Charge Creation, Modification and Satisfaction Under Companies Act, 2013

Charge Creation, Modification and Satisfaction Under Companies Act, 2013. Charge:
As per section 2(16) of the 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.
In simple terms, a charge is a right created by any person referred to as “borrower” on its assets and properties, in favor of a “lender” in return for monetary help.
Companies have two sources of borrowings – Issuing Debentures or borrowing from banks or financial institutions. When Companies borrow from banks or financial institutions, they have to create a charge on the financial assets, to secure the money of the lender. Ways of creating charges are by creating loan agreements, hypothecation agreements, mortgages.
Duty to Register a Charge:
As per Section 77 of the Companies Act, 2013, it is the duty of every Company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, to register the particulars of the charge signed by the company and the charge-holder (lender) together with the instruments (example: loan agreements).
Time Limit for Creation of Charge:
According to the Companies Act, 2013, a Charge created by a Company shall be registered within 30 days of the creation of charge in Form CHG-1 (for other than Debentures) or Form CHG-9 (for debentures including rectification).
Condonation of Delay:

In case a charge is created before the commencement of the Companies (Amendment) Ordinance, 2019, i.e. before 02nd January, 2019 then it has an option to register the same within a period of three hundred days of such creation or if it fails to register the same within a period of three hundred days of such creation then the registration of the charge shall be made within six months from the date of commencement of the Companies (Amendment) Ordinance, 2019, on payment of such additional fees as may be prescribed.

In case a charge is created after the commencement of the Companies (Amendment) Ordinance, 2019, then it has an option to register the same within a period of sixty days of such creation, on payment of such additional fees as may be prescribed. Provided further that if the registration is not made within sixty days of such creation the Registrar may, on an application, allow such registration to be made within a further period of sixty days after payment of such ad Valoremfees as may be prescribed.

Note - Any subsequent registration of a charge shall not affect any right acquired in respect of any property before the charge is registered.
Example - XYZ Ltd. create a charge on its property in favour of “ABC Ltd.” but it fails to register the same within 30 days. Later XYZ Ltd. created the charge on the same property in favour of “PQR Ltd” and register the same within 30 days. Later on, a charge created in favour of ABC Ltd. was also registered. Thus, in this case, PQR Ltd. will have the first charge on the property as its charge was registered before ABC Ltd. irrespective of the fact that it was created after.
Section 77 (Duty to Register Charge) of the Companies Act, 2013 shall not apply to such charges as may be prescribed in consultation with the Reserve Bank of India.
Option to charge holder for Registration of Charge:

According to Section 78 of the Companies Act, 2013, where a company fails to register the charge within the period specified above, the person in whose favour the charge is created may also apply to the Registrar for registration of the charge Form CHG-1 (for other than Debentures) or Form CHG-9 (for debentures including rectification).

The registrar may on such application, give notice to the company about such application. The company may either itself register the charge or shows sufficient cause why such charge should not be registered. If no response is received from the Company within fourteen days after giving notice to the company the Registrar may allow registration of such charge.

The charge holder shall be entitled to recover from the company, the amount of any fee or additional fees paid by him to the Registrar for registration of charge.

Certificate of Registration of Charge:
On Registration of Charge, Registrar issue a Certificate of Registration of Charge in Form CHG-2 (Certificate of Registration of Charge) to the Company and to the person in whose favour the charge is created.
Where any charge on any property or assets of a company or any of its undertakings is registered under section 77 then 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.
Modification of Charge:
It means modifications i.e. changes in the terms and conditions or the extent or operation of any charge that is registered with the Registrar. Provisions for registration of charge shall apply mutatis mutandis on the modification of charges.
Satisfaction of Charge:

Intimation of payment or satisfaction of charge is to be made in Form CHG-4 (Intimation to the Registrar regarding particulars for the satisfaction of charge) along with the fee to the Registrar by a Company or Charge Holder within a 30 (Thirty) days from the date of payment or satisfaction of charge.

Provided that on an application by the company or the charge holder, a condonation of three hundred days are allowed on payment of such additional fees as may be prescribed.

The Registrar shall send a notice to the holder of the charge calling upon him to show within fourteen days, as to why payment or satisfaction in full should not be recorded as intimated to the Registrar, and if no cause is shown by the holder of the charge, the Registrar shall enter a memorandum of satisfaction in the register of charges kept by him under Section 81 of Companies Act, 2013 and shall intimate the same to the Company.

