Creation or Modification of Charge with ROC
A company needs funds and ROC for diversification, expansion or for financing various projects. For this, they depend upon share capital and borrowed capital for financing their projects. The Borrowed funds usually consist of funds raised by the issue of debentures (secured or unsecured) or by obtaining financial assistance from Bank or Financial Institutions.
The Bank or financial institutions do not lend funds unless they are sure that their funds are safe and would be repaid along with the principal amount & interest. For securing their loans they resort to creating rights on the assets of the borrowing companies, which is known as a charge on assets. Now the question which arises that what exactly is Charge. A Charge means an interest or lien created on the assets or property of a company or on any its undertakings and includes a mortgage.
An end to end hand holding for your Creation of Charge on your Company with ROC is what we have in this plan. TAXAJ will assist you in matters like drafting, appointing, filling and much more.
It Usually takes 5 to 7 working days.
- Secretarial services of preparing board resolution, post AGM
- Creation of Charge on your Company with ROC
- Companies wants Creation of Charge on with ROC
- Purchase the plan
- Share the documents/details as requested by us.
- We shall prepare the documents as required & get signed by you.
- Prepare the form as applicable & file it.
- It shall be the duty of every Company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, to register the particulars of the charge signed by the Company and the charge-holder together with the instruments, if any, creating such charge in such form, on payment of such fees with the Registrar within thirty days of its creation. [Section 77(1)]
- Where any charge on any property or assets of a company or any of its undertakings is registered, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration. [Section 80]
Registration of Charges in Company
Registration of Charges in Company
When a company is financial assistance, or working capital finance as loan or debt, the bank or financial institution requires security (i.e., property, vehicle, etc.,) for the loan provided. If a proper security is created over the assets of the company, then the bank or financial institution can take possession of the assets secured and conduct sale, to repay the loan. The Companies Act, 2013 requires all companies to file the requisite particulars with the ROC for all security created over the assets of the company. The process of creating a security over assets of the company is referred to as registration of charges or creation of charges. In this article, we look at all aspects of charge registration in a company.
Charges
A charge on a company is a right created by a company “the borrower” on its assets and properties, present and future, in favor of a financial institution or bank “the lender”. Most companies and LLPs borrow from banks and financial institutions to finance their short-term and long-term capital requirements. To secure the funds lent to the company, banks use a number of legal documents like loan agreements, hypothecation agreements, mortgage deeds, etc., to lay out the terms of the loan and ensure repayment with interest as per schedule.
Companies and LLPs have the ability to borrow from a number of banks or financial institutions based on their financial requirements, therefore it is then important to track the assets pledged to the bank(s) and the loans provided to ensure security for the lenders. In this aspect, the creation of charges over the assets of a company helps lenders know the lenders of the company and the assets pledge to the lenders – thereby avoiding double financing. The charges on a company is public information and can be found in the MCA website.
Creation of Charge
The process for creation of charge begins with passing of a board resolution by the Board of Directors of the Company for availing loan from the lender and includes execution of relevant loan documents or deeds. Once, the borrower and the lender agree on the terms and conditions of the loan or financial assistance, they both sign on the loan document and other relevant paperwork. Once, the loan documents are signed, the charges over the properties of the company have been created.
Registration of Charge
Registration of Charge
Once a charge is created, it becomes the responsibility of the company to register those charges with the Registrar of Companies, along with the documents, that create a charge over the company.
As per the Companies Act, 2013, the following charges created on a company must be registered with the Registrar of Companies.
- A charge created for the purpose of securing any issue of debentures or deposits;
- A charge on uncalled share capital of the company;
- A charge on any immovable property, wherever situated, or any interest therein;
- A charge on any book debt of the company;
- A charge, not being a pledge, on any movable property of the company;
- A floating charge on the undertaking or any property of the company including stock-in-trade;
- A charge on calls made but not paid;
- A charge on a ship or any share in a ship;
- A charge on intangible assets, including goodwill, patent, a license under a patent, trademark, copyright or a license under a copyright.
Registration of charges of a motor vehicle is not mandatory, unless required by the lender. Further, in case of non-registration of charges, a disclosure must be made in the balance sheet of the company.
The time period for registration of charge with the ROC is thirty days of creation of a charge. A filing of registration of charge can be made upto three hundred days from date of creation of charge, provided relevant explanation and applicable fee is paid for late filing of registration of charges.
If an application is made for registration of charges to the ROC in the prescribed format and the ROC is satisfied with the application, then a certificate of registration of charge would be issued by the ROC. The charge created on the assets of the company can be also be viewed online on the MCA website.
Process of Creation of Charge with ROC
- Registration of Charge within 120 Days
- File Particulars of the Charge with ROC
- Company shall file the particulars of the Charge with ROC within 30 days of execution of the instrument creating or modifying charge in Form CHG-1 (for other than Debentures) or Form CHG-9 (For Debentures), duly signed by the Company and the charge holder along with the copy of the instrument creating and modifying charge and attach the following documents with
Form CHG-1- A Certified copy of the instrument or deed by which the charge is created or evidenced.
