Before going to charges it is important to understand mortgage, pledge & hypothecation. Mortgage means transfer of interest in specific immovable property to secure the payment of loan. The transferor is called mortgagor and transferee is called mortgagee and payment which is secured is called mortgage money and instrument by which charge is created is called mortgage deed. Pledge means transfer of possession of movable property as security while in case of hypothecation possession remains with the borrower but interest is transferred to the lender. As per section 2(16) of the companies act 2013, charge means interest or lien created on the property or assets of company or any of its undertaking or both as security and includes mortgage.A charge is a security given for securing loans or debentures either by way of mortgage, pledge, hypothecation or lien. Charge may be fixed or floating. Fixed charge means charge created on a specific asset, for example on land situated at xyz while floating charge is charge created on block of assets like inventory, debtors etc. Conversion of floating charge to fixed charge is known as crystallization of charge. It can be done when company goes into liquidation, company ceases to carry on business or on the event specified in the deed.
After creation of charge, the company should register it with the Registrar of Companies (ROC) within 30 days in form no. CHG-1 for other than debentures and in form no. CHG-9 for charges for debentures on payment of normal fees and within 60 days of creation of charge on payment of additional fees and within further 60 days on payment of ad valorem fees. If company fails to register charge within 30 days, person in whose favour charge is created can apply to ROC, who will send show cause notice to company i.e., asking the reason why the company did not register charge and if no justified response is received within 14 days then ROC will register the charge and order the company to compensate the fees paid by the charge holder. ROC shall give a certificate of charge registered in form no. CHG-2. Any modification in charge registered can be intimated to ROC in the same forms as of registration and ROC will give its certificate in form no. CHG-3.
If a charge created is not registered with ROC then it will be enforceable while the company is going concern unless another charge is created and registered. But if a company goes into liquidation the liquidator will treat such an unregistered charge as unsecured creditor even though it is properly stamped. On repayment of debt secured by charge, the company should intimate to ROC in form no. CHG-4 with fees and company will send a show cause notice to the charge holder that why this satisfaction should not be registered. If no response is received within 14 days then ROC shall register the satisfaction and give its certificate in form CHG-5. If it came to the knowledge of ROC that debt is paid in part or in full or the property is now not a part of the property of the company then it may record the satisfaction and inform the affected parties within 30 days.
Every company shall maintain a register of charges at its registered office in form no. CHG-7 which shall include the details of charge created, modified and satisfied. All entries should be authenticated by the director or secretary or other person authorized by the board. It shall be preserved permanently and instrument creating charge should be preserved for 8 years from satisfaction of charge.
If a company fails to intimate ROC within the time limit prescribed or there is misstatement in particulars of charge, company or any interested person may make an application to central government for extending time limit of intimation or satisfaction of charge on sufficient grounds.
If company fails to comply with provisions of charges then it will be punishable with penalty of ₹5,00,000 and officer in default shall be punishable with penalty of ₹25,000 and if any person wilfully furnishes any false or incorrect information he shall be liable under section 447.
Also read: Buyback of Equity Shares as per Companies Act 2013