2024 (11) TMI 266 - HC - Companies Law

Requirement of digital signatures for processing Form CHG-1 for charge registration - Section 78 of the Companies Act, 2013 - HELD THAT - This Court is of the view that Section 78 of the Act is resorted to only after a company has failed to register a charge as mandated under Section 77 of the Act thereby indicating a lapse or refusal on the part of the company to fulfil its statutory obligations. In such cases, expecting a person in whose favour the charge is created to obtain digital signatures from the company itself contradicts the very scenario Section 78 is designed to address. This stance is further supported by the instructions for form CHG-1, which do not explicitly accommodate situations where the company s cooperation can be presumed absent. Therefore, insisting on digital signatures in the form from a company who is refusing to register the charge in such circumstances would unduly hinder the rights of charge holders to secure their interests when a company defaults on their statutory duty under Section 77 of the Act. This Court is in agreement with the view of the learned Single Judge that the requirement for digital signatures from the company, while filing form CHG-1 under Section 78 of the Act, should not be insisted upon. This Court finds no ground to interfere with the impugned order. Accordingly, the present appeal along with the applications is dismissed.

Summary

Issues:
Interpretation of Section 78 of the Companies Act, 2013 regarding the requirement of digital signatures for processing Form CHG-1 for charge registration.

Analysis:
The appeal challenged an order directing the Appellants to allow processing of applications under Form CHG-1 without requiring digital signatures of the company against whom the charges are to be registered under Section 78 of the Companies Act, 2013. The Appellants argued that the Act mandates digital submission of Form CHG-1 for charge registration within the stipulated time. The Petitioner/Respondent had not followed due process and submitted a letter instead of the required form, leading to non-registration of the charge. The Appellants had processed other applications without digital signatures but faced allegations of hindering registration due to the digital signature requirement.

The Appellants contended that a mechanism for registration without digital signatures already existed, and the Central Government had authority to determine electronic forms for charge registration. They argued that directing them to explore alternate methods contradicted established law. The Court noted that Section 78 is invoked when a company fails to register a charge under Section 77, indicating a lapse on the company's part. Requiring digital signatures from a non-cooperative company would hinder charge holders' rights when a company defaults on statutory duties. The Court agreed with the Single Judge that digital signatures should not be insisted upon for Form CHG-1 under Section 78.

The Court emphasized that merely stating the requirement is not being insisted upon is insufficient, as it may deter law-abiding citizens unfamiliar with the process from applying under Section 78. Ultimately, the Court found no grounds to interfere with the order and dismissed the appeal, affirming the directive to allow processing of Form CHG-1 without mandating digital signatures.