Meaning of Charge under Companies Act
Under the Companies Act, a charge is created by a company (borrower) in favour of a bank, financial institution, or any other lender (creditor) as security for repayment of a loan or financial assistance.
In case the company fails to repay the amount, the lender has the legal right to recover the outstanding dues from the charged assets of the company.
What is Registration of Charge?
Registration of Charge under Companies Act refers to the process whereby a legal right or interest created by a company on its assets or properties, as security for repayment of a loan or financial assistance, is duly recorded with the Registrar of Companies. Such a charge may be created on present or future assets and includes a mortgage.
In simple words, when a company borrows money, it offers its assets as security to the lender. This security interest in favour of the lender is known as a Charge.
Creation of Charge under Companies Act
Under the Companies Act, a company may create a charge on its assets or undertakings as security for loans or financial assistance. A charge can be created on:
- Movable or immovable assets
- Tangible or intangible assets
- Present or future assets
- Any undertaking of the company
Such assets may be located in India or outside India.
The creation of charge under the Companies Act safeguards the lender’s interest and establishes priority over the company’s assets in case of default.
Registration of Charge under Companies Act with ROC
As per the Registration of Charge under Companies Act, every company creating a charge on its assets or undertakings is mandatorily required to register the charge with the Registrar of Companies (ROC). This requirement applies to charges created within or outside India, on movable or immovable, tangible or intangible, and present or future assets of the company.
The registration of charge ensures:
- Legal recognition of the charge
- Public notice of the lender’s interest
- Protection of the lender’s rights
- Compliance with the provisions of the Companies Act
Due Date for Filing Charge Forms under Companies Act
As per the Registration of Charge under Companies Act, every company creating a charge on its assets or undertakings is required to file the relevant charge form with the Registrar of Companies (ROC) within 30 days from the date of creation of charge.
- Form CHG-1 (for charges other than debentures)
- Form CHG-9 (for charges related to debentures)
Timely filing of charge forms is essential to ensure legal validity of the charge, avoid additional fees and penalties, and protect the lender’s security interest.
Delay in filing may lead to higher government fees and may also affect the enforceability of the charge against third parties.
Registration of Charge under Companies Act – Step-by-Step Process
The Registration of Charge under Companies Act involves the following systematic steps to ensure legal compliance and protection of the lender’s interest:
Loan Approval
The process begins when the company avails a loan or financial assistance from a bank or lender. A loan agreement or sanction letter is issued specifying the security to be offered.
Identification of Assets
The company identifies the assets on which the charge will be created. These may include land, building, machinery, stock, receivables, or any undertaking of the company.
Creation of Charge
After execution of loan and security documents, the charge is created on the identified assets in favour of the lender. At this stage, the charge is legally created but not yet registered with the ROC.
Filing of CHG-1 / CHG-9
The company is required to file the prescribed form with the Registrar of Companies (ROC):
Form CHG-1 – for charges other than debentures
Form CHG-9 – for charges related to debentures
The form must be filed within 30 days from the date of creation of charge.
Documents Required
- The following documents are generally attached with the form:
- Loan Agreement
- Sanction Letter
- Mortgage / Hypothecation Deed
- Board Resolution
- Any other supporting document
Payment of ROC Fees
The prescribed ROC filing fees are paid at the time of submission, based on the company’s authorised capital.
Verification by ROC
The ROC examines the filed forms and documents. If all details are found to be correct, the ROC issues a Certificate of Registration of Charge.
Charge Registered
Upon issuance of the certificate, the charge stands successfully registered and is reflected in the MCA records. The lender’s security interest is thereby legally protected.
Modification of Charge under Companies Act
The procedure to update the address depends on where the company is shifting. Each category has different documentation, resolutions, and ROC filings.
Under the Companies Act, if there is any change in the terms or conditions of an already registered charge, such change is treated as a Modification of Charge and must be reported to the Registrar of Companies (ROC).
Modification of charge may arise due to:
- Change in loan amount
- Change in rate of interest or repayment terms
- Addition or substitution of charged assets
- Change in lender or security details
The company is required to file the prescribed form with ROC within 30 days from the date of modification of charge. The modification is registered only after due verification by ROC.
