TYPES OF CHARGES AND SATISFACTION OF CHARGES IN

COMPANY

SCHOOL OF LAW

MANIPAL UNIVERSITY JAIPUR

IN PARTIAL FULFILLMENT OF THE REQUIREMENT PRESCRIBED

FOR LL.B 4TH SEMESTER

UNDER SUPERVISION OF- SUBMITTED BY-

Ms. Dolly Singh Tarun Manocha

Assistant Professor Reg. No- 161402013
LL.B (4TH SEMESTER)
 CERTIFICATE

This is to certify that Mr. Tarun Manocha of LL.B fourth semester school of Law Manipal
University Jaipur has completed the project work entitled “Difference Between winding up and
dissolution of a company” under my supervision and guidance.
It is further certifying that the candidate has made sincere efforts for the completion of the
project work.

Supervisor Name
Mr. Dolly Singh
Assistant Professor
 ACKNOWLEDGEMENT

This is not just a customary acknowledgement of help that I received but a sincere expression of
gratitude to all those who have helped me complete this project and made it seem apparently
more readable than otherwise it would have been.

I am in debt to my faculty advisor Ms. Dolly Singh for giving such an interesting and amazing
topic ‘Types Of Charges And Satisfaction Of Charges In Company’ and making it seem easy by
lucidly explaining its various aspects. I would like to thank him for guiding me in doing all sorts
of researches, suggestions and having discussions regarding my project topic by devoting his
precious time.

I thank department for providing Library, Computer and Internet facilities. And lastly I thank
my friends and all those persons who have given valuable suggestions pertaining to the topic and
have been a constant source of help and support.

Thanking everyone,

Tarun Manocha
 TABLE OF CONTENTS

INTRODUCTION ........................................................................................................................................ 5
WHAT IS A CHARGE ................................................................................................................................. 5
KINDS OF CHARGES................................................................................................................................. 6
CRYSTALLIZATION OF FLOATING CHARGE ..................................................................................... 7
TYPE OF CHARGES TO BE REGISTERED ............................................................................................. 8
REGISTRATION OF CHARGES ................................................................................................................ 9
ADDITIONAL PERIOD TO REGISTER THE CHARGE .......................................................................... 9
DUTY OF REGISTRATION OF CHARGE .............................................................................................. 10
CERTIFICATE OF REGISTRATION OF CHARGE ............................................................................... 10
SATISFACTION OF CHARGE................................................................................................................. 11
REGISTER OF CHARGE BY COMPANY .............................................................................................. 12
PROCESS OF CREATION/ MODIFICATION OF CHARGE ................................................................. 12
PROCESS OF SATISFACTION OF CHARGE ........................................................................................ 14
CONCLUSION ........................................................................................................................................... 15
WEBLIOGRPAHY..................................................................................................................................... 16
BIBLIOGRAPHY ....................................................................................................................................... 16
 INTRODUCTION

A charge is a right created by any person including a company referred to as “the borrower” on
its assets and properties, present and future, in favour of a financial institution or a bank, referred
to as “the lender”, which has agreed to extend financial assistance. Section 2(16) of the
Companies Act, 2014 defines charges so as to mean an interest or lien created on the property or
assets of a company or any of its undertakings or both as security and includes a mortgage The
following are the essential features of the charge which are as under: 1. There should be two
parties to the transaction, the creator of the charge and the charge holder. 2. The subject-matter
of charge, which may be current or future assets and other properties of the borrower. 3. The
intention of the borrower to offer one or more of its specific assets or properties as security for
repayment of the borrowed money together with payment of interest at the agreed rate should be
manifested by an agreement entered into by him in favour of the lender, written or otherwise. A
charge may be fixed or floating depending upon its nature.

WHAT IS A CHARGE

The company may borrow monies by providing security of its assets and may create a lien on the
properties of the Company. The Company may also issue Debentures to raise funds which may
carry a right/ interest in the Assets/Properties of the company. A charge is a way of security to
the creditor/lender of his interest/right on the properties of the company for the amounts due to
him by the company.

The Companies Act, 2013 defines a Charge as an interest or lien created on the assets or property
of a Company or any of its undertaking as security and includes a mortgage U/s 2(16). In the
earlier Act of 1956, the word “Mortgage” was not mentioned.
 The Assets stated in the above definition covers all assets including Goodwill, Patents and All
assets whether situated in India or abroad.

