Registration of Charges, etc. Under Companies Act, 2013
Updated: Oct 14
Section 77 - Duty to Register Charges
Registration of charges under the Companies Act has a broad concept. It is important to understand the definition of charges under the act to know the same.
Charges are defined as an interest or lien issued on the property or assets of a business or any of its undertakings or both as security under Section 2(16) of the Companies Act, 2013, which includes a mortgage. Charges are also governed by the Companies (Registration of Charges) Rules, 2014, which are included in Chapter VI of the Companies Act, 2013. Charges are governed by Sections 77 to 87 of the Companies Act, 2013.
Types of Charges-
There are two kinds of charges:
1. Fixed or Specific Charge-
It's a charge on assets that are either definite or capable of being determined at the time the charge is created.
2. Floating Charge-
It's a charge that isn't based on any fixed characteristic, but rather on a variable type like stock-in-trade.
According to Section 77 of the Companies Act, 2013, the firm must record all sorts of charges with the Registrar of Companies ("ROC") within 30 days of their inception. It makes no difference whether the charge is-
within or outside India;
on its property or assets or any of its undertakings;
whether tangible or otherwise; and
situated in or outside India.
If the company fails to register for the charge for whatever reason, Section 78 states that the person in whose favor the charge is being established will file a charge filing. The person has the right to sue the firm for the registration money. However, the person filing the charge must provide the company with a 14-day warning.
Registration of Charge beyond 30 days
Following the Companies Amendment Ordinance, 2019, which took effect on November 2, 2018, and all previous versions of the ordinance, the Registrar may, on the company's application, allow such registration to be made:
In the case of charges created before the commencement of the Companies (Amendment) Ordinance, 2019, within three hundred days of such creation; or
In case of charges created on or after the commencement of the Companies (Amendment) Ordinance, 2019, within sixty days of such creation on payment of additional fees.
Registration of Charge beyond 60 Days
The charge shall be registered within six months of the date of commencement of the Companies (Amendment) Ordinance, 2019, on payment of such extra fees as may be required, and different costs may be prescribed for different classes of Companies, as stated in clause (a) of the first proviso.
The Registrar may, on an application, allow such registration to be made within a further sixty days following payment of ad-valorem fees, as stated in clause (b) of the first provision.
Consequences of Non-Registration of Charges
According to Section 77, if a charge is not registered with the ROC, it will not be considered by the liquidator or any creditor, not only in the case of a winding-up but also when the corporation is obligated to refund money even though the charge is not registered.
Keeping the above context in mind, if section 77 of the Companies Act, 2013, is violated, the company will be fined not less than Rs. 1 lakh and may be fined up to Rs. 10 lakhs and each officer will be fined not less than Rs. 25000 and may be fined up to Rs. 1 lakh or imprisoned for up to 6 months, or both.
Registration of charges
For each company, the registrar must keep a register of charges that is open to examination by anybody who pays the required costs. The company must keep a register of charges in form CHG-7 with the instrument establishing charge at its registered office and make it available for inspection by members or creditors without charge during business hours.
Members and creditors can see the register of charge and a copy of the instrument at the company's registered office without any fees. The register is also available for inspection by anyone else who pays the required costs. During the company's business hours, the register and copies of the instrument will be opened.