Charge as per section 2(16) of Companies Act, 2013 refers to creation of interest or a right on a property or asset of a company or any of its undertaking as a security against loan provided to the company in respect of such interest. Charge is created by Companies who are in need of financial assistance for making their companies productive and in doing so creating any right or interest in assets of companies. Charge also includes mortgage. Charge is created so that the financial institutions such as banks have security for the loans provided by creation of charge on assets of company and having it registered with the Registrar.
What is a Charge?
As per Section 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.
According to Section 100 of the Transfer of Property Act, 1882, where an immovable property of one person is by act of parties or operation of law made security for the payment of money to another and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property, and all the provisions which apply to a simple mortgage shall, so far as may be, apply to such charge.
How is it related to Pledge and Hypothecation?
As per section 172 of the Indian Contract Act, 1872, “pledge” means the bailment of goods as security for payment of a debt or performance of a promise. As per Section 2 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, “hypothecation” means a charge in or upon any movable property, existing or future, created by a borrower in favour of a secured creditor without delivery of possession of the movable property to such creditor, as a security for financial assistance and includes floating charge and crystallisation of such charge into fixed charge on movable property.
Charge is where immovable property of one person is made security for the payment of money to another. It refers to the security for securing the debt, by way of pledge, hypothecation and mortgage.
In the pledge, the possession of the asset is transferred, but in the case of hypothecation, possession lies with the debtor only.
Type of Charges
Fixed Charges: Charge created on Fixed Assets of the company.
Floating Charges: Charge created on Current Assets or the Stock of the company.
Essential Features of the Charge
- There should be two parties to the transaction, the creator of the charge and the charge holder.
- The subject-matter of charge must be current or future assets and other properties of the borrower.
- Both the parties to the transaction must enter into a legal agreement specifying assets or properties kept as security for the repayment of money, interest rate charged etc.
- A charge may be fixed or floating depending upon its nature.
What is Modification of Charges?
The term ‘modification’ includes variation of any of the terms of the agreement including variation of rate of interest which may be by mutual agreement or by operation of law.Even if the rights of a chargeholder are assigned to a third party ,it will be regarded as a modification. The provisions applicable to the registration of a charge under Section 77 shall apply to modification of the charge.
Time Limit for Registration of creation or modification of Charges
A company creating charge, shall register the particulars of the said charge with the Registrar of Companies (ROC) within 30 days of its creation. According to Companies (Registration of Charges) Rules, 2014 e-forms prescribed for the purpose of creating or modifying the charge are as follows:
- For other than debentures: Form No.CHG-1
- For Debentures including any rectification: Form No.CHG-9
Who is liable to register Charge?
As per 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.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.
Certification of Registration of Charge
When a charge is registered with the Registrar, Registrar shall issue a certificate of registration of charge in Form No.CHG-2 and for registration of modification of charge in Form No.CHG-3 to the company and to the person in whose favour the charge is created. The certificate issued by the Registrar shall be the conclusive evidence that the charge is registered.
Delay in Registration of Charges
- If Charge is created before 02.11.2018: Within A period of 300 days from the creation of charge
- If charge is created after 02.11.2018: Within a period of sixty days of creation of charge. However, additional fees is applicable in this case
Register of Charges to be kept by Registrar (ROC)
- The Registrar shall, in respect of every shall keep a register containing particulars of Charges registered, in such form and in such manner as may be prescribed
- Register shall be kept open for inspection by any person on payment of such fees as may be prescribed
Duty of Company
Every company shall maintain at its registered office a Register of Charges in e-form CHG-7 which shall be open for inspection by:
- Any member and creditor Without any payment
- By any other person on payment of such fees as may be prescribed
Provisions under Companies Act 2013 & Companies (Registration of Charges) Rules, 2014
Section 77 with Rule 3 & Rule 6
Duty to Register Charges –
- Every company shall register the charge with Registrar of Companies (ROC) within 30 days of the date of creation or modification of charge along with the fee.
| Purpose | Form | Attachments |
| Creation/Modification of charge other than Debenture | CHG-1 | Particulars of charge Copy of Instrument evidencing any creation or modification of charge |
| Creation/Rectification of charge for Debenture | CHG-9 |
- The ROC on receipt of Application may allow registration of the charge as per following:
| If charge is created- | Time Limit | If not registered within this time limit, then registration shall be done |
| Before the commencement of the Companies (Amendment) Ordinance 2019 [Commencement] | Within 300 days of creation | Within 6 months from Commencement on payment of additional and different fees |
| On or after the commencement of the Companies (Amendment) Ordinance 2019 | Within 60 days of creation on payment of additional fees | On an application, within another 60 days on payment of advalorem fees |
- Post registration of charge, the ROC shall give a registration certificate to the person in whose favor the charge is created.
| Purpose | Registration Certification in Form |
| Registration | CHG-2 |
| Modification | CHG-3 |
Note: No charge shall be taken into account by any liquidator, appointed under Companies Act 2013 or Insolvency and Bankruptcy Code, or any creditor unless the charge is duly registered and certificate to this effect is issued.