Provided that the notice shall not be required to be sent to the holder of charge, in case the intimation to the Registrar in this regard is in Form CHG-4 and it is already signed by the holder of charge.
If the holder of the charge shows any cause the Registrar shall record the same in the register of charges and shall inform the company.
Certificate of Registration of Charge:
Where the Registrar enters a memorandum of satisfaction of charge in full a certificate of registration of satisfaction of charge in Form CHG-5 (Certificate of registration of satisfaction of the charge) is issued by the Registrar.
Register of Charges to be kept by Registrar:

The Registrar shall keep a register containing particulars of the charges registered in such manner as may be prescribed which shall be open to inspection by any person on payment of fees as may be prescribed.

The Registrar may on satisfaction with respect to any registered charge enter in the register of charges a memorandum of satisfaction in whole or in part.

Every company shall keep at its registered office a register of charges in such form and such manner as may be prescribed with a copy of the instrument of creation of the charge.

Each entry in the register of charge shall be authenticated by a director or the Company Secretary of the Company or any other person authorized by the Board for the purpose.

The register of charges and instrument of charges shall be open for inspection during 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 as the company may, by its articles, impose.
Penality:

If any company is in default in complying with any of the provisions the company shall be liable to a penalty of Rs. 5,00,000 (Five Lakh rupees) and every officer of the company who is in default shall be liable to a penalty of Rs. 50,000 (Fifty Thousand rupees).

If any person willfully furnishes any false or incorrect information or knowingly suppresses any material information which is required to be registered in accordance with the provisions of Section 77 of the Companies Act, 2013, then he shall be liable for action under section 447 of the Companies Act, 2013.

Quick review of Charge Forms:

Name of Forms

Particulars

CHG-1

Application for registration of creation, modification of charge (other than those related to debentures)

CHG-2

Certificate of registration of charge

CHG-3

Certificate of modification of charge

CHG-4

Particulars for satisfaction of charge thereof

CHG-5

Certificate of registration of satisfaction of the charge

CHG-6

Notice of appointment or cessation of receiver or manager

CHG-7

CHG-8

Application to Central Government for extension of time for filing particulars of registration of creation/modification/satisfaction of charge OR for rectification of omission or misstatement of any particular in respect of creation/ modification/ satisfaction of charge

CHG-9

Application for registration of creation or modification of charge for debentures or rectification of particulars filed in respect of creation or modification of charge for debentures

If you are stuck, not finding answer and need a professional level support, you are welcome to write to us at info@ccoffice.in and we will get back to you at the earliest possible.

Charge:

As per section 2(16) of the 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.

In simple terms, a charge is a right created by any person referred to as “borrower” on its assets and properties, in favor of a “lender” in return for monetary help.

Companies have two sources of borrowings – Issuing Debentures or borrowing from banks or financial institutions. When Companies borrow from banks or financial institutions, they have to create a charge on the financial assets, to secure the money of the lender. Ways of creating charges are by creating loan agreements, hypothecation agreements, mortgages.

Duty to Register a Charge:

As per Section 77 of the Companies Act, 2013, it is the duty of every Company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, to register the particulars of the charge signed by the company and the charge-holder (lender) together with the instruments (example: loan agreements).

Time Limit for Creation of Charge:

According to the Companies Act, 2013, a Charge created by a Company shall be registered within 30 days of the creation of charge in Form CHG-1 (for other than Debentures) or Form CHG-9 (for debentures including rectification).

Condonation of Delay:

In case a charge is created before the commencement of the Companies (Amendment) Ordinance, 2019, i.e. before 02nd January, 2019 then it has an option to register the same within a period of three hundred days of such creation or if it fails to register the same within a period of three hundred days of such creation then the registration of the charge shall be made within six months from the date of commencement of the Companies (Amendment) Ordinance, 2019, on payment of such additional fees as may be prescribed.
In case a charge is created after the commencement of the Companies (Amendment) Ordinance, 2019, then it has an option to register the same within a period of sixty days of such creation, on payment of such additional fees as may be prescribed. Provided further that if the registration is not made within sixty days of such creation the Registrar may, on an application, allow such registration to be made within a further period of sixty days after payment of such ad Valoremfees as may be prescribed.

Note - Any subsequent registration of a charge shall not affect any right acquired in respect of any property before the charge is registered.

Example - XYZ Ltd. create a charge on its property in favour of “ABC Ltd.” but it fails to register the same within 30 days. Later XYZ Ltd. created the charge on the same property in favour of “PQR Ltd” and register the same within 30 days. Later on, a charge created in favour of ABC Ltd. was also registered. Thus, in this case, PQR Ltd. will have the first charge on the property as its charge was registered before ABC Ltd. irrespective of the fact that it was created after.

