(This post elucidates the entire process of creation of charge or modification of charge and satisfaction of charge and the requirement of information in the form of a resolution passed in the Board meeting)
According to Section 77 of the Companies Act, every company that creates a charge shall register the same with the Registrar of Companies.
At the outset, for registration of charge, the borrowing company should conduct a Board meeting to discuss and decide about the entire amount of credit facility sanctioned from a specific financial institution or the bank/s and the 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,
- The total amount of finance, rate of interest, processing, and other charges payable to the financier/s,
- The details of security are 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 of the credit facility,
- Nominating the director or Company Secretary or any other authorized person to file the application for registration of creation/modification of charge.
The extracts of the resolutions with resolution nos. with regard to having passed the positive decision on the above points are 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 the resolution passed with regard to the 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 a 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 the 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 the Director or Secretary of the company or any other person authorized by the company. The entries in the register of charges shall contain the following details;
- Name and address of the charge holder bank/financial institution.
- The terms and conditions of the sanction
- The description of the 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 the 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 the ROC shall be duly certified by any director or Company Secretary or the Authorised Officer of the charge holder as 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 the charge.MCA vide Companies (Registration of Charges) Second Amendment Rules, 2022 dated 29th August 2022 notifies revised Form No. CHG-1, Form No. CHG-4, Form No. CHG-6, Form No. CHG-8 and Form No. CHG-9.
Certificate of registration of charge: The ROC would verify CHG-1 or CHG-9 as the case may be filed by the company under sections 77(1) and 78 of the companies act 2013 and sub-rule (1) of rule 6 of the Act. The ROC on the satisfaction of details furnished by the company would issue the certificate of registration in form CHG-2 containing particulars of the 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 section 79(b) of the companies act 2013 and sub-rule (2) of rule 6 of the companies. The ROC on the 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. Note that MCA vide Companies (Registration of Charges) Second Amendment Rules, 2022 dated 29th August 2022 notifies revised Form No. CHG-1, Form No. CHG-4, Form No. CHG-6, Form No. CHG-8 and Form No. CHG-9.
Memorandum (Certificate) of Satisfaction of charge:
MCA vide Companies (Registration of Charges) Second Amendment Rules, 2022 notifies rule 13 for Signing of charge e-forms by insolvency resolution professional or resolution professional or liquidator for companies under resolution or liquidation. It further notifies revised Form No. CHG-1, Form No. CHG-4, Form No. CHG-6, Form No. CHG-8 and Form No. CHG-9.
Click below to know how to apply for a Memorandum/certificate of satisfaction of charges registered under the companies act.
How to get a ‘Satisfaction of Charge’ certificate from the Registrar of companies?
The following are the forms for the creation/modification of charge:
| Details | Form No |
| Application for registration of creation, modification of charge (other than those related to debentures) | Form CHG-1 |
| Particulars of satisfaction charge | Form CHG-4 |
| Notice of appointment or cessation of receive or manager | Form CHG-6 |
| Application for registration of creation or modification of charge for debentures or rectification of particulars filed in respect of creation or modification of charge for debentures | Form CHG- 9 |
| Consolidation/Division/Increase in Share Capital or Members | Form SH-7 |
| Details of persons/directors/charged/specified | Form GNL-3 |
A Charge means an interest or lien created on the property and assets of the company or any of its undertakings or both as security and includes a mortgage.
When a charge created on the property and assets of a company is registered by ROC, it is a notice of such charge to the public from the date of such registration. Any person dealing or acquiring such property or part thereof shall be deemed to have notice of such charge from the date of registration of the charge.
What happens to the lender if the charge created is not registered?
The charge created over security offered becomes void if it is not registered within the stipulated period prescribed under section 125 of companies’ acts. Where a charge is void for non-registration, no right of lien can be claimed by the creditor on the documents of title, as they were only supplementary to the charge and were delivered pursuant to the charge. Further, the unregistered charge becomes unenforceable on the date of winding up order; as the Official Liquidator would treat such creditor whose charge is not registered as an ordinary creditor instead of a secured creditor. Even in the case of going concern, the first charge holder loses the priority of a charge holder if the charge created by him has not been registered. For instance, if the subsequent charge is created on the same property by another lender, the subsequent charge holder who has registered the charge would enjoy priority of charge over such property or assets. In such cases, the second charge-holder (who registered the charge first) may at any time attach the exact property of the borrower and get the charge enforced by selling or disposing–off such property to recover his dues.
The important point to be noted here is that the borrower company is not discharged from its liability and obligations to the creditor just because the security offered for such liabilities turn out to be invalid. The consequence of non-registration of charge is that it badly hits the creditor as explained above i.e. the lender loses the security offered to him for the money financed and also he loses his secured creditor status against the liquidator and other creditors.
In terms of section 125(3) of companies acts, when a charge becomes void, the money secured thereby shall immediately become payable by the company. Further, the company, and every officer of the company or other people who are in default, shall be punishable for not registering the charge (section 142(2) of company acts).
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