PROVISIONS RELATING TO ‘CHARGES’ UNDER COMPANIES ACT, 2013

[Mr. M. GOVINDARAJAN]

Section 2(16) of Companies Act, 2013 (‘Act’ for brevity) defines the term ‘charge’ 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.

Chapter VI of the Act deals with registration of charges. The following are the sections of the Act dealing with the charges:

• Section 77 - duty of the company to register charges etc.,;
• Section 78 – Application for registration of charges;
• Section 79 – Section 77 to apply in certain cases;
• Section 80 – date of notice of charges;
• Section 81 – Registrar of charges to be kept by Registrar;
• Section 82 – Company to report satisfaction of charges;
• Section 83 – Power of Registrar to make entries of satisfaction and release in absence of intimation from company;
• Section 84 – Intimation of appointment of receiver or manager;
• Section 85 – Companies Register of Charges;
• Section 86 – Punishment for contravention;
• Section 87 – Rectification by Central Government in Registration of Charges;
• Section 384 (4) – Chapter VI applicable to foreign companies.

Obligation of company to register charges

Section 77 imposes an obligation of every company, which is creating charge-

• Within India or outside India
• On its properties or assets or any of its undertakings
• Whether tangible or otherwise and situated in or outside India to register the particulars of charge signed by the company and the charge holder together with the instruments, if any, creating such charge in Form 6.1. on payment of such fees and in such manner as may be prescribed, with the Registrar. The charge is to be registered within 30 days from the date of its creation.

If the company is unable to register charge within 30 days from the date of its creation, the proviso to this section allows the company to register charges within 300 days from the date of creation of charge by paying additional fees as may be prescribed.

Even if the registration could not be done within 300 days as indicated above the company can seek extension of time under Section 87 which will be discussed in the later part of this article.

Any subsequent registration of charges shall not prejudice any right acquired in respect of any property before the charge is actually registered.

On registration of charge by a company with the Registrar, the Registrar shall issue a certificate of registration of such charge in Form 6.2. and in such manner as may be prescribed to the company and, as the case may be, to the person in whose favor the charge is created.

At the time of winding up procedure, no charge created by the company shall be taken into account by the liquidator unless it is duly registered and certificate of registration of such charge is given by the Registrar.   This will not prejudice any contract or obligation for the repayment of money secured by a charge.

Charges required for registration

The draft Rule 6.1(3) provides the details of charges that require for registration as detailed below:

• A charge created for the purpose of securing any issue of debentures or deposits;
• A charge on uncalled share capital of the company;
• A charge on any immovable property, wherever situate, or any interest therein;
• A charge on any book debt of the company;
• A charge, not being a pledge, on any movable property of the company;
• A floating charge on the undertaking or any property of the company including stock-in-trade;
• A charge on calls made but not paid;
• A charge on a ship or any share in a ship;
• A charge on intangible assets, including goodwill, patent, a licence under a patent, trade mark, copyright or a licence under a copy right.

No charge by way of hypothecation of a motor vehicle shall require registration unless the financier, so requires. Provided the disclosures shall be given in the Balance Sheet regarding all such charges created by way of hypothecation of motor vehicles and the fact that charge has not been registered and the financiers have not required so.

Application for registration of charge

Section 78 provides that if a company fails to register the charges then the person in whose favor the charge is to be created may apply to the Registrar for registration of charge along with the instrument created for charge, within such time and in such form and in such manner as may be prescribed.   The Registrar may, on such application, within a period of 14 days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause why such charge should not be registered, allow such registration on payment of such fees, as may be prescribed. Such person may recover the cost of registration from the company.

Section 77 to apply in certain cases

Section 79 provides that the provisions relating to registration of charges shall apply to-

• A company acquiring any property subject to a charge within the meaning of that section; or
• Any modifications in the terms or conditions or the extent or operation of any charge registered under that section.

Where the particulars of modification of charge are registered under section 79, the Registrar shall issue a certificate of modification of charge in Form No. 6.3.

Verification of documents

The draft Rule prescribes that a copy of every instrument evidencing any creation or modification of charge shall be verified as follows:

• Where the instrument or deed relates solely to the property situate outside India, the copy shall be verified by a certificate issued under the seal of the company, or under the hand of any director or company secretary of the company or an authorized officer of the charge holder or under the hand of some person other than the company who is interested in the mortgage or charge, stating that it is a true copy;
• Where the instrument or deed relates, whether wholly or partly, to the property situate in India, the copy shall be verified by a certificate under the hand of any director or company secretary of the company or an authorized officer of the charge holder stating that it is a true copy.

