Registration of Charges under Companies Act, 2013

A charge is a right created by any person including a company referred to as “the borrower” on its assets and properties, present and future, in favour of a financial institution or a bank, referred to as “the lender”, which has agreed to extend financial assistance. A charge may be fixed or floating depending upon its nature.[1]

Section 2(16) of the Companies Act, 2013 defines charges so as to mean 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.

 The following are the essential features of the charge which are as under:

•   There should be two parties to the transaction, the creator of the charge and the charge holder.
•  The subject-matter of charge, which may be current or future assets and other properties of the borrower.
•  The intention of the borrower to offer one or more of its specific assets or properties as security for repayment of the borrowed money together with payment of interest at the agreed rate should be manifested by an agreement entered into by him in favour of the lender, written or otherwise.

Need To Create Charge

When a company is in requirement of funds they may approach banks/ financial institutions for loans against the security of the assets of the company. However in the Multiple Banking lending where the same assets are offered as security for different banks question arises as to priority in respect of the charges in favour of different institutions.

The assets may be offered to the lending Banks with the consent of all the lenders, on pari passu charge basis, i.e., on the same footing. However if the earlier lending institution is not willing to share the priority over the assets on pari passu basis, the situation may be managed by securing consent of the earlier lending institutions to the creation of second and subsequent charges on the same assets. With their consents, the charges of all the lending institutions rank pari passu, i.e. on the same footing. However, the earlier lending institution may not give its consent to the creation of second charge on the ground that the realisable value of the asset charged in its favour is not adequate to cover its loan and as such it cannot share its right of charge with the lending institutions which seek second and subsequent charges.

Primarily, under section 77 of the Companies Act, 2013 every company creating a charge shall register the particulars of charge signed by the company and its charge – holder together with the instruments creating.

  Important points in the Act relating to charge creation:

 Any charge created within or outside India - on property or assets or any of the company’s undertakings - Whether tangible or otherwise,-  situated in or outside India shall be registered. Hence all types of charges are required under the Act to be registered whether created within or outside India.

Time limit for registration of a Charge (Under 2013 Amendment Act): A charge created by a company is required to be registered with the Registrar within thirty days of its creation in such form and on payment of such fees as may be prescribed.

Condonation of delay by Registrar: The Registrar may on an application by the company allow registration of charge within three hundred days of creation or modification of charge on payment of additional fee. 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 date of creation of the charge, allow the registration of the same after thirty days but within a period of three hundred days of the date of such creation of charge or modification of charge on payment of additional fee. The application for delay shall be made in Form No.CHG-10 and supported by a declaration from the company signed by its secretary or director that such belated filing shall not adversely affect rights of any other intervening creditors of the company.

Condonation of delay by the Central Government: If company fails to register the charge even within this period of three hundred days, it may seek extension of time in accordance with Section 87 from the Central Government.