In corporate sector, people are accustomed to raise debt fund, besides other option of fund raising i.e. investment in equity and preference, from the Banks, financial Institutions and NBFC etc. These debts are raised by the Companies either by securing their assets against the amount of loan or without any security on assets i.e. Unsecured Loan.
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.
In simple terms, when Company approaches any Bank/financial institution to avail credit facility for business purpose, Bank/financial institutions in return mortgage some property or asset of the Company for security purpose.
Creation of Charge is very significant process from point of view of a Company as it involves various legal implications and when analysed form broader perspective it affects the economy as well.
Chapter VI of Companies Act, 2013, The Companies (Registration of Charges) Rules, 2014 is solely dedicated to the provision of Charge, However, provisions of charge has recently gone through structural changes which is brought to the stake holder in various phases as given below.
The Companies (Registration of Charges) Rules, 2014: Effective from April 01, 2014.
The Companies (Amendment) Ordinance, 2018: Promulgated on November 2, 2018.
The Companies (Amendment) Ordinance, 2019: Promulgated on January 12, 2019. Repealing and replacing ordinance 2018
The Companies Amendment Act, 2019: Effective from 31st July 2019: Repealing ordinance 2019
Creation of Charge
“As per 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”
Creation of Charge is in simple terms making a record of the charge created by the lender by registering the same with the Registrar of Companies.
Onus: As per section 77(1) of the Companies Act, 2013 every Company shall be responsible to register the Charge with Registrar along with the instrument signed by the Company and the Charge holder.
Form to be filed: E form CHG-1
Timeline: within 30 days from creation of charge along with prescribed fees.
Acknowledgment by Registrar: Post registration of Charge the Registrar of Companies will issue a certificate in form of CHG-2 known as “Certificate of registration of charge”
|Time period when Charge created||Time period for filing form||Further Extension||Additional Fees for extension|
|If charge is created before the commencement of the Companies (Amendment) Ordinance, 2019 i.e. Before January 12,2019||within a period of 300 days of such creation||within 6 months from the date of commencement of the Companies (Amendment) Ordinance, 2019||Fees will be calculated on basis of delay in number of days|
|If charge is created after the commencement of the Companies (Amendment) Ordinance, 2019 i.e. After January 12,2019||within a period of sixty days of such creation||within a further period of 60 days||Advalorem fees will be charged|
Modification of Charge
Whenever an agreement is entered into between two parties, a modification clause is generally mentioned whereby any modification can be made upon consent of both parties.
Now, it may happen that a Company has availed credit facility and registered the charge accordingly, later on there is some alterations in the instrument of charge for example Company makes some prepayment and banks have agreed to reduce the amount of instalments.
In such case as charge is already being filed, a modification is required to be made in existing filed charge form.
Section 77 & 79 of the Companies Act, 2013 mentions the process of modification which is almost similar to creation of charge.
Onus to file modification in charge: Company is required to file modified instrument of Charge with the Registrar of Companies.
Form to be filed: E form CHG-1
Timeline: Within 30 days from creation of charge along with prescribed fees.
Extended timeline: Same as in case of Charge creation
Acknowledgment by Registrar: Post registration of Modification in Charge the Registrar of Companies will issue a certificate in form of CHG-3 known as “Certificate of registration of modification of charge.”
Satisfaction of Charge
As the name suggests, whenever loan amount along with interest as may be applicable is paid off by the Company the charge will be considered as satisfied but Company has to intimate the Registrar of Companies regarding the satisfaction.
Section 82 of Companies Act,2013 and rule 8 of The Companies (Registration of Charges) Rules, 2014 deals with the satisfaction of charges.
Below given are some points to keep in mind for satisfaction of charge.
Onus to file satisfaction: Company is under obligation to file satisfaction of Charge with the Registrar of Companies.
Form to be filed: E form CHG-4
Timeline: Within 30 days the date of the payment or satisfaction in full.
Extended timeline: Within a period of 300 days of such payment or satisfaction on payment of such additional fees as may be prescribed.
Acknowledgment by Registrar: Post submission of form, memorandum of satisfaction will be issued by the Registrar in Form No.CHG-5.
However if CHG-4 is not signed by the charge holder, the Registrar will send a show cause notice to the charge holder as to why satisfaction should not be recorded.
If charge holder objects the satisfaction the same shall be communicated to the Company and actions will be taken accordingly.
If charge holder doesn’t reply in 14 days the Registrar will a certificate of registration of satisfaction of charge.
Charge on Secured Debentures
As per section 71(3) secured debentures shall be secured by the creation of a charge on the properties or assets of the company or its subsidiaries or its holding company or its associates companies, having a value which is sufficient for the due repayment of the amount of debentures and interest thereon.
The security for the debentures by way of a charge or mortgage shall be created in favour of the debenture trustee.
Rule 3 of The Companies (Registration of Charges) Rules, 2014 provides particulars of form to be filed for charge creation on debentures.
Onus to file satisfaction: Company is under obligation to file creation of Charge for debentures with the Registrar of Companies.
Form to be filed: E form CHG-9
Timeline: Within 30 days from the date of creation.
Extended timeline: Same as given for CHG-1
Acknowledgment by Registrar: Post registration of Charge the Registrar of Companies will issue a certificate in form of CHG-2 known as “Certificate of registration of charge