The registration of a charge under the Companies Act, 2013 ensures legal validity and priority of lenders’ rights over a company’s assets. The process involves board approvals, proper documentation, filing with the Registrar of Companies (ROC), and issuance of a certificate of registration.
Step-by-Step Procedure
1. Pass a Board Resolution
* Convene a board meeting and approve the loan and creation of the charge.
* Authorize a director or officer to execute documents and file forms with the ROC.
* If applicable under Section 180(3)(c), obtain prior approval by way of a **special resolution in a general meeting**.
2. File Form MGT-14 (if applicable)
* If a special resolution was passed, file Form MGT-14 with the ROC within 30 days of the resolution.
3. Execute Loan and Charge Documents
* Execute the loan agreement and the instrument creating the charge between the company and lender.
4. File Charge Registration Form
* File Form CHG-1 (for charges other than debentures) or Form CHG-9(for debentures/rectification) within **30 days** of charge creation.
* Attachments:
* Certified copy of the instrument creating/modifying the charge.
* Digital Signature: Must be signed by a director/CS of the company and the charge holder.
* Professional Certification: A CA/CS/CMA in practice must certify the form.
5. Pay Prescribed Fees
* Pay statutory filing fees as per Companies (Registration Offices and Fees) Rules.
6. Obtain Certificate of Registration
* Upon verification, the ROC issues Form CHG-2 (Certificate of Registration of Charge) as conclusive proof of registration.
Handling Delays in Filing
* Within 300 days:
* Filing beyond 30 days but within 300 days may be condoned by the ROC on payment of additional fees.
* Beyond 300 days:
* An application for condonation of delay must be made to the Regional Director (RD), and filing is permitted only after such approval.
Effects of Registration
The effects of registration of charge primarily revolve around legal recognition, protection of creditor rights, and transparency:
- A registered charge acts as conclusive proof that the charge has been created and duly registered. The certificate of registration issued is authoritative and cannot be questioned.
- Upon registration, the charge becomes enforceable against the company and third parties, providing security to the charge holder.
- The registration makes the charge a matter of public record, ensuring transparency as the particulars are available for public inspection.
- If a charge is not registered within the statutory period, it becomes void against the liquidator and any creditor of the company, meaning the charge holder loses priority and rights over the charged property in case of liquidation.
- Non-registration does not invalidate the debt itself, but the creditor cannot enforce their charge on the property; the asset remains free for other creditors.
- Penalties and fines may be imposed on the company and responsible officers for failure to register charges timely.
- The company must maintain a register of charges at its registered office, which is open for inspection by members and creditors.
- Satisfaction or release of charge upon repayment must also be notified to the registrar, affecting the charge’s status.
In summary, registration of charge is essential to secure creditor interests, ensure enforceability of security, maintain transparency, and avoid legal penalties or loss of charge priority
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