The Companies Act 2013 is a significant piece of legislation that sets the regulations for setting up and running a company in India. Any business needs to understand the consequences of non-compliance and the requirements of law.
One part of the Act is particularly relevant to companies in Chapter VI: Registration and Closure of Charges. These sections define how and when charges registered against a company must be displayed in the Register of Charges.
In this article, we will examine the rules and regulations governing the registration of charges and satisfaction of charges as per Sections 81, 82 & 85 of the Companies Act 2013. We will discuss who needs to comply, what information needs to be included, restrictions imposed on the registration process, and more. Understanding these regulations for your business is vital, and we will provide you with all the information you need about this topic.
What is the Companies Act 2013 and Chapter VI
The Companies Act 2013 (the Act) is an Act of the Parliament of India that seeks to regulate the incorporation and management of companies in India. It also outlines rules and regulations regarding companies.
Chapter VI of the Act deals with registering and closing charges created over a company’s assets. It specifies who can institute a charge, types of charges that can be created, and ways to register these charges, amongst other details. It also covers provisions related to closing or modification of Charge and key actions concerning such closure or modifications.
The act is vastly different from previous acts as it introduced newer changes that had not been seen before, such as stringent regulation for registration, provisional registration for certain categories, and more detailed information on closures & modifications of charges.
Duty to Register Charges
The Companies Act 2013 outlines the registration and closure of charges in Chapter VI, with a clear duty laid on the company to maintain a register of such charges. This register is open to inspection for members and inspection by others, subject to paying a prescribed fee for each inspection. Under Section 81 of the Act, any liabilities or obligations incurred by the company under any charge must be registered with the Registrar.
It is also important for companies and other entities listed in Section 85 of the Act to maintain a copy of the instruments creating the charges along with the register of charges at their registered office of the company. The instruments relating to such charges must be kept in the company’s custody for at least eight years from the date of closure of such Charge.
Section 86 lays down consequences in case there is any violation about registration or closure of a charge. Therefore, companies and other entities must comply with legal provisions around the registration and closure of charges to avoid penal action. If in case of any company contravenes any provision, then it shall be penalized as follows:
- The company will be fined with a penalty of 5 lakh rupees
- Any company officer who fails to fulfill their obligations will be fined with a penalty of 50,000 rupees.
Application for registration of Charge
As per the Section 82 of Companies Act 2013, an application for registration of a Charge must be made to the Registrar. This application must be made in Form CHG-1 on payment of prescribed fees, accompanied by an instrument (if any) creating the Charge and other documents as the rules may require.
The applicant must also provide details regarding the following:
- The date of instrument creating or evidencing creating of Charge;
- The total amount to which the Charge extends;
- The purpose for which the Charge is created; and
- Name, address, and description of a person(s) in whose favor charge is created.
Once all these details are provided, the Registrar shall enter such particulars in the register of charges. On successful registration, each such entry shall be assigned a unique registration number at all times.
Certificate of registration of Charge
When a Charge is registered with the Registrar, the Registrar issues a Certificate of Registration of Charge in Form CHG-2.
The certificate also helps the companies and lenders since they can be assured of getting their payments in due course through such mortgages and charges.
Modification of Charge
Regarding modifications of Charge, there are some important points to remember regarding the Companies Act 2013. As per Section 77 and 79, any modification in the terms or conditions or the extent or operation of any registered charge, such modifications should be registered with the Registrar within 30 days. This is done by presenting a copy of the particular document detailing the modifications and the prescribed fees.
In addition, any company or entity should also follow certain other guidelines concerning modifications of Charge, such as:
- Furnishing the particulars of modification of Charge in the register maintained at their registered office
- Notifying the particulars of the modification of Charge in Form CHG-1 to the Registrar within 30 days from the date of registration
- Ensuring that no new charges are created unless permitted by law
- Ensure existing charges are amended/ modified only after all parties consent.
These rules and regulations must be followed to accurately modify any Charges as stipulated by the Companies Act 2013.
Satisfaction of Charges
When the money or other consideration secured by a charge is fully paid, the charged property can be released. This process of releasing the Charge is known as the satisfaction of the Charge. Every company that has registered its charges must intimate it to the registrar in Form CHG-4 within 30 days of satisfaction. The company must also send a copy of Form CHG-4 to every secured creditor affected by such satisfaction. In turn, if any secured creditor or creditor objects to such satisfaction, they must be notified of such application.
Procedure for Satisfaction of Charges
- Conduct a board meeting:- Board meeting must be conducted after the prior notice to the board of directors to acquire a “No Due Certificate” from the lender.
- Filing particulars of satisfaction of charges:- Any company must file particulars of satisfaction of charges within 30 days of such satisfaction.
- Notice to charge holder by registrar:- the registrar sent notice to call the charge holder to disclose the cause within 14 days. This step can be skipped when filling out the CHG-4 form from the charge holder.
- Application of condonation of Delay:- If the company fails to file intimation of satisfaction of charges within 30 days, then there is a need to create an application to the registrar who allows making intimation within 300 days from the date of payment of registered charges in full. If 300 days are to be extended, then the application shall be created to the central government (Regional Director).
- Certificate of Satisfaction of Charge Registration:- Once the registrar is satisfied, he shall print a certificate of registration of satisfaction of Charge allocated to the company.
Effects of registration
Chapter VI of the Companies Act 2013 outlines the rules and regulations for registration of Charge and closer of Charge. Such registration can affect the rights and obligations of creditors and corporate entities that wish to raise finance by granting a charge.
Once the registrar is satisfied, he shall print a certificate of registration of satisfaction of Charge allocated to the company.
Increase in Security
By registering charges, creditors are provided additional security, strengthening their legal rights over assets. The registered Charge will be treated as a secured loan and can fetch additional business opportunities.
Increase in Creditworthiness
By registering claims against securities, creditors can also be conferred with a higher credit status which can help them gain access to more capital or increased lending facilities. They may also leverage their position more effectively when negotiating repayment terms with customers and other stakeholders.
The Companies Act 2013 has established stringent rules and regulations for registering and closing charges. Companies must file relevant instruments with the registrar and keep them in their registered office for eight years, which the directors should authenticate or authorize. Although the process might seem tedious and complex, it is important to concede with the rules, as failure can lead to harsh penalties. Following the regulations helps the company abide by the law and keeps their stakeholder interests safe and secure.