Section 78
Application for Registration of Charge
- If the Company fails to register the charge as per Section 77, then the person in whose favour the charge is registered may make an application to ROC as per Rule 3 & Rule 6 as mentioned above.
- The ROC on receipt of such application, after giving a 14 days’ notice to the Company allow such registration on payment of fees. However it shall be registered only if the Company has not itself done it or given a sufficient show cause as to why such charge shall not be registered.
- Once ROC allows the registration, the aforesaid person can claim the filing fees and cost from the Company.
Section 81 with Rule 7
Register of Charges to be kept by Registrar
The Registrar shall maintain a Register of Charges on MCA portal and shall be open for inspection on payment of fees.
Section 82 with Rule 8
Company to Report Satisfaction of Charge
- The Company shall within a period of 30 days from the date of payment or satisfaction of charge intimate the ROC in Form CHG-4
- The ROC may on application by the Company or chargeholder allow such aforesaid intimation to be made within 300 days of such payment or satisfaction on payment of additional fees.
- On receipt of intimation, ROC shall send a 14 days’ notice to the chargeholder to show cause as to why such payment or satisfaction in full should not be recorded as intimated to the Registrar. Conversely no notice shall be sent if the intimation is received in Form CHG-4.
- If no cause is received, the ROC shall enter a memorandum of satisfaction of charge in full in pursuance of section 82 or 83 and shall issue a certificate of registration of satisfaction of charge in Form No.CHG-5
| Purpose | Form | Filed/Issued by |
| Intimation of payment or satisfaction of charge | CHG- 4 | Company/Chargeholder within 30 days |
| Certificate of registration of satisfaction of charge | CHG-5 | ROC |
Section 84 with Rule 9
Intimation of Appointment of Receiver or Manager
Any person appointed upon any order to manage the property of the company which is subject to a charge, shall intimate the Company & ROC in Form CHG-6 about such appointment.
However, any cessation of such person shall also be informed in Form CHG-6
Section 85 with Rule 10
Register of Charges
Every Company shall maintain a Register of Charges in Form CHG-7 at its Registered Office permanently.
Every entry in register shall be authenticated by director/secretary/any authorized person.
It shall include details of-
- all the charges registered with the Registrar on any of the property, assets or undertaking of the company
- particulars of any property acquired subject to a charge
- particulars of any modification of a charge and satisfaction of charge
The Company shall also keep copy of the instrument creating the charge or modification thereon shall be preserved for a period of eight years from the date of satisfaction of charge.
Section 87
Rectification by Central Government in Register of Charges
Any company may make an application for extension to Central Government in Form CHG-8 for intimations not filed within the specified time or misstatements in previous filings related to charges therein.
CG on receipt of application may extend the time for filing or rectifying such misstatements.
Rule 12
All the fees shall be paid as per Rule 12.
Summary
| Form | Purpose |
| CHG-1 | Creation/Modification of charge other than Debenture |
| CHG-2 | Registration Certification of charge in case of new Registration |
| CHG-3 | Registration Certification of charge in case of Modification |
| CHG-4 | Satisfaction of Charge |
| CHG-5 | Certificate of registration of satisfaction of charge |
| CHG-6 | Appointment/Cessation of Receiver |
| CHG-7 | Register of Charges |
| CHG-8 | Application for extension of time to Central Government |
| CHG-9 | Creation/Rectification of charge for Debenture |
Concept of Satisfaction of Charge
- If the amount of borrowed fund is repaid or fully paid or other purpose is fulfilled by the borrower, there remains no necessity of charge, and it is called satisfaction of charge. The company shall give intimation to the Registrar of the payment or satisfaction in full of any charge within a period of thirty days from the date of such payment or satisfaction in Form No.CHG-4 along with the fee.
- The Registrar may, on an application by the company or the charge holder, allow such intimation of payment or satisfaction to be made within a period of three hundred days of such payment or satisfaction on payment of such additional fees as may be prescribed.
- After receiving such intimation, the Registrar shall issue a notice to the holder of the charge calling a show cause within such time not exceeding fourteen days, as to why payment or satisfaction in full should not be recorded as intimated to the Registrar.
- If no cause is shown, by such holder of the charge, the Registrar shall order that a memorandum of satisfaction shall be entered in the register of charges maintained by the registrar under section 81 and shall inform the company. If the cause is shown to the Registrar shall record a note to that effect in the register of charges and shall inform the company accordingly
FAQs
What is a charge according to the Companies Act, 2013?
A charge refers to the interest or lien created on the assets or property of a company or undertaking as security for the repayment of a debt or loan.
What are the types of charges that can be created under the Companies Act, 2013?
Charges can be in the form of a mortgage, hypothecation, pledge, or lien on movable or immovable property, including both tangible and intangible assets.
What is the procedure for creating a charge under the Companies Act, 2013?
- The company must first obtain the consent of its board of directors.
- Then, it must file the required form and documents with the Registrar of Companies (RoC) within the specified time frame.
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