Charges under Companies Act 2013

The Companies Act 2013 has brought consequential impact in the corporate structure. Various rules and regulations have been numbered which determine the impact it has on business and financial operations, one among such regulation is concerning charges. This article aims to provide a comprehensive guide to charges under the Companies Act 2013, covering types, obligations, forms, time limits, and consequences.

Definition

According to Section 2(16) of Companies Act 2013 charge can be defined as 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.

Therefore, following features can be enumerated from the above definition:

• There should be at least two parties to enable the transaction, one being the creator and other the charge holder.
• The subject matter of charge could be on both current or future assets and properties of the borrower.
• Such transaction should be entered in form of agreement in favour of the lender which can be written or otherwise.

Types of Charges under Companies Act, 2013

The charges could be differentiated on the basis of nature and condition of charge.

On the basis of nature charge could be of following kinds:

• Fixed Charge: A charge is called fixed or specific when it is created to cover assets which are ascertained and definite or are capable of being ascertained and definite, at the time of creating the charge like land, building, plant and machinery.
• Floating/ Open Charge: Charge which is not attached to any definite property but covers property of a fluctuating type e.g. stock in trade. It is a charge on 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 holders of charge take steps to enforce their security.

And on the basis of condition, charge can be of following type:

• Pari- passu charge: Under this, the charge is shared by more than one lender in the ratio of their outstanding amount.
• Exclusive charge: The security under the exclusive charge is provided to a particular lender only.
• Further charge: With the consent on the first charge holder, the particular assets on which charge is already created may be provided to other lenders as second charge. In case of liquidation of assets, the first charge holder has the right to recover his dues and the balance is recovered by the second charge holder followed by others.

Registration of charge

In compliance with Section 77 of Companies Act 2013 following charges need to be registered:

• Charges created within/outside India
• Charges created on its property or assets or any of its undertaking
• Charges created whether Tangible/ Intangible or otherwise and situated in or outside India.

Time Limit

Such above charges shall be registered with registrar in Form CHG-1(other than debentures) or Form CHG-9 (Debentures) within 30 days of creation/modification.

In case of failure of registration within 30 days from the creation of charge, further registration could be made with Registrar by paying additional fees.

Provided, registrar may, on an application by the company, allow such registration to be made:

• in case of charges created before the commencement of the Companies (Amendment) Act, 2019 i.e. 02.11.2018, within a period of three hundred days of such creation
• in case of charges created on or after the commencement of the Companies (Amendment) Act, 2019 i.e. on or after 02.11.2018, within a period of sixty days of such creation, on payment of such additional fees as may be prescribed.

It is to be noted that any subsequent registration of a charge shall not prejudice any right acquired before the charge is actually registered which means that the rights of the former charge holder will not be affected in case of the creation of the subsequent charge.

Certificate of registration of satisfaction of charge

According to Section 77(2) of Companies Act and Rule 8 of Companies (Registration of Charges) Rules, 2014 the Registrar shall issue a certificate of registration of satisfaction of charge in Form No. CHG-5.

Register of Charges with ROC

In accordance with section 81 and the rules the Registrar of Companies, shall maintain a register containing particulars of the charges registered in respect of every company.

This charge register shall be open to inspection by any person on payment of fee for each inspection.

Register of Charges with the Company

Every company shall at its registered office keep a register of charges in Form No. CHG-7 which shall include all kinds of charges affecting any property or assets of company.

It shall contain all particulars of all charges registered and acquired and such entries shall be authenticated by a director or secretary of the company.

The register of charges shall be preserved permanently while the instrument creating such charge shall be preserved for a period of eight years from the date of satisfaction of charge by company.

Punishment for contravention

Section 86(1) of the act provides that if any company breaks any provision it shall be liable to pay penalty of five lakh rupees and every officer of the company who is in default shall be liable to pay fifty thousand rupees each.

Further Section 86(2) of the act states that if any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered in accordance with the provisions of section 77, he shall be liable for action under section 447.

Conclusion

It is imperative for enterprises involved in financial transactions to understand and adhere to the requirements pertaining to charges under the Companies Act 2013. The timely registration of charges not only ensures legal compliance but also protects the interests of various stakeholders. Businesses need to be extremely attentive in carrying out their obligations in order to prevent the dire repercussions that could result from non-compliance. In order to stay updated, a team of expert advisors from Legal Window is here to assist you at every step. Feel free to reach us at admin@legalwindow.in.