 

Condonation of delay by Registrar

 

The draft rule 6.2. provides that the Registrar may, on being satisfied that the company had sufficient cause for not filing the particulars and instrument of charge, if any, within a period of thirty days of the creation of the charge, allow the registration of the same after thirty days but within a period of three hundred days of such creation of charge on payment of additional fee as may be prescribed. The application for condonation shall be supported by a declaration from the company by its secretary or director that such belated delay shall not adversely affect rights of any other creditors of the company.

Date of notice of charges

Section 80 provides that where any charge on any property or assets of a company or any of its undertakings is registered under Section 77, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration.

Registrar of charges to be kept by Registrar

Section 81 of the Act makes it obligatory on the part of the Registrar to keep a register in respect of every company, containing the particulars of charges registered in such form and in such manner as may be prescribed.   Such register shall be kept open to inspection by any person on payment of such fees as may be prescribed.

Company to report satisfaction of charges

Section 82 provides that a company shall intimate to the Registrar in the prescribed form of the particulars of payment or satisfaction of the charges registered with Registrar within 30 days from the date of such event. The Registrar on receipt of such application from the company shall issue a notice to the holder of charge for show cause within 14 days from the date of notice.   If no show cause is shown the Registrar shall order a memorandum of satisfaction in Form 6.5 and shall inform the company. If any cause shown the effect will be entered in the Register and the same shall be intimated to the company.

If the holder of charge intimated the satisfaction of the charge with his signature, then such notice shall not be issued to the holder of charge.   The provisions in this section will not affect the power of the Registrar to make an entry of satisfaction of charge on intimation received otherwise than the company.

Power of Registrar

Section 83 of the Act gives powers to Registrar to make entries of satisfaction and release in absence of intimation from company.   According to this section the Registrar may, on evidence being given to his satisfaction with respect to any registered charge-

• 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, enter in the register of charges a memorandum of satisfaction in whole or in party, or of the fact that part of the property or undertaking has been released from the charge or has ceased to form part of the company’s property or undertaking, as the case may be, notwithstanding the fact that no intimation has been received by him from the company. The Registrar shall inform the affected parties within 30 days of making the entry in the registrar of charges.

Intimation of appointment of receiver or Manager

Section 84 provides that if any person obtains an order for the appointment of a receiver, or of a person to manage the property, subject to a charge, of a company or if any person appoints such receiver or person under any power contained in any instrument, he shall, within a period of 30 days from the date of passing of the order or of the making of the appointment give notice of such appointment to the company and the Registrar along with a copy of the order or instrument in Form 6.6.   The Registrar shall on payment of the prescribed fees, register particulars of the receiver, person or instrument in the register of charges.   Any person ceasing to hold such appointment give to the company and the Registrar a notice to that effect and the Registrar shall register such notice.

Company’s register of charges

Section 85 of the Act provides that every company shall maintain register of charge in Form 6.7 and in such manner as may be prescribed at its registered office. The register shall include all charges and floating charges that may affect any property or assets of the company or its undertakings indicating in each case such particulars as may be prescribed.   A copy of the instrument creating the charge shall also be kept at the registered office of the company along with the Register of charges.  

The Register of charges and instrument of chargers shall be kept open for inspection by the company during the office business hours by-

• Any member or creditor without any payment of fees; or
• By any other person on payment of such fees as may be prescribed

subject to such reasonable restrictions that may be imposed by the company in its Articles.

Punishment

Section 86 of the Act provides punishment for contravention of the provisions of Chapter VI of the Act. If any company contravenes any provision of this Chapter, the company shall be punishable with fine which shall not be less than Re.1 lakh but which may extend to Rs.10 lakhs.   Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than Rs. 25,000/- but which may extend to Rs. 1 lakh or with both.

Rectification by Central Government in Registration of Charges

Section 87 of the Act provides that the Central Government on being satisfied that-

• 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
• The omission to register any charge with the time required or the omission to give intimation to the Registrar of the payment or the satisfaction of a charge, within the time required; or
• 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 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
• 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 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.

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.

Chapter VI applicable to foreign companies

Section 384 (4) of the Act provides that the provisions of Chapter VI shall apply mutatis mutandis to charges of properties which are created or acquired by any foreign company.

Discussions to this article

[Jayesh Shah]

When entire moveable and immoveable assets of the company are given as security for borrowing taken from bank and its charge is registered with ROC, whether a separate charge for lien mark on margin deposit for LC facility within the entire limit taken from bank is required or not?

now a days banks asks the companies to registered a charge for lien mark noted on FDR kept as margin.

Is separate charge for lien mark on fdr kept as margin is required to be registered ?