As per Section-2 (16) Charge means- An

 interest or lien
 created on the property or assets of a company or
 any of its undertakings or both as security and includes a mortgage;
Principle rule of Creation of Charge is that “Charge will be creating on the Assets of the
Company”, Assets as defined in Schedule III of the CA-2013

Provisions of charge given under chapter VI of companies act 2013 covers section- 77 to 87.

It was held in T. V. Sundaram Iyengar and Sons (P.) Ltd. v. Official Liquidator that 1 “Dealing
with the question as to whether that section was applicable to a charge arising by operation of
law, a Bench of the Oudh High Court in Hukmichand v. Pioneer Mills Ltd., A.I.R. 1927 Oudh 55
held that the said section was applicable only to a charge created by the company by contract and
not to a charge arising by operation of law. The same principle applies to Section 125 of
Companies Act, 1956 also. Therefore, the fact that the lien claimed by the applicant-company is
not registered does not disentitle the applicant company from working out its rights arising under
the lien.” It should however be noted that this exercise of right is in pursuance to the statutory
lien of unpaid vendor.

KINDS OF CHARGES

The charges are of two kinds:

1. Fixed Charge: A charge which is identifiable with specific and clear asset/property at the
time of creation of charge. The Company cannot transfer such identified and defined
property unless the charge holder (creditor) is paid off his dues. Such a charge is against a
specific clearly identifiable and defined property. The property under charge is identified
at the time of creation of charge. The nature and identity of the property does not change

1
[[1974] 42 Com Cas 359 (Mad)]]
 during the existence of the charge. The company can transfer the property charged only
subject to that charge so that the charge holder or mortgage must be paid first whatever is
due to him before disposing off that property.
2. Floating Charge : It covers the floating and circulating nature of properties of a company,
like sundry debtors, stock in trade etc., The nature of the property charged may change
from time to time .The floating charge crystallizes into fixed charge if the Company
crystallizes or the undertaking ceases to be a going concern. Such a charge is available
only to companies as borrower. A Floating charge does attach to any definite property but
covers the property of a circulating and fluctuating nature such as stock-in-trade, debtors,
etc. It attaches to the property charged in the varying conditions in which happens to be
from time to time. Such a charge remains dormant until the undertaking charge ceases to
be a going concern or until the person in whose favour charge created takes steps to
crystallise the floating charge. A floating charge on crystallization becomes a fixed
charge

CRYSTALLIZATION OF FLOATING CHARGE

When the charge holder takes steps to enforce his charge, a floating charge becomes a fixed
charge on the assets covered by that charge. Until a floating charge becomes a fixed charge, the
company is free to deal with the property charged in any manner it deems fit. But once the
floating charge crystallises, the company cannot dispose off the charged assets without paying of
the chargeholder. Otherwise, the chargeholder can recover his dues from the proceeds. A floating
charge crystallises or becomes the fixed in following situations :-

1) Where the company ceases to carry on the business, whether the principal money has become
payable or not, unless the debenture or trust deed contains the stipulation to the contrary.

2) Upon the commencement of winding up of the company.

 3) If a debenture holder, having become entitled to realise the securities by the reason of the fact
that the principal money has become payable, intervenes for the purpose by appointing the
receiver or by making an application to the court for appointment of the receiver.

TYPE OF CHARGES TO BE REGISTERED

Companies Act, 1956: Section 125 specifies only 9 types of charges to be registered.

Companies Act, 2013: Section 77 states that Companies are required to register ALL TYPES OF
CHARGES, with ROC within 30 days of its creation.

 within or outside India,

 on its property or assets or any of its undertakings,
 whether tangible or otherwise, and
 situated in or outside India

For Creation of Charge Form CHG-1 will be filed with fees prescribed under Act. Form should
be signed by the Company and the Charge-holder and should be filed together with instrument
creating charge.

It was held in Resinoid & Mica Products Ltd. Case2, that time should not be extended for
registering a charge after the company had gone into liquidation, because such a step would
prejudicially affect the rights of all parties which are determined on commencement of winding
up.
In the case of C.K. Siva Sankara Panicker v Kerala Financial Corpn 3 it was held that an
unsecured creditor could not challenge the validity of a charge or claim right over the property
on the ground that he incurred the liability prior to its registration.

