In this article we will talk about creation of charge by the Company at the time of borrowing money from banks or financial institution. Before going further let’s discuss about the term “Charge”.
Section 2(16) of Companies Act, 2013, defines Charge as 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.
The financial institutions/banks do not lend their monies unless they are sure that their funds are safe and they would be repaid as per agreed repayment schedule along with payment of interest. In order to secure their loans they resort to creating right in the assets and properties of the borrowing companies, which is known as a charge on assets.
Section 77 of the Companies Act, 2013 states that 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, shall register the particulars of the charge signed by the Company and the charge-holder together with the instruments, if any, creating such charge in Form CHG-1 (for other than debentures) or CHG-9 (for debentures including rectification) with the Registrar within thirty days of its creation.
The Registrar may allow registration of charge within a period of Sixty days of creation on payment of additional fees as prescribed under the Act. If the registration is not made within Sixty days of Creation, then, the Registrar on an application by the Company may allow registration within a further period of sixty days after payment of such advalorem fees. A total period of 120 days from the date of creation is provided to register the Charge with the Registrar.
Section 78 gives a right to the Chargeholder i.e. Banks or Financial Institutions to register the Charge with the Registrar in case the Company fails to register the Charge within Thirty days of creation. In such case, the Chargeholder shall be entitled to recover from the Company the amount of any fees or additional fees paid by him to the Registrar for the purpose of registration of charge.
Process of registering the Charge: –
- Convene a Board Meeting and authorise any of the Director of the Company to sign and file Form CHG-1 or CHG-9, as the case may be with the concerned Registrar.
- Fill the details and amount carefully from the supporting documents. In case the asset charged is an immoveable property, select whether the same is a ‘Plot Unit’ or ‘Dwelling Interest’ and furnish the related details viz.,
- Evaluated Price of Asset as on Security Interest Creation date
- Nature of Property
- Plot ID number
- All other location related field details
Attachments with Form CHG-1
- Instrument(s) of creation or modification of charge duly signed by the Directors and the Chargeholder.
- Particulars of all joint charge holders. It is mandatory if number of charge holder is more than one.
Attachments with Form CHG-9
- Certified true copy of resolution authorizing the issue of the debenture series is a mandatory in case of creation of charge.
- Instrument containing details of the charge created or modified is mandatory in all cases.
- Order of the Central Government is mandatory in case eForm is being filed for rectification of charges.
- After preparing the Form affix DSC of the Director and get it signed by the Bank or Financial Institiution. Lastly, Certification of Practising professional is also required after signatures of the Bank.
- File the Form and pay the requisite fee. After successful filing, the Registrar will issue a Certificate of Registration of Charge.
Penalty Provisions: –
- If any default is made in complying with the aforesaid provisions, the Company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to ten lakh rupees and every officer of the Company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.
- If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered in accordance with the provisions of section 77, he shall be liable for action under section 447.
Important Notes: –
- The same provisions and process will be applicable in case of modification of charge.
- Every company shall keep at its registered office, a register of charges in Form CHG-7 which shall include therein all charges and floating charges affecting any property or assets of the company or any of its undertakings.
- The register of charges and instrument of charges shall be open for inspection during business hours—
(a) by any member or creditor without any payment of fees; or
(b) 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.
- The register of charges shall be preserved permanently and 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.
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