to the Central Government just and expedient, direct that the time for the filing of the 63 particulars or for the registration of the charge or for the giving of intimation of payment or satisfaction shall be extended or, as the case may require, that the omission or mis-statement shall be rectified. (2) Where the Central Government extends the time for the registration of a charge, the order shall not prejudice any rights acquired in respect of the property concerned before the charge is actually registered.

CASES REFERRED:

M/S Shalini Plastic Private … vs Union Of India on 25 July, 2018: In this case the petitioner had delayed in filing the e- form for satisfaction of charges with the respondents. Then the petitioner has filed condonation of delay stating the bonafide reason. Respondent No. 1 imposed the higher amount to be paid while condoning the delay. The court held that the petitioner has already repaid the loan amount and there was only a default in filing the e- form for satisfaction of charges and therefore the condition for payment of higher amount is unreasonable under Section 87 of the Companies Act, 2013.
Cosslett (Contractors) Ltd. Re, (1996) 1 BCLC 407 (Ch D): A washing machine of a construction company was in use at the site and it was considered as employer’s property according to the terms and conditions of the contract. It was held that a charge was created on the machine which is a fixed charge and not a floating charge as it was only upon the ascertained item.
Permanent Houses (Holdings) Ltd. 1988 BCLC 563 (CH D): In this case a company issued debenture by creating favor of a lending bank stating that the charge will be crystallized on happening of an event or default in payment. When the payment was not done by the company on demand by bank, it was held that the charge was no longer a floating charge at the time when receiver was appointed.

REFERENCES:

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February 18, 2023