Charge – Point to be remembered

Verification of Instruments

Rule 3 of The Companies (Registration of Charges) Rules, 2014  states that a copy of every instrument evidencing any creation or modification of charge and required to be filed with the Registrar shall be verified as follows:

Location of PropertyManner of Certification
Situated outside IndiaA certificate issued either under the seal of the company under the hand of any director or company secretary of the company or an authorised officer of the charge holder or under the hand of some person other than the company who is interested in the mortgage or charge
Situated in Indiathe copy shall be verified by a certificate issued under the hand of any director or company secretary of the company or an authorised officer of the charge holder
  • Intimation of Appointment of Receiver or Manager

Section 84 of Companies Act,2013 specifies that where any person obtains an order of the Court for appointment of any receiver or manager of the property of any company, subject to a charge or appoints such person or receiver under the power of any instrument, he shall notify the Registrar in Form CHG-6 within 30 days of such order/appointment.

The person appointed as receiver or manager shall also notify the Registrar in Form CHG-6 about the cessation of such appointment within 30 days of such cessation.

  • Company’s Register of Charges

Section 85 of Companies Act,2013 read with Rule 10 of The Companies (Registration of Charges) Rules, 2014  states that every Company is required to maintain a Register of Charges in Form CHG.7 wherein details of creation, modification and satisfaction is entered.

These entries in the register shall be authenticated by a director or the secretary of the company or any other person authorised by the Board for the purpose

The register of charges shall be preserved permanently

Also the instrument creating a charge or modification thereon shall be preserved for a period of eight years from the date of satisfaction of charge by the company.

Inspection of Register of Charges

The register of charges and the instrument of charges kept by the company shall be open for inspection in business hour i.e. 9.00 AM to 6.00 PM-

(a) by any member or creditor of the company without fees;

(b) by any other person on payment of fee.

  • Default in Registration of Charge by the Company

As per section 78 of Companies Act, 2013, If a Company fails to register charge as stated above, the Charge holder may register the charge with the Registrar of Companies.

However, the catch is that such charge-holder shall be entitled to recover from the company the amount of any fees or additional fees or advalorem fees paid by him ‘to the Registrar for the purpose of registration of charge.

  • Deemed Notice of the Charge

Section 80 of Companies Act,2013 states that where any charge on any property or assets of a company or any of its undertakings is registered as stated above, 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.

  • Punishment for Contravention

Since Charge creation has legal implication on properties of the Company and it also effects the interest of the lender, Ministry of Corporate Affairs has imposed high penalty in case of any contravention which is elaborated in section 86 of Companies Act,2013.

Punishment for CompanyFine of Rs. 1 lakh upto 10 lakh
Punishment for Officer in DefaultMinimum fine amount Rs.25,000 uptoRs. 10 lakh & Imprisonment for maximum term of 6 months
  • Rectification by Central Government in Register of Charges

Company may make omission in submitting charge creation/modification/satisfaction form or file inadvertently wrong information in submission of charge forms.

In such situation Company may make an application in CHG 8 to the Central Government to rectify the Register of Charges or provide time to file the forms under section 87 of Companies Act,2013.

Summary of Charge Process

  • Lender and Borrower enters into an agreement for credit facility
  • Borrower will file Form CHG_1/ CHG-9 (in case of debentures) for creation of Charge and gets certificate from the Registrar in CHG-2
  • If any modification is made in instrument, file again CHG-1 specifying modification and gets the certificate from the Registrar in CHG-3
  • After repayment of loan borrower will file CHG-4and gets the certificate from the Registrar in CHG-5
  • Maintain and update register of charges in Form CHG-7 and update it till satisfaction of charge.
  • In case any delay is made in filing File CHG-8 for condonation of delay.

Summary of Forms to be filed with Charge/ Certificates issues thereunder

FormPurpose
CHG-1Creation of Charge/Modification of Charge
CHG-2Certificate of Registration of charge.
CHG-3Certificate of Modification of charge.
CHG-4Satisfaction of Charge
CHG-5Memorandum of satisfaction of charge.
CHG-6Notice of appointment or cessation or receiver or manager
CHG-7Register of charges to be maintained by Company
CHG-8Application for condonation of delay shall be filed the Central Government.
CHG-9Creation of charge on debentures

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