It was held in the case of Maharashtra State Financial Corpn. v Official Liquidator, Sidhu Tyres
(P) Ltd4that ‘When a charge is created by a partnership which is later converted into a company,
registration is not necessary but it is obligatory on directors to bring it to notice of Registrar.’

2
[(1982) 3 ALL ER 677]]
3
(1980) 50 Comp Cas 817 (Ker)]
 REGISTRATION OF CHARGES

Every company must keep at its registered office a register of charges in which all the charges
and mortgages specifically affecting the property of the company must be entered. The register
must contain short description of the property charged, the amount of the charge, the name of the
person entitled to the charge, etc. The company must keep at its registered office, a copy of every
instrument creating any charge requiring the registration. During the business hours inspection
by the creditor or member of the company is allowed to be without charge of the register and
documents. Any outsider can inspect them on the payment of Rs10 for each inspection during the
business hours. Registrar of the company must keep also the register of charges in respect of
each company and register therein full particulars relating to the charge created by the company
and registrable under the Act. This register is also open to inspect by any person on payment of
Rs 10 as fees . The company must submit to the Registrar the instrument creating the charge or
its certified copy which will be returned after the registration along with the certificate of
registration. The company must cause the copy of every registration to be endorsed on every
debenture or certificate of debentures stock which is issued by the company and the payment of
which is secured by the charge.

ADDITIONAL PERIOD TO REGISTER THE CHARGE

Section 77- ROC may on application by the company, allow the registration of charge within
300 days (30 days + additional period of 270 days). If form will file after 30 days then form will
file with additional fees.

4
.[(1988) 64 Comp Cas 641 (Bom)]
 Application to be supported by a declaration in Form CHG-10 from the CS or Director that such
belated filing will not adversely affect the rights of any creditors of the company.

DUTY OF REGISTRATION OF CHARGE

 As per Section 77 it is duty of Company to Create charge.

 As per Section 78 if Company fails to file form for registration of charge then, the person in
whose favour charge is created will file form for creation of charge. The person is entitled to
recover from the company the amount of fees.
But before filling of form person will give 14 days’ notice to Company. If company doesn’t
register the charge or show sufficient cause then person himself will file the form with ROC.

This is not responsibility of Person (in whose favour charge is created) to file form. Therefore if
company fail to file form for registration of charge and person also not filed form then person
will not liable to pay any penalty.

CERTIFICATE OF REGISTRATION OF CHARGE

After filling of Creation of charge ROC will issue a certificate of registration of charge in form
CHG-2. The certificate issued by the Registrar under CHG-2 shall be conclusive evidence that
the requirements of Chapter VI of the Act and the rules made there under as to registration of
creation of charge, as the case may be, have been complied with.

Time limit for filling for creation of charge

Within 30 days -Application should be made within 30 days of creation of charge in form CHG-
1 without any late fees.
 After expiry of 30 days but not beyond 300 days – Application should be made before 300 days
of creation of charge in CHG-10 attached in CHG-1.

After Expiry of 300 days -Application for Condonation of Delay to Regional Director in form
CHG-8.

SATISFACTION OF CHARGE

Charge is created as security for loan or debentures or as security for some other purpose. If the
amount of loan is repaid or debentures are fully paid or other purpose is fulfilled, there remains
no necessity of the charge. This is called satisfaction of charge.

As per Section 82 – Form for Satisfaction of charge will be file in form CHG-4 within 30 days of
satisfaction of charge. If company fail to file form CHG-4 within 30 days of creation of charge
then company have to go for condonation of delay for satisfaction of charge.

CHARGES FILING OF WHICH WITH ROC IS NOT NECESSARY?

 Guarantee doesn’t require Registration.

 Charge created by operation of law need not be filed
 Negotiable Instrument (Hundi) is not a ‘Charge’ and registration not required
.
Pledge is not required to be filed for Registration:

Earlier there was list of transaction on which charge was required to create. With the enactment
of the Companies Act, 2013, tire list of charges requiring registration done away with. Thus, in
the absence of a specific list of charges to be registered, and the wide definition of the word
“charge”, ‘pledges’ and ‘liens’ were also required to be registered.

