Introduction to Registration of Charges

The Ministry of Corporate Affairs (MCA) released an official notification on the 5th of July, 2018 in regards to the registration of charges amendment. Let’s look at what this means for companies and it’s implications. Before we dive into the details, however, let’s take a step back and ask what is registration of charges?

Corporate firms also require financial assistance or working capital as a loan for the growth of the company. Many times, a company has to fund a large-scale project and needs extra funds for its success. In such cases, banks and financial institutes are happy to provide companies with these funds if and only if a proper security is created over the company’s assets for recovery of the loan.

In accordance with the Companies Act, 2013  A company has to file all details of securities created over assets of the company with ROC( Registrar of Companies). Hence, the process of creating securities over the assets of the company is called a charge.

The charges on a company is a matter of public information and are available on the website of the MCA  and it also helps lenders understand the existing charges on a company and helps prevent ‘double financing ‘ by avoiding duplicated securities. The Registration of Charges Amendment rules will help bring about a better and more transparent lending system for companies.

Creating a Charge

The process of creating a charge on a company  occurs in the following steps:

  1. Board of Directors passes a board resolution for taking a loan.
  2. Execution of loan documents or deeds
  3. Agreeing on terms of Financial assistance/loan
  4. Signing the loan documents

Types of Charges

There are basically two categories that charges on a company fall into. These are :

  • Fixed Charges- Charge against a specific and identifiable property whose identity cannot change throughout the period of the loan
  • Floating Charges – These charges are not against any specifically identifiable property and cover properties floating or uncertain such as stock-in trades, debtors etc.

Registration of Charges

As per the companies act, all charges against the company have to be registered with the Registrar of Companies. (ROC) to avoid ‘double financing’.

Following is a list of charges which need to be Registered with the ROC

  1. A charge created for the purpose of securing any issue of debentures or deposits;
  2. A charge on the uncalled share capital of the company;
  3. A charge on any immovable property, wherever situated, or any interest therein;
  4. A charge on any book debt of the company;
  5. A charge, not being a pledge, on any movable property of the company;
  6. A floating charge on the undertaking or any property of the company including stock-in-trade;
  7. A charge on calls made but not paid;
  8. A charge on a ship or any share in a ship;
  9. A charge on intangible assets, including goodwill, patent, a license under a patent, trademark, copyright or a license under a copyright.

Companies (Registration of Charges) Amendment rules, 2018

Refer the official Notification issued by the MCA below to take a look at the Companies Registration of Charges Amendment Rules, 2018

Government of India

MINISTRY OF CORPORATE AFFAIRS

Notification

New Delhi, 5th July, 2018

G.S.R. ……(E).-In exercise of the powers conferred by sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Registration of Charges) Rules, 2014, namely:-
1. (1) These rules may be called the Companies (Registration of Charges) Amendment Rules, 2018.
(2) They shall come into force from the date of their publication in the Official Gazette.
2. In the Companies (Registration of Charges) Rules, 2014,
(i) in rule 3, in sub-rule (1), for the words “and filed”, the words “shall be filed” shall be substituted;
(ii) for sub-rule (1) of rule 8, the following shall be substituted namely;-
“8. “(1) A company or charge holder shall within a period of three hundred days from the date of the payment or satisfaction in full of any charge registered under Chapter VI, give intimation of the same to the Registrar in Form No.CHG-4 along with the fee.” ;
(iii) in rule 12, in sub-rule (1), for the words “within thirty days” the words’within a period of three hundred days” shall be substituted.

[F.No. 01/10/2013 CL-V]

K.V.R.Murty, joint Secretary.

 

Note: The principal notification rules were published in the Gazette of India, Part II, Section 3, Sub-section (i), vide number G.S.R. 248(E), dated the 31st March 2014 and subsequently amended vide the following notifications:-

SerialNotification NumberNotification Date
Number29th May 2015
1.G.S.R 440(E)
2.G.S.R. 339 (E)7th April 2017