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Registration of charge under companies Act 2013: The process of creation, modification and satisfaction of charge explained

Registration of charge under companies Act 2013: The process of creation, modification and satisfaction of charge explained


The Section 2(16) of the Companies Act 2013 defines ‘Charge’ as “an interest or lien created on the property or assets of a company or any of its undertaking or both as security and includes mortgage”. Thus, ‘charge’ can be described as lender’s right to recover his dues by disposing-off the specified assets of the company in case company defaults the scheduled repayments of loans and advances. The charge creation or modification of charge is done by executing loan agreements, hypothecation deeds, mortgage deeds and any other similar documents in favour of the lenders.

The section 77 of companies’ act 2013 specifies that all type of charges to be registered with ROC within 30 days of creation of charges on its assets whether tangible or intangible within or outside India on its assets or any of its undertakings. Registration of charge acts as a notice to the public at large that the certain ‘Charge holder’ has security interest in the specific property for the loans and advances made to the company.  The various steps involved in the process of creation, modification and satisfaction of charges as well the method of registration of charge under Companies act 2013 is explained below.

Board meeting: The borrowing company should conduct a Board meeting to discuss and decide about entire amount of credit facility sanctioned from a specific financial institution or the bank/s and terms and conditions of the sanction. The resolution passed in the Board meeting shall have the following information.

  • Date of the Board meeting,
  • Type of credit facilities and Name and address of the financier/s ,
  • Total amount of finance, rate of interest, processing and other charges payable to the financier/s,
  • The details of security to be offered to the financier/s, as security.
  • Acceptance of terms and conditions of the sanction,
  • Acceptance of personal guarantee to be provided by any Directors of the company.
  • Naming and Authorizing the Directors to execute  the necessary loan documents on behalf of the company to avail the credit facility,
  • Nominating the director or Company Secretary or any other authorised person to file application for registration of creation/modification of charge.

The extracts of the resolutions with resolution nos. with regard to having passed positive decision on above points to be filed with the Registrar of Companies (ROC) in form MGT 14 within 30 days of its passing. [In case of secured debentures the date of resolution passed with regard to creation of charge against the property of the company as a security to the debenture holder to be entered in the register and informed to ROC in CHG-9 form for creation of charge.]

Execution of documents: The authorized persons of the company shall execute necessary loan documents like loan agreements, hypothecation deeds, mortgage deeds and other documents required, in order to create charge on the assets of the company for availing credit facilities. The executed loan documents display the details of security including the mortgage of the property offered by the company with the company seal. The extract of the resolution passed in the Board meeting needs to be provided to the lending institution or the bank.

Entries in company’s register of charge:  Entries to be made in the register of charges maintained at the company in form CHG-7 format which shall be duly authenticated by Director or Secretary of the company or any other person authorized by the company. The entries in the register of charges shall contain following details;

  • Name and address of the charge holder bank/financial institution.
  • The terms and conditions of the sanction
  • The description of property charged
  • Date and description of the instrument creating the charge.
  • The total amount secured by the charge.

The above details are also to be furnished at ROC while filing each charge.

Filing of charge: The Company has to submit form CHG-1 (for other than debentures) or form CHG-9 (for debentures including rectifications) along with the copies of the instruments/deeds used for creation of  charge to the Registrar of Companies (ROC) within 30 days from the date of creation of charge/modification of charge. The copies of instruments/deeds submitted to ROC shall be duly certified by any director or Company Secretary or the Authorised Officer of the charge holder as an evidence of having verified the instruments/documents submitted to the ROC. The company shall make the prescribed payment of fees to ROC for the purpose of registration of charge.

Certificate of registration of charge: The ROC would verify CHG-1 or CHG-9 as the case may be filed by the company under the sections 77(1) and 78 of companies’ act 2013 and sub rule (1) of rule 6 of the Act. The ROC on satisfaction of details furnished by the company would issue the certificate of registration in form CHG-2 containing particulars of charge together with copies of the instrument/s if any used for creating the charge.

Certificate of registration of modification of charge: The ROC would verify the form CHG-1 or CHG 9 as the case may be filed by the company under the sections 79(b) of companies’ act 2013 and sub-rule (2) of rule 6 of the companies. The ROC on satisfaction of details furnished by the company would issue the certificate of registration in form CHG-3 containing particulars of modification of charge together with copies of the instrument/s if any used for modifying the charge.

Memorandum (Certificate) of Satisfaction of charge:

A company upon payment or satisfaction in full of any charge registered under Chapter VI of companies Act 2013 shall give intimation of satisfaction to the Registrar of Companies. The procedure for applying to the certificate of satisfaction of charges registered under companies act are as under.

The company shall approach lender bank/financial institution to issue a ‘letter of satisfaction’ stating that no dues exist from the company towards credit facilities provided by them.  After getting the letter of satisfaction from the bank/financial institution, the company has to conduct a board meeting. In the meeting, the board has to pass a resolution authorizing a Director or Company Secretary or any other authorized person to file the satisfaction of charge (CHG-4) with ROC. The entries of satisfaction of charges are to be made in the register of charge maintained by the company in form CHG-7 format which shall be authenticated by a Director or Company Secretary or any other authorized person. The company shall give intimation to ROC within a period of thirty days from the date of the satisfaction of charge.  The resolution passed copy and the letter of satisfaction issued by the bank/financial institution to be attached to CHG-4 along with the fee for registration of satisfaction charge. The memorandum of satisfaction (certificate of satisfaction) of specified charge will be issued by ROC in form No.CHG-5.

Related Articles: (Category Loans and advances)

  • Meaning and effects of registration of ‘Charge’ under companies act 2013
  • Difference between first charge and second charge
  • Meaning of pari-passu Charge explained
  • Facility of ‘Condonation of delay in registration of charge’ under companies Act 2013
  • Meanings of fixed charge, floating charge, and crystallization of charge
  • Do you know that banks or FIs can register a charge if the borrower company fails?

 

 

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