Company Law Chapter 6: Registration of Charges

Chapter 6: Registration of Charges

• Learning Outcomes: Define charge, understand fixed and floating charges, explain registration steps, identify consequences of non-registration, and steps for registering charge satisfaction, and the applicability of penal provisions in case of default.

Chapter Overview

• Definition of Charge: Defined as per Section 2(16) of the Companies Act, 2013, includes an interest or lien on company assets or undertakings, as security (including mortgages).
• Duty to Register Charges: Duty outlined in Section 77.
• Application for Registration: Applying for registration of charge per Section 78.
• Notice Dates: Date of Notice of Charge (Section 80).
• Register of Charges: Keeping of the register (Section 81 & 85).
• Satisfaction of Charge: Procedures for satisfaction (Section 82 & 83).
• Punishment and Rectification: Sections regarding penalties and rectifications (86 & 87).

Introduction

• Chapter VI Scope: Details sections 77 to 87 and the Companies (Registration of Charges) Rules, 2014.

Registration of Charges

• Definition of Charge (Detailed): Section 2(16) of the Companies Act, 2013 defines "charge" as an interest or lien created on a company's property or assets (or any of its undertakings, or both). It's a security interest and includes a mortgage. Charges are created as security for loans (term loans or working capital).
• Types of Charge: Fixed and Floating.
• Fixed Charge: A charge on specific, permanent assets (like land, buildings, machinery). The company can't sell these assets without permission from the lender.
• Floating Charge: A charge on fluctuating assets (like raw materials, stock, etc.). The company can use these assets in normal business operations.

Fixed Charge

• Nature: A charge on specific, permanent assets of the borrowing company (land, buildings, machinery, office premises).
• Identification: Assets are identified at the time of creating the charge.
• Restrictions on Sale: The borrowing company is not permitted to sell assets subject to the fixed charge during the term of the charge.
• Discharge of Charge: The fixed charge ceases once the borrowed amount is repaid in full.

Floating Charge

• Nature: A charge on assets that fluctuate (raw materials, stock-in-trade, debtors).
• Flexibility: Allows the borrowing company to trade or use assets.
• Crystallization: The floating charge transforms to a fixed charge when the borrowing company enters liquidation or defaults on the terms of the charge.

Duty to Register Charges [Section 77]

• Registration Responsibility: The company creating a charge is required to register it within 30 days of creation.
• Registrar of Companies: Registration is done with the Register of Companies.
• Consequences of Non-Registration: Charges that are not registered are effectively void against the liquidator and the creditors, and the charge holder drops to unsecured creditor status.
• Additional Time: Potential extensions to the 30 day registration period, with fees applicable.

Verification of Instrument of Charge

• Verification Procedures: Copies of instruments must be verified following specific procedures depending on the location of the property.

Extension of Time Limits

• Default Period: The standard registration period is 30 days
• Extended Periods: Potential extensions to the initial time period under specific circumstances (e.g., if the charge was made before a certain date), with fees applicable.

Registration of Charges (by Charge Holder) [Section 78]

• Registrar's Role: If the company creating the charge doesn't register it, the charge holder can apply to the Registrar for registration of the charge.
• Notice to the Company: The Registrar gives notice to the original company.
• Objection Handling: If the original company objects, they must provide a valid reason for not registering the charge.
• Company Registration: If no objection is received, the registrar registers the charge.

Acquisition of Property Subject to Charge [Section 79]

• Transfer of Existing Charges: Any company acquiring property subject to a registered charge is responsible to register the charge in their name.
• Modification of Charges: Any change or amendment to an existing charge is treated as a new charge, requiring registration with the Registrar.

Register of Charges [Section 81]

• Maintained by the Registrar: The Registrar is responsible for maintaining a register of charges.
• Information to be Included: The register should include details of registered charges, property or assets, and associated particulars.

Company's Register of Charges [Section 85]

• Company's Role: Companies are required to maintain the register of charges within their registered office.
• Register Content: The register should include details of all charges (and floating charges) affecting any of the company's assets or undertakings.

Intimation of Satisfaction of Charge [Section 82]

• Company Notification Requirement: When a charge is fully or partially satisfied, the company must inform the Registrar within 30 days, or within a longer extended time period.
• Notice to Charge Holder: The Registrar will send a notice to the charge holder to verify the satisfaction.
• Registrar's Action: If no cause is shown, entry of satisfaction is made, and the charge holder is informed. If a cause is shown, details will be amended in the register.

Registrar's Entry on Absence of Intimation [Section 83]

• Registrar's Authority: The Registrar has power to register satisfaction of charges or release of charges even if there's no intimation from the company.
• Evidence of Satisfaction: The Registrar can record entries based on appropriate evidence of satisfaction.

Appointment of Receiver or Manager [Section 84]

• Receiver/Manager Appointment: If a receiver or manager is appointed for assets subject to a charge, the details (including copy of the order) need to be submitted to the company and the Register and registered.

Punishment for Contravention [Section 86]

• Default Penalties: Companies and officers who default in complying with charge registration provisions face penalties.
• Incorrect Information: Providing false or incorrect information can attract penalties.

Rectification by Central Government [Section 87]

• Central Government's Power: The Central Government can order rectification of the register under specific default circumstances.

Chapter Summary

• Key Principles: Registration of charges, handling charges created before and after a specific date, company's duty, penalties, and procedures for extensions and rectification of mistakes.