Creation, Modification and Satisfaction of Charges under Companies Act

Creation of Charges under Companies Act:

As per Section 2(16) creation of charge under Companies Act, 2013 is stated as-

“‘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 under is required because the banking institutions never lend or provide loans and funds to a company unless and until they are assured that the funds, they are lending is safe and secure. And the company that is lending the amount will repay it as per the agreement and repaying schedule with the liable interest. In order to provide a security on the provided amount of loan the banking or lending institutions tend to resort in creating proper rights in the assets and properties of the borrowing companies. This is known as Creation of Charge on assets. Any type of Company Registration in India has to create charges under Companies Act in order to avail a loan and funds.

Provisions related to Charges under Companies Act:

Chapter VI prescribes the provisions related to creation, modification and satisfaction of charges under Companies Act, 2013. These mandatory laws are as follows-

  1. Section 77: Duty to register charges under Companies Act, etc.

“(1) It shall be the duty of 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, to register the particulars of the charge signed by the company and the charge-holder

       together with the instruments, if any, creating such charge in such form, on payment of such

       fees and in such manner as may be prescribed, with the Registrar within thirty days of its

       creation:

       [Provided that the Registrar may, on an application by the company, allow such registration

       to be made

  • in case of charges created before the commencement of the Companies (Amendment)

Ordinance, 4[2019], within a period of three hundred days of such creation; or

  • in case of charges created on or after the commencement of the Companies (Amendment) Ordinance, 4[2019], within a period of sixty days of such creation, on payment of such additional fees as may be prescribed:

              Provided further that if the registration is not made within the period specified

  • in clause (a) to the first proviso, the registration of the charge shall be made within six

months from the date of commencement of the Companies (Amendment) Ordinance, 4[2019], on payment of such additional fees as may be prescribed and different fees may be prescribed for different classes of companies;

  • in clause (b) to the first proviso, the Registrar may, on an application, allow such registration to be made within a further period of sixty days after payment of such advalorem fees as may be prescribed.]]

      Provided also that any subsequent registration of a charges under Companies Act shall not

      prejudice any right

      acquired in respect of any property before the charge is actually registered.

      [Provided also that this section shall not apply to such charges as may be prescribed in

      consultation with the Reserve Bank of India.]

(2) Where charges under Companies Act, are registered with the Registrar under sub-section (1),

      he shall issue a certificate of registration of such charge in such form and in such manner as  

      may be prescribed to the company and, as the case may be, to the person in whose favor the

      charge is created.

(3) Notwithstanding anything contained in any other law for the time being in force, no charge

      created by a company shall be taken into account by the liquidator 1[“appointed under this Act

      or the Insolvency and Bankruptcy Code, 2016, as the case may be,] or any other creditor unless

      it is duly registered under sub-section (1) and a certificate of registration of such charge is

      given by the Registrar under sub-section (2).

(4) Nothing in sub-section (3) shall prejudice any contract or obligation for the repayment of the

      money secured by a charge.”

 

  1. Section 78: Application for registration of charges under Companies Act.

“Where a company fails to [register the charge within the period of thirty days referred to in sub- section (1) of section 77], without prejudice to its liability in respect of any offence under this Chapter, the person in whose favor the charge is created may apply to the Registrar for registration of the charge along with the instrument created for the charge, within such time and in such form and manner as may be prescribed and the Registrar may, on such application, within a period of fourteen days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause why such charge should not be registered, allow such registration on payment of such fees, as may be prescribed:

Provided that where registration is effected on application of the person in whose favor the charge is created, that person 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.”

  1. Section 79: Section 77 to apply in certain matters.

“The provisions of section 77 relating to registration of charges under Companies Act shall, so far as may be, apply to-

  • a company acquiring any property subject to a charge within the meaning of that section; or
  • any modification in the terms or conditions or the extent or operation of any charge registered under that section.”
  1. Section 80: Date of Notice of Charge.

“Where any charge on any property or assets of a company or any of its undertakings is registered under section 77, 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.”

  1. Section 81: Register of Charges to be kept by Registrar.

“(1) The Registrar shall, in respect of every company, keep a register containing particulars of the

        Registered charges under Companies Act, in this Chapter in such form and in such manner

        as may be prescribed.

