Get Yourself Familiar with Registration of Charge

 

If a company is looking to expand the business or wants to raise capital for financing large-scale projects, then borrowing funds from external agencies will be the most important source. Loans obtained by the company by way of corporate borrowings are to create a charge on the assets as security to the lender company.

According to the Company’s Act of 2013 “charge” is referred to an interest or a lien created on the property or the assets of a company or any of its undertakings or both as security that includes mortgage, pledge, and hypothecation. The Company’s Act lay down for registration of charges with the Registrar of Companies.

Section 77(1) of the Act states that it is the duty of every company creating a charge whether located in India or outside on its property or assets or any undertakings to register the particulars of the charge. Moreover, the ‘charge’ has to be signed by the company and the holder of the charge with the Registrar of Companies within a time frame of 30 days of its creation.

Charges can be classified into 2 categories namely;

• Fixed Charge
• Floating Charge

Fixed Charge – They are the charge which is created in respect of assets that is analyzed and ascertained at the time of creation of charge. Fixed Charge is created in respect of specific assets of the company like buildings, plant & machinery etc. In such cases, until the loan amount is repaid in full the company loses its right to sell off such assets.

Floating Charge – Floating Charge refers to ‘Charge’ which is created in respect of the present and future assets of the company which is changing in the normal course of business from time to time. It is not created with respect to Fixed Charge but includes property of fluctuating nature like stock, debtors, working capital etc. However, it becomes a fixed charge only when the company goes into liquidation or when it terminates its business.

The method of registration of a charge is the filing of particulars of charge along with the instrument creating charge with the Registrar of Companies within the period specified in Section 77(1) of the Act. However, in case of failure to file the particulars within the specified period, the company can get the charge registered by seeking pardon from the Central Government. In other terms, this is also called as “rectification of the register of charges”.

The application form for registration of charge has to be submitted to the Registrar of Companies on payment of fee that is applicable in such manner as prescribed in the Companies (Registration of Charge) rules, 2014.

Charges that require registration are as follows:

• A charge for the purpose of securing any issue of debentures.
• The uncalled share capital of the company can become a charge.
• If a charge is executed by an individual that is created or evidenced by an instrument which would require registration as a bill of sale.
• A charge on the book debts of the company.
• A charge on calls made but not paid.

On registering the charge, it acts as a notice to the public at large indicating that the charge holder has an interest in the charged property. Once the Registrar of Companies issues the certificate of charge, it is conclusive proof of evidence stating that the document creating the charge is thoroughly registered.

What will be the effect of Non-Registration of Charges?

A charge which requires registration but not registered may face the following consequences.

• Creditors with an unregistered charge will assume the status of unsecured creditors at the time of liquidation.
• Security may become void but will not affect the obligation of the company to repay the money.
• Company shall be punishable with a fine ranging from Rs 1 lakh which may extend to Rs. 10 lakhs. Moreover, every officer of the company will be punishable with imprisonment that may extend for a period of 6 months along with the fine not less than Rs. 25,000 but may extend to Rs. 1 lakh or with both as may be prescribed in Section 86 of the Act.

Conclusion:

An application has to be made for registration of a charge to the Registrar of Companies in the specific format such that the Registrar of Companies after being satisfied with the application may issue a certification of registration of charge and entitle the company and its creditors to rights at the time of winding up.

Hope this blog would have given you some insights about Registration of Charge.aavana.in