Section 77 (Duty to Register Charge) of the Companies Act, 2013 shall not apply to such charges as may be prescribed in consultation with the Reserve Bank of India.

Option to charge holder for Registration of Charge:

According to Section 78 of the Companies Act, 2013, where a company fails to register the charge within the period specified above, the person in whose favour the charge is created may also apply to the Registrar for registration of the charge Form CHG-1 (for other than Debentures) or Form CHG-9 (for debentures including rectification).
The registrar may on such application, give notice to the company about such application. The company may either itself register the charge or shows sufficient cause why such charge should not be registered. If no response is received from the Company within fourteen days after giving notice to the company the Registrar may allow registration of such charge.
The charge holder shall be entitled to recover from the company, the amount of any fee or additional fees paid by him to the Registrar for registration of charge.

Certificate of Registration of Charge:

On Registration of Charge, Registrar issue a Certificate of Registration of Charge in Form CHG-2 (Certificate of Registration of Charge) to the Company and to the person in whose favour the charge is created.

Where any charge on any property or assets of a company or any of its undertakings is registered under section 77 then 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.

Modification of Charge:

It means modifications i.e. changes in the terms and conditions or the extent or operation of any charge that is registered with the Registrar. Provisions for registration of charge shall apply mutatis mutandis on the modification of charges.

Satisfaction of Charge:

Intimation of payment or satisfaction of charge is to be made in Form CHG-4 (Intimation to the Registrar regarding particulars for the satisfaction of charge) along with the fee to the Registrar by a Company or Charge Holder within a 30 (Thirty) days from the date of payment or satisfaction of charge.

Provided that on an application by the company or the charge holder, a condonation of three hundred days are allowed on payment of such additional fees as may be prescribed.

The Registrar shall send a notice to the holder of the charge calling upon him to show within fourteen days, as to why payment or satisfaction in full should not be recorded as intimated to the Registrar, and if no cause is shown by the holder of the charge, the Registrar shall enter a memorandum of satisfaction in the register of charges kept by him under Section 81 of Companies Act, 2013 and shall intimate the same to the Company.

If the holder of the charge shows any cause the Registrar shall record the same in the register of charges and shall inform the company.

Certificate of Registration of Charge:

Where the Registrar enters a memorandum of satisfaction of charge in full a certificate of registration of satisfaction of charge in Form CHG-5 (Certificate of registration of satisfaction of the charge) is issued by the Registrar.

Register of Charges to be kept by Registrar:

The Registrar shall keep a register containing particulars of the charges registered in such manner as may be prescribed which shall be open to inspection by any person on payment of fees as may be prescribed.
The Registrar may on satisfaction with respect to any registered charge enter in the register of charges a memorandum of satisfaction in whole or in part.

Register of charge to be maintained by Company:

Every company shall keep at its registered office a register of charges in such form and such manner as may be prescribed with a copy of the instrument of creation of the charge.

Each entry in the register of charge shall be authenticated by a director or the Company Secretary of the Company or any other person authorized by the Board for the purpose.
The register of charges and instrument of charges shall be open for inspection during 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 as the company may, by its articles, impose.

Penality:

If any company is in default in complying with any of the provisions the company shall be liable to a penalty of Rs. 5,00,000 (Five Lakh rupees) and every officer of the company who is in default shall be liable to a penalty of Rs. 50,000 (Fifty Thousand rupees).
If any person willfully furnishes any false or incorrect information or knowingly suppresses any material information which is required to be registered in accordance with the provisions of Section 77 of the Companies Act, 2013, then he shall be liable for action under section 447 of the Companies Act, 2013.

Quick review of Charge Forms:

Name of Forms	Particulars
CHG-1	Application for registration of creation, modification of charge (other than those related to debentures)
CHG-2	Certificate of registration of charge
CHG-3	Certificate of modification of charge
CHG-4	Particulars for satisfaction of charge thereof
CHG-5	Certificate of registration of satisfaction of the charge
CHG-6	Notice of appointment or cessation of receiver or manager
CHG-7	Register of charges created, modified and satisfaction by the company
CHG-8	Application to Central Government for extension of time for filing particulars of registration of creation/modification/satisfaction of charge OR for rectification of omission or misstatement of any particular in respect of creation/ modification/ satisfaction of charge
CHG-9	Application for registration of creation or modification of charge for debentures or rectification of particulars filed in respect of creation or modification of charge for debentures

If you are stuck, not finding answer and need a professional level support, you are welcome to write to us at info@ccoffice.in and we will get back to you at the earliest possible.