 (2)  A register kept in pursuance of this section shall be open to inspection by any person on

       payment of such fees as may be prescribed for each inspection.”

  1. Section 82: Company to report Satisfaction of Charge.

“(1) A company shall give intimation to the Registrar in the prescribed form, of the payment or

        satisfaction in full of any charge registered under this Chapter within a period of thirty days

        from the date of such payment or satisfaction.

        [Provided that 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.]

  (2) The Registrar shall, on receipt of intimation under sub-section (1), cause a notice to be sent

        to the holder of the charge calling upon him to show cause within such time not exceeding

        fourteen days, as may be specified in such notice, as to why payment or satisfaction in full

        should not be recorded as intimated to the Registrar, and 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 kept by him under section 81 and shall inform the

        company that he has done so:

        Provided that the notice referred to in this sub-section shall not be required to be sent, in   

        case the intimation to the Registrar in this regard is in the specified form and signed by the

        holder of charge.”

  (3) If any cause is shown, the Registrar shall record a note to that effect in the register of

        charges and shall inform the company.

  (4) Nothing in this section shall be deemed to affect the powers of the Registrar to make an  

        entry in the register of charges under section 83 or otherwise than on receipt of an

        intimation from the company.]”

  1. Section 83: Power of Registrar to make entries of satisfaction and release in absence of intimation from company.

“(1) The Registrar may, on evidence being given to his satisfaction with respect to any registered  

        Charge under Companies Act-

  • that the debt for which the charge was given has been paid or satisfied in whole or in

part; or

  • that part of the property or undertaking charged has been released from the charge or has ceased to form part of the company’s property or undertaking,

enter in the register of charges a memorandum of satisfaction in whole or in part, or of the fact that part of the property or undertaking has been released from the charge or has ceased to form part of the company’s property or undertaking, as the case may be, notwithstanding the fact that no intimation has been received by him from the company.

  (2) The Registrar shall inform the affected parties within thirty days of making the entry in the

        register of charges kept under sub-section (1) of section 81.”

 

  1. Section 84: Intimation of appointment of receiver or manager.

“(1) If any person obtains an order for the appointment of a receiver of, or of a person to manage, the property, subject to a charge, of a company or if any person appoints such receiver or person under any power contained in any instrument, he shall, within a period of thirty days from the date of the passing of the order or of the making of the appointment, give notice of such appointment to the company and the Registrar along with a copy of the order or instrument and the Registrar shall, on payment of the prescribed fees, register particulars of the receiver, person or instrument in the register of charges.

(2) Any person appointed under sub-section (1) shall, on ceasing to hold such appointment, give to the company and the Registrar a notice to that effect and the Registrar shall register such notice.”

  1. Section 85: Company’s register of charges under Companies Act.

“(1) Every company shall keep at its registered office a register of charges under Companies Act

      in such form and in  

      such manner as may be prescribed, which shall include therein all charges and floating   

       charges affecting any property or assets of the company or any of its undertakings,

       indicating in each case such particulars as may be prescribed:

       Provided that a copy of the instrument creating the charge shall also be kept at the

       registered office of the company along with the register of charges.

 (2) The register of charges and instrument of charges, kept under sub-section (1) 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.”

  1. Section 86: Punishment for Contravention.

“(1) If any company contravenes any provision of this Chapter, the company shall be punishable 

        with fine which shall not be less than one lakh rupees but which may extend to ten lakhs

        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.

 (2)  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.”

  1. Section 87: Rectification by Central Government in Register of Charges under Companies Act.

“The Central Government on being satisfied that —

  • the omission to give intimation to the Registrar of the payment or satisfaction of a charges under Companies Act, within the time required under this Chapter; or
  • the omission or misstatement of any particulars with respect to any such charge or modification or with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83, was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors or shareholders of the company, it may, on the application of the company or any person interested and on such terms and conditions as the Central Government deems just and expedient, direct that the time for the giving of intimation of payment or satisfaction shall be extended or, as the case may require, that the omission or misstatement shall be rectified.”
Author: Anil Agrawal
EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.