Under section 2(16), of Companies Act, 2013 a Charge is defined as an “interest or lien created on the assets or property of a Company or any of its undertaking as security and includes a mortgage”. In other words, a charge can be defined as an interest or right which a lender or creditor obtains in the property of the company as a security for the debt, that the company owes him.
In the earlier Act of 1956, Section 124 to section 145 dealt with charges. The then definition did not include the word “mortgage” it was later inserted after the amendment Act of 2018. Under the Companies Act, 2018 section 77 to section 87 deals with charges.
Types of charges
Charges are of two types:
- Floating Charges: As the title suggests, floating charges are those charges which are set on the property which are fluctuating in nature, such as stocks in trade, debtors, etc. It is attached to a definite property, but its value varies from time to time.
- Fixed Charges: These charges are fixed on a clearly identifiable and fixed property. The nature of the property does not change with time. It remains fixed during the existence of charge.
Registration of Charges [Section 77]
Any company that creates a charge within or outside India, it required to register the particulars of the charge with the Registrar within 30 days of its creation. This must be accompanied by the signature of the charge holder and the company.
After the charge is registered, the Registrar shall issue a certificate of registration of such charge. Any charge which is created by the company, but is not registered, cannot be taken into account by the person in whose favour the charge is so created.
Charges that need to be Registered
Charges that do not require Registration
Application for Registration [Section 78]
If the company has failed to register the charges within the prescribed period of 30 days and such non-registration is not a consequence of any illegal act of the company or any act which is deemed as an offence under this Act, an application may be made to the Registrar, by the person in favour of whom the charge is created, along with the instrument created for the charge. This application shall be made within 14 days, after giving notice to the company.
Time Limit for Registration of Charge
Any charge created by the company shall be registered with the registrar within 30 days of its creation in the manner prescribed in form CHG-1, for other than debentures or Form CHG-9 for debentures including ratification, on payment of the fee prescribed.
On an application and payment of an additional fee by the company, the Registrar may extend the period to 300 days for registration of charge. Further extension can be granted by the Central Government.
Notice & Register of Charge [Section 80 & 81]
Section 80 states that once a charge has been registered on any property or asset or undertaking of the company, the person acquiring the charge, shall be given a notice by the company. Section 81 states that the Registrar is liable to maintain a register having all the particulars of the charge in the form as may be prescribed, which shall be open to inspection by any person on payment of a prescribed fee.
Satisfaction of Charge [Section 82]
A company shall within a period of thirty days from the date of the payment or satisfaction in full of any charge registered, give intimation of the same to the Registrar, along with the fee. Where the Registrar enters a memorandum of satisfaction of charge in full in pursuance of section 82 or 83, he shall issue a certificate of registration of satisfaction of charge.
Section 83 of the Act empowers the Registrar to make entry of satisfaction and release in absence of intimation from company, subject to two conditions-
- that the debt for which the charge was given has been paid or satisfied in whole or in part; or
- 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,
Company’s Register of Charges [Section 85]
Every company is required to maintain a Register of Charges, at its registered office, which contain all the charges and floating charges along with all the particulars and shall be open to inspection by any member or creditor or any other person on the payment of prescribed fee. The Register shall be maintained in the form prescribed in the Act.
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 in Register of charges by Central Government
Rule 12 of Companies (Registration of Charges) Rules, 2014 deals with condonation of delay by Central Government where the charges are not registered within 300 days. It states that the Central Government on being satisfied on the below-mentioned conditions, may ratify the charge to the extent as it may deem fit.
(i) (a) 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
(b) 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
(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).