- Instrument evidencing creation of charge in case of acquisition of property which is already subject to charge together with the instrument evidencing such acquisitions.
- In case of Joint charge, particulars of all joint charge holders
- In case of filing of form beyond 30 days of creation of charge, declaration from the company signed by its secretary or director that such belated filing shall not adversely affect rights of any other intervening creditors of the company.
- Detailed application (if form is filed after the expiry of 60 days)
- Any other document, as applicable
- Certified true copy of resolution authorizing the issue of the debenture series is a mandatory in case of creation of charge
- Instrument containing details of the charge created or modified is mandatory in all cases.
- Order of the Central Government is mandatory in case eForm is being filed for rectification of charges.
- In case of filing of form beyond 30 days of creation of charge, declaration from the company signed by its secretary or director that such belated filing shall not adversely affect rights of any other intervening creditors of the company.
- Detailed application (if form is filed after the expiry of 60 days)
- Any other document, as applicable
- These forms can be filed after the expiry of 30 days but within additional period of 30 days on payment of additional fees.
- Where the instrument for creating or modification of charge is not filed within a period of 60 days from the date of its creation or modification, Company shall make an application for extension of time-limit for filing the relevant forms and ROC may allow such registration to be made within a period of further 60 days after payment of advalorem fees.
- Company shall file the particulars of the Charge with ROC within 30 days of execution of the instrument creating or modifying charge in Form CHG-1 (for other than Debentures) or Form CHG-9 (For Debentures), duly signed by the Company and the charge holder along with the copy of the instrument creating and modifying charge and attach the following documents with
- Certificate of Registration of Charge
ROC will register the charge and issue Certificate of Registration of Charge in Form CHG-2 or modification of charge in Form CHG-3. - Entries in Register of Charges
Company shall make necessary entries in the Register of Charges in Form CHG-7 maintained by the Company. Director or CS or any other person authorized by the Board shall authenticate these entries.
- File Particulars of the Charge with ROC
- Registration of Charge Beyond 120 Days
- Convene a Meeting of Board of Directors [As per section 173 & SS-1]
- Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
- Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
- Hold a meeting of Board of Directors of the Company and pass the necessary Board Resolution
- to authorize the Director or Company Secretary or CFO to file the application for condonation of delay of creation or modification of charge with Central Government.
- to authorize any practicing professional or officer of the company for appearing before the Ministry of Corporate Affairs and execute an authorization in favour of such representative.
- Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments.
- File Application for Condonation of Delay
Company shall file an application for condonation of delay to Central Government in Form CG-1 along with fees and following documents- Certified true copy of Board Resolution for authorizing the filing of the application and appointing the authorized representative
- Detailed application for the Condonation of delay
- Latest audited Balance sheet with profit and loss account
- MOA and AOA of the Company
- Any other document, as applicable
- File Order of Central Government with ROC
Company shall file the copy of final order passed by the Central Government with ROC in Form INC-28 along with requisite documents and fees as per the directions issued by the Central Government. - File Particulars of the Charge with ROC
Company shall file the particulars of the Charge with ROC after getting approval on the application for condonation of delay, in Form CHG-1 (for other than Debentures) or Form CHG-9 (For Debentures), duly signed by the Company and the charge holder along with the copy of the instrument creating and modifying charge and attach the following documents with
Form CHG-1- A Certified copy of the instrument or deed by which the charge is created or evidenced.
- Instrument evidencing creation of charge in case of acquisition of property which is already subject to charge together with the instrument evidencing such acquisitions.
- In case of Joint charge, particulars of all joint charge holders
- Any other document, as applicable
- Certified true copy of resolution authorizing the issue of the debenture series is a mandatory in case of creation of charge
- Instrument containing details of the charge created or modified is mandatory in all cases.
- Any other document, as applicable
- Certificate of Registration of Charge
ROC will register the charge and issue Certificate of Registration of Charge in Form CHG-2 or modification of charge in Form CHG-3. - Entries in Register of Charges
Company shall make necessary entries in the Register of Charges in Form CHG-7 maintained by the Company. Director or CS or any other person authorized by the Board shall authenticate these entries.
- Convene a Meeting of Board of Directors [As per section 173 & SS-1]
Satisfaction of Charge
For Satisfaction of charge, Form CHG-4 is required to be filed within 30 days of satisfaction of charge. On failing to file form CHG-4, the company has to go for condonation of delay for the satisfaction of charge.
Effect of Non-Registration of Charge
If the charge is not registered with ROC, the charge shall not be taken into account by the liquidator or any other Creditor.
However, this is so only in case the company goes in winding up. Otherwise, the obligation for repayment of the money is there even if the charge was not registered.
The penalty for not Filing Charges
On contravening any provisions of the Act, the company shall be punishable with a fine which shall not be less than Rs. 1 Lakh and may extend to Rs. 10 lakhs and every officer in default shall be punishable with fine which shall not be less than Rs. 25000 which may extend to Rs. 1 Lakh or with imprisonment for a term which may extend to six months or both.