Registration of modification of charge ensures:
- Updated public records
- Continued legal protection of the lender’s interest
- Compliance with the Companies Act
Failure to register the modification within the prescribed time may attract additional fees and penalties and may affect the enforceability of the charge.
Satisfaction of Charge under Companies Act
When a company fully repays the loan or financial assistance, the related charge is required to be satisfied under the Companies Act.
For satisfaction of charge:
- The company must file Form CHG-4 with the Registrar of Companies (ROC)
- The form is filed to intimate that the liability secured by the charge has been fully discharged
- After verification, ROC issues a Satisfaction Certificate, confirming closure of the charge
Registration of satisfaction of charge ensures that the charge is officially removed from MCA records and reflects that the company is free from the related security obligation.
Consequences of Non-Registration of Charge under Companies Act
Failure to comply with the Registration of Charge under Companies Act can lead to serious legal and financial consequences, including:
- The charge becomes void against the liquidator and other creditors, especially in case of winding up of the company
- The lender’s security interest is not legally enforceable, resulting in loss of priority over the company’s assets
- The company may be liable to pay additional fees and penalties as prescribed under the Companies Act
Therefore, timely registration of charge with the Registrar of Companies (ROC) is essential to protect both the company and the lender and to ensure statutory compliance.
Frequently Asked Questions (FAQs) – Charge under Companies Act
What is a charge under the Companies Act?
A charge is a legal right or interest created by a company on its assets or properties as security for repayment of a loan or financial assistance.
Who creates a charge?
A charge is created by the company (borrower) in favour of a bank, financial institution, or any other lender (creditor).
Is registration of charge mandatory?
Yes, registration of charge with the Registrar of Companies (ROC) is mandatory under the Companies Act.
Which form is used for registration of charge?
Form CHG-1 – For charges other than debentures
Form CHG-9 – For charges related to debentures
What is the time limit for filing CHG-1 or CHG-9?
The form must be filed within 30 days from the date of creation of charge.
Can a charge be created on future assets?
Yes, a charge can be created on present as well as future assets of the company.
What happens if a charge is not registered?
The charge becomes void against the liquidator and other creditors, and the lender’s security interest is not legally protected.
Can a charge be modified after registration?
Yes, any modification in the terms or assets of a registered charge must also be reported to ROC within the prescribed time.
Which form is filed for satisfaction of charge?
Form CHG-4 is filed with ROC for satisfaction (closure) of charge after full repayment of the loan.
Why is registration of charge important?
Registration of charge ensures legal validity, public notice, protection of lender’s rights, and compliance with the Companies Act.
What assets can be charged by a company?
A company can create a charge on movable or immovable, tangible or intangible, present or future assets, including any of its undertakings.
Is charge registration required for assets situated outside India?
Yes, charges created on assets situated outside India are also required to be registered with the ROC under the Companies Act.
Who is responsible for filing the charge with ROC?
The company is primarily responsible for filing the charge forms with the Registrar of Companies.
Can a lender file the charge if the company fails to do so?
Yes, in certain cases, the lender or charge holder may also apply to ROC for registration of charge, subject to prescribed procedure and fees.
What is the effect of charge registration on third parties?
Registration of charge acts as public notice, informing third parties about the lender’s interest in the company’s assets.
Is Board Resolution required for creation of charge?
Yes, a Board Resolution approving the borrowing and creation of charge is generally required.
Can multiple charges be created on the same asset?
Yes, multiple charges can be created on the same asset, subject to the terms of lending and priority of charges.
What is the difference between creation and registration of charge?
Creation of charge means execution of security documents, whereas registration of charge means filing and recording the charge with ROC.
Does registration of charge give ownership rights to the lender?
No, registration of charge only gives a security interest, not ownership of the assets.
Is satisfaction of charge mandatory after repayment?
Yes, once the loan is fully repaid, satisfaction of charge must be filed with ROC to remove the charge from company records.