Charge is a financial security created by the Company on its property or assets in lieu of securing the loan taken by the Company(s) from financial institutions/banks.
In simple words, ‘Charge’ is the interest of the creditor in the assets provided by the debtor as security to the former in the event of a secured loan.
Charge gives a right of lien over the property to the creditor, i.e., the creditor can have the possession of the property till the debt is fully repaid to him by the debtor.
DEFINITIONS OF CHARGE UNDER DIFFERENT ACTS
- As per Section 2(16) of Companies Act, 2013, Charge means 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.
- As per Transfer of Property Act 1882, Charge means an interest created over an immovable property for securing payment of the amount which is due to the party. The property is not transferred to the lender and only interest is created.
- As per Insolvency and Bankruptcy Code 2016, Charge means an interest or lien created on the property or assets of any person or any of its undertakings or both, as the case may be, as security and includes a mortgage.
RELEVANT SECTIONS & RULES
Section 77-87 of Companies Act, 2013 & Rule 3-12 of the Companies (Registration of Charges) Rules, 2014.
IS A CHARGE SIMILAR TO A MORTGAGE?
Both charge and mortgage are security transactions relating to land. But when charge is created on an immovable asset then it is known as mortgage.
TYPES OF CHARGE
- Fixed Charge
- Floating Charge
DUTY TO REGISTER CHARGE
As per Section 77 of Companies Act, 2013 and Rule 3 of Companies (Registration of Charges) Rules, 2014, it shall be duty of every company, creating a charge within 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 such form, on payment of such fees and in such manner as may be prescribed by the Registrar within 30 days of its creation.
Registrar may on an application by the company allow such registration to be made:
- In case of charge created before the commencement of Companies (Amendment) Ordinance, 2019 then within a period of 300 days of such creation.
Provided that the registration of the charge shall be made within 6 (Six) months from the date of commencement of the Companies (Amendment) Ordinance, 2019, on payment of such additional fees as may be prescribed and different fees may be prescribed for different classes of Companies;
- In case of charge created on or after the commencement of the Companies (Amendment) Ordinance, 2019 then within a period of 60 days of such creation, on payment of such additional fees as may be prescribed.
Provided that the Registrar may, on an application, allow such registration to be made within a further period of 60 (Sixty) days after payment of such advalorem fees as may be prescribed.
As per Rule 4 of Companies (Registration of Charges) Rules, 2014, the Registrar on being satisfied that the company had sufficient cause for not filing the particulars and instruments of charge, if any, within the period of 30 days of the date of creation of the charge including modification thereto, allow the registration of the same after 30 days but within the period specified above, on payment of fee, additional fee or advalorem fee, as may be applicable.
REGISTER OF CHARGES
As per Section 81 of Companies Act, 2013, Registrar shall keep a register containing particulars of the charge registered, in such form and in such manner as may be prescribed.
As per Rule 7 of Companies (Registration of Charges), Rules, 2014, Register shall be open to inspection by any person on payment of fee.
As per Section 85 of Companies Act, 2013, every company shall keep at its registered office a register of charges in Form CHG-7 which shall include therein all charges and floating charges affecting any property or assets of the company or any of its undertakings.
As per Rule 10 of Companies (Registration of Charges) Rules, 2014, the register of charge shall be preserved permanently and the instrument creating a charge or modification thereon shall be preserved for a period of 8 years from the date of satisfaction of charge by the company.
As per Rule 11 of Companies (Registration of Charges) Rules, 2014, the register of charge and the instrument of charge kept by the company shall be open for inspection:
- by any member or creditor of the company without fees,
- by any other person on payment of fee.
SATISFACTION OF CHARGE
As per Section 82 of Companies Act, 2013, every company shall intimate the ROC of the payment or satisfaction (in full) of any charge relating to the company within 30 days from the date of such payment or satisfaction in Form CHG-4.
Provided that the Registrar may, on an application by the Company or the charge holder, allow such intimation of payment or satisfaction to be made within a period of 300 days of such payment or satisfaction on payment of such additional fees.
- If e-form CHG-4 is filed within 30 days of such satisfaction then only Normal Fees would be levied.
- If e-form CHG-4 is filed within upto 300 (30+270) days of such satisfaction then Normal Fees and Additional Fees shall be levied.
- If e-form is not filed upto 300 days of such satisfaction then Normal Fees, Additional Fees as well as Condonation Fees.
PUNISHMENT FOR CONTRAVENTION
As per Section 86 of Companies Act, 2013, if any Company contravenes any provision of this Chapter, the Company shall be punishable with fine which shall not be less than Rs.5,00,000/- and every officer of the Company who is in default shall be liable to a penalty of Rs.50,000/-.
VARIOUS FORMS USED UNDER THIS CHAPTER
|S. No.||Form Name||Purpose|
|1.||CHG-1||Creating or modifying the charge (other than debentures)|
|2.||CHG-2||Certificate of registration|
|3.||CHG-3||Certificate of modification of charge|
|4.||CHG-4||Intimation of satisfaction to the ROC|
|5.||CHG-5||Memorandum of satisfaction of charge|
|6.||CHG-6||Notice of appointment or cessation of receiver or manager|
|7.||CHG-7||Register of charges|
|8.||CHG-8||Application for condonation of delay shall be filed with the Central Government|
|9.||CHG-9||Creating or modifying the charge (for debentures)|
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TEAM SIGMA LEGAL