Effects of charge registration under companies act

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 a security interest in the specific property for the loans and advances made to the company.

The charge created over security offered becomes void if it is not registered within the stipulated period prescribed under section 125 of companies’ acts. The section 125(3) of companies acts states that 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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