Risks of Ignoring Timely Registration of Charges

Types of Charges

The charge can be either a fixed charge or a floating charge.

Fixed or Specific Charge – When a charge is created on a fixed property or asset which is identifiable and certain over the period of loan, it is termed as fixed charge. Fixed assets include land, buildings, or anything static. Apart from tangible assets, it also includes intangible assets like trademarks, copyrights, patents etc.

Floating Charge – If a Charge is not created on a specific property i.e., unidentifiable, and uncertain, such charge is called floating charge. Floating charge covers property of a fluctuating type which generally includes stock-in-trade etc.

Pursuant to the provisions of the Act, charge created on any of the following can be registered with the Registrar of Companies:

1. Charge created in India or outside India
2. On any properties or assets or any of the company’s undertakings, situated within or outside India.
3. Whether tangible or intangible.

When and Who can register a Charge?

The Act makes it mandatory to register the particulars of charge with the Registrar of Companies under the following circumstances:

1. At the time of Creation of charge
2. Modification to the terms and conditions or to the extent or operation of the registered charge, if any
3. At the time of repayment of loan or Satisfaction of charge

1.Creator of the Charge/ borrower

Whenever a company creates or modifies a charge on its assets or properties, it must register the particulars of charge along with a copy of the instrument thereof duly signed by the company and its charge holder with the Registrar in Form CHG-1 (other than debentures) or Form CHG-9 (for debentures) within thirty days from the date of creation or modification of charge along with fees. [Section 77(1)]

Similarly, if the loan is fully repaid or the charge is satisfied, the company shall inform the  Registrar of the same in Form CHG-4 along with necessary fees within a period of 30 days from the date of satisfaction. [Section 82]

2.Charge holder/ Lender

If a company fails to register the charge within the above specified period, the charge holder can file Form CHG-1/ CHG-9 with the Registrar for registration of the same, along with a duly signed copy of the charge instrument and fees. The Registrar may allow the registration of charge within fourteen days after giving notice to the company about such application. The charge holder has the right to recover the amount of fees paid by him for registering the charge from the company later. [Section 78]

3.Transferee – Company

When a company is amalgamated with another company pursuant to an NCLT order under Section 232 of the Act, the transferee-company is required to file Form CHG-1 with the Registrar if any property of the transferor-company that it has acquired is subject to charge.

Need for registration of Charge

The charge will not be regarded as secured in the eyes of the law unless it is registered with the Registrar of Companies. The certificate of registration of charge acts as conclusive proof to the public that a charge has been created over the property and the charge holder holds good interest in the same. Although this does not prejudice any contract or obligation for the repayment of the money secured by a charge.

Companies may approach the same institutions/banks or new institutions whenever they need additional funding and provide the same assets as collateral for fresh loans. When the same assets are charged for a second time and beyond, a crucial question regarding the priority of the charges in favor of various institutions arises. In such circumstances, the earlier lending institutions could enjoy leverage over the subsequent lenders only if the charge made on the same assets is already registered with the Registrar.

Register of Charges

Section 85 of the Companies Act, 2013 mandates every company to maintain a register of charges in Form CHG-7 along with a copy of instrument of charge at its registered office and make necessary entries forthwith after the creation, modification, or satisfaction of charge. Members, creditors, and other parties may inspect the register of charges and the instrument of charges during regular business hours, subject to any reasonable restrictions imposed by the company’s articles.

Time limits for registration

1. Creation/ Modification of charge –
   The company shall register the creation or modifications of a charge in Form CHG-1 (other than debentures) or Form CHG-9 (for debentures) within 30 days from the date of creation or modification of the charge. However, the Registrar may allow such registration after expiry of 30 days if he is satisfied that the company had sufficient cause for not filing the same within the specified period and on payment of additional fees and ad valorem fees as follows:
   

   Time period (from the date of creation)	Small Companies and OPC	Others
   More than 30 days and upto 60 days	3 times the normal fee	6 times the normal fee
   More than 60 days and upto 120 days.	3 times the normal fee + Ad valorem Fee of 0.025% of the amount secured by the Charge, subject to a maximum of 1 Lakh Rupees.	6 Times the Normal Fees + Ad valorem Fee of 0.05% of the amount secured by the Charge, subject to maximum of 5 Lakh Rupees.

   However, if a charge is created outside India and consists solely of property situated outside India, then the charge must be registered within 30 days from the date on which the instrument creating or evidencing the charge, or a copy thereof, is received in India in due course of receipt of post.

2. Satisfaction of Charge
   

   The company shall register the satisfaction of charge in Form CHG-4 within 30 days from the date of repayment of the loan or satisfaction of charge in full. The Registrar may allow such application after expiry of 30 days but within a period of 300 days from the date satisfaction on payment of additional fees as follows:

   Period of Delay	Fee applicable
   Upto 30 days	2 times of normal fees
   More than 30 days and up to 60 days	4 times of normal fees
   More than 60 days and up to 90 days	6 times of normal fees
   More than 90 days and up to 180 days	10 times of normal fees
   More than 180 days	12  times of normal fees