Charge Flashcards
Define charge
Charge as an interest or lien created on property of a company or any of its undertaking or both as security and include mortgage
What is fixed charge
A ‘FIXED CHARGE’ is a charge on Specific assets of the borrowing company. These assets are of permanent nature like land and building, office premises, machinery installed by the company and the like. Further, these assets are identified at the time of creation of charge. A fixed charge is usually created by way of mortgage or deposit of title deeds.
When a charge is created on such assets, the charge remains ‘fixed’ and the borrowing company is not permitted to sell such assets though it may use them. Assets under fixed charge can be sold only with the permission or consent of the charge-holder. A fixed charge is vacated when the money borrowed against the assets subject to fixed charge is repaid in full.
What is floating charge
A ‘Floating Charge’ is created on assets or a class of assets which are of fluctuating nature or changing in nature like raw material, stock-in-trade, debtors, and the like.
The assets under floating charge keep on changing because the borrowing company is permitted to use them for trading or producing final goods for sale.
Thus, unlike a fixed charge, the assets offered as security by the company can be dealt with by the company in the ordinary course of business. The buyer of the asset will get it free of charge.
Crystallization of floating charge
A floating charge remains dormant until it becomes fixed or crystallises. On crystallisation, the security (i.e. raw material, stock-in-trade, etc.) becomes fixed and is available for realization so that borrowed money is repaid. Crystallisation of floating charge may occur when the terms and conditions of floating charge are violated or the company ceases to continue its business or the company goes into liquidation or the creditors enforce the security covered by the floating charge.
Registration of charge by charge holder
in case the company creating a charge fails to register the charge within the prescribed period of 30 days, the person in whose favour the charge is created can get the charge registered.
Verification of instrument of charge
A copy of every instrument creating (or modifying) any charge and required to be filed with the Registrar, shall be verified as follows:
(a) Where the instrument or deed relates solely to the property situated outside India, the copy shall be verified by a certificate issued either- ♦ under the seal, if any, of the company, or ♦ under the hand of any director or company secretary of the company, or an authorised officer of the charge holder, or ♦ under the hand of some person other than the company who is interested in the mortgage or charge;
(b) Where the instrument or deed relates to the property situated in India (whether wholly or partly), the copy shall be verified by a certificate issued under the hand of any director or company secretary of the company or an authorised officer of the charge holder.
CONSEQUENCE OF NON-REGISTRATION OF CHARGE [SECTION 77 (3) & (4)]
✓ No charge created by a company shall be taken into account by the liquidator appointed under
Companies Act, 2013 or Insolvency and Bankruptcy Code, 2016 or any other creditor unless it is
duly registered and a certificate of registration of such charge is given by the Registrar. [Section
77 (3)]
✓ The non-registration of charge shall not affect any contract or obligation for the repayment of the
money secured by a charge. [Section 77 (4)
APPLICATION FOR REGISTRATION OF CHARGE BY CHARGE-HOLDER [SECTION 78]
if a charge is created but the company primarily responsible for registering the charge fails to do so within the prescribed period of 30 days [as provided in section 77 (1)], the person in whose favour the charge is created (i.e.charge-holder) may apply to the Registrar for registration of the charge along with the instrument of charge within the prescribed time, form and manner. On receipt of application from the charge-holder, the Registrar shall give a notice to the company and if no objection is received, allow such registration within a period of 14 days after giving notice to the company on payment of the prescribed fees.
However, the Registrar shall not allow such registration by the charge-holder, if the company itself registers the charge or shows sufficient cause why such charge should not be registered.
Recovery of fees: In case, registration is effected on application made by the holder of charge, such 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.
Company acquiring any Property subject to Charge [Section 79 (a)]
In case of a property where charge is already registered and if it is sold with the permission of the holder of charge, it shall be the duty of the company acquiring it to get the charge registered in accordance with Section 77. In other words, the earlier charge should get vacated and, in its place, new charge should get registered by the company which has acquired it.
Issue of Certificate of Registration
Where a charge or Modification is duly registered by the Registrar, a certificate of
Registration/ Modification shall be issued by the Registrar in the prescribed form
The certificate so issued by the Registrar shall be conclusive evidence that the
requirements of Chapter VI of the Act and the rules made thereunder as to
registration of creation of charge have been complied with.
As per Rule 8 (2), in case the Registrar enters a memorandum
of satisfaction of charge in full, he shall issue a certificate of registration of
satisfaction of charge in Form No. CHG-5.
Appointment of a reciever
Accordingly,
♦ if any person obtains an order for the appointment of a receiver or a person
to manage the property which is subject to a charge, or
♦ if any person appoints such receiver or person under any power contained in
any instrument,
he shall give notice of such appointment to the company and the Registrar along
with a copy of the order or instrument within 30 days from the passing of the order
or making of the appointment.
In turn, the Registrar shall, on payment of the prescribed fees, register particulars
of the receiver, person or instrument in the register of charges.
On ceasing to hold such appointment
the person appointed as above shall give
a notice to that effect to the company and the Registrar. In turn, the Registrar shall
register such notice.
COMPANY TO REPORT SATISFACTION OF
CHARGE [SECTION 82]
Intimation regarding Satisfaction of Charge
Section 82 of the Companies Act, 2013, requires a company to give intimation
of payment or satisfaction
in full of any charge earlier registered, to the
Registrar in the prescribed form
. The intimation needs to be given within a
period of 30 days from the date of such payment or satisfaction.
Extended period of intimation: Proviso to Section 82 (1)extends the
period of intimation from thirty days to three hundred days. Accordingly, it is
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 prescribed additional fees
Notice to the Holder of Charge by the Registrar
On receipt of intimation, the Registrar shall cause a notice to be sent to the
holder of the charge calling upon him to show cause within such time as
specified in the notice but not exceeding 14 days, as to why payment or
satisfaction in full should not be recorded.
If no cause is shown by the charge-holder, the Registrar shall order entering of a memorandum of satisfaction in the register of charges kept by him and accordingly, he shall inform the company of having done so.
However, no notice is 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.
If any cause is shown by the charge-holder, the Registrar shall record a
note to that effect in the register of charges and inform the company.
- PUNISHMENT FOR CONTRAVENTION
[SECTION 86]
(i) According to section 86 (1) of the Act of 2013, if any company is in default
in complying with any of the provisions of this Chapter, the company shall be
liable to a penalty of five lakh rupees and every officer of the company who is
in default shall be liable to a penalty of fifty thousand rupees.
(ii) With the insertion of sub-section (2)
section 447 relating to ‘punishment
for fraud’ also becomes applicable in certain cases. Accordingly, if any person
wilfully furnishes:
♦ any false or incorrect information; or
♦ knowingly suppresses any material information;
he shall be liable for action
under section 447.
RECTIFICATION BY CENTRAL GOVERNMENT
IN REGISTER OF CHARGES [SECTION 87]
Rectification by Central Government in Register of Charges [Section
87]
✓ The Central Government has the power to order rectification of Register of Charges in the
following cases of default:
➢ When there was an omission in giving intimation to the Registrar with respect to the payment
or satisfaction of charge within the specified time.
➢ When there was an omission or misstatement of any particulars in any filing previously made
to the Registrar.
✓ Before directing the rectification or time extension for giving intimation of payment or
satisfaction, the Central Government needs to be satisfied that such default was accidental or due
to inadvertence or because of some other sufficient cause or it did not prejudice the position of
creditors or shareholders.
✓ The application in Form CHG-8 shall be filed by the company or any interested person.
✓ The order of rectification shall be made by the Central Government on such terms and conditions
as it deems just and expedient.
