Charge on Assets | Company Law - CLAT PG PDF Download

Understanding Corporate Borrowing and Charge Registration

Corporate borrowing is a crucial method for companies to secure funds for major projects and business expansion. This process involves obtaining loans by placing a charge on the company's assets as collateral for the lender.

What is a Charge?

• A charge, as per the Companies Act, 2013, refers to an interest or lien on a company's property or assets, used as security for a loan. This can include a mortgage.

Duty to Register Charges

• Companies must register details of any charge created on their property or assets, whether in India or abroad, within thirty days of its creation.
• This registration process applies to both tangible and intangible assets.
• When a charge is registered, the Registrar of Companies issues a certificate of registration to the company or the charge-holder.

Form and Manner of Registration

• To register a charge, companies must file the particulars of the charge along with the instrument creating the charge with the Registrar of Companies.
• If the registration is not done within the prescribed timeframe, companies can seek approval from the Central Government to register the charge later.
• This process is known as "rectification of the register of charges."
• The application for charge registration should be submitted in the prescribed form, along with the required fees, as per the Companies (Registration of Charge) Rules, 2014.

Registration of Charge: Overview and Procedures

Registration of charge, as outlined in Sections 77(1), 78, and 79 of the Companies Act, involves filing specific details about the charge with the Registrar of Companies within a stipulated timeframe. This process ensures transparency and legal compliance regarding charges on company assets.

Filing Requirements for Registration of Charge

• Particulars of the charge, along with a copy of the instrument creating or modifying the charge (if applicable), must be filed with the Registrar of Companies.
• This filing should be done within thirty days from the date of creation or modification of the charge.
• The filing is to be done in Form No.CHG-1(for charges other than debentures) or Form No.CHG-9(for debentures), duly signed by the company and the charge holder.

Extension of Time for Registration

• The Registrar of Companies may allow an extension for filing particulars for registration of charge up to three hundred days from the date of creation, subject to payment of additional fees.
• To apply for this extension, Form No.CHG-1 must be submitted, along with a declaration from the company’s secretary or director, ensuring that the belated filing does not negatively impact other creditors.

Consequences of Delayed Registration

• If registration is not completed within three hundred days, the company must seek an extension from the Central Government.
• This process involves filing eForm CHG-8 as per Rule 12 and Section 87 of the Act.
• The Registrar of Companies will process eForm CHG-1 for registration of charge only after receiving approval from the Central Government for condonation of delay.

Grounds for Extension by Central Government

• The Central Government may grant an extension if the omission to file or register the particulars of any charge was accidental, inadvertent, or due to other sufficient causes.
• Extensions may also be granted if the delay does not prejudice the position of creditors or shareholders, or on any other just and equitable grounds.

Case Study: Tristar Container Service (Asia) P. Ltd. v. WW Shipping Agencies P. Ltd.

• In this case, a creditor filed for an extension of time for charge registration.
• The petitioners believed that the respondents had filed the charge particulars, but records showed otherwise.
• Despite requests from the petitioners, the respondents did not register the charges, leading to the petition.
• The court held that allowing the petition would not harm any stakeholders and granted an extension for filing charge particulars.
• The delay was deemed to be due to sufficient cause, warranting the extension.