The companies creating pledge over shares are compulsorily required to register the charge,
which was not the case with its predecessor. This is unfair, for example, there is absolutely no
sanctity in registration of a pledge as a pledge is a possessory security interest and the asset is
already with the lender. A pledge on movables neither creates an interest or a lien but rather is a
special property.

REGISTER OF CHARGE BY COMPANY

a) Every company shall maintain, at registered office a register of charge in form No. CHG-7.

b) Copy of the instrument creating the charge shall also be kept at the registered office of the
company along with register of charge- (Proviso of Section 85(1)

c) The entry in the registered authenticated by a director or secretary of the company or the other
person authorized.

d) **Company will maintain this register for life time of Company.

e) ** Instrument creating charge or modification of charge shall be preserved for a period of 8

year from the date of satisfaction of charge by the Company.

PROCESS OF CREATION/ MODIFICATION OF CHARGE

If a company has passed special resolutions under Section 180(3)(c) of the Companies Act, 2013,
authorising its Board of directors to borrow funds for the requirements of the company and under
Section 180(1)(a) of the Companies Act, 2013, authorising its Board of directors to create charge
on the assets and properties of the company to provide security for repayment of the borrowings
in favour of the financial institutions/banks or lenders and in exercise of that authority has signed
the loan documents and now proposes to have the charge, created by it registration with the
ROC, should follow the procedure detailed below

Where the special resolution is passed as required under section 180 of the Companies Act,
2013, form MGT14 of the Companies (Management and Administration) Rules, 2014 is to be
files with the registrar.
 Conduct a Board meeting to arrive at a positive decision to avail the facility including security of
Charges. In the said business of availing facility, authority to execute necessary documents is
also required to be given.
 File extracts of the said resolution with the Registrar of Companies in form [1]MGT 14 within 30
days of its passing.
 Execute necessary documents for availing the facility including the security being given.
 Make entries in the register of Charges maintained in form CHG-7 forthwith after the creation/
modification/ satisfaction and get it authenticated by Director or Secretary of the company or any
person authorized by the board.
 Submit form CHG-1 (for other than debentures) or Form CHG-9 (for debentures including
rectification) with the prerequisite fees within a period of 30 days from the date of creation/
modification of charge.
 Attach the following documents with e-form No. CHG- 9/ CHG -1: 9/ CHG -1 A certified true
copy of every instrument evidencing any creation or modification of charge. In case of joint
charge and consortium finance, particulars of other charge holders. Instrument(s) evidencing
creation or modification of charge in case of acquisition of property which is already subject to
charge together with the instrument evidencing such acquisitions
 After due compliance, Registrar shall issue certificate of registration in form CHG-2, where
charge is registered under section 77(1) or 78 or in form CHG-3, where charge is registered
under section 79.
 If CHG-1 (for other than debentures) or Form CHG-9 (for debentures including rectification) is
not being submitted within the period of 30 days, however within the period of 300 days, prepare
an application for condonation in form CHG-10 which shall be supported by a declaration by the
secretary or director of the company that delay shall not affect the rights of creditors. After due
compliance, Registrar shall issue certificate of registration in form CHG-2, where charge is
registered under section 77(1) or 78 or in form CHG-3, where charge is registered under section
79.
 Where a charge is registered with the Registrar obtain a certificate of registration of such charge
in Form No.CHG- 2. Where the particulars of modification of charge is 2 registered the Registrar
shall issue a certificate of modification of charge in Form No. CHG-3
 If CHG-1 (for other than debentures) or Form CHG-9 (for debentures including rectification) is
after 300 days, prepare an application for condonation in form CHG-8 and submit the same with
Regional Director having territorial jurisdiction over the registered office of the company under
The Companies Act, 2013.
 Pay the requisite penalty imposed by the Regional Director having territorial jurisdiction over the
registered office of the company. Normally 15 days time is being given for the payment of
penalty.
 After payment of requisite penalty, submit the Chalans with Regional director office with the
covering letter containing request to issue and order allowing condonation of delay.
 Submit the order issued by the regional director with the ROC within the stipulated time given in
the order itself in form INC 28.
 After the approval of the form INC 28, get the form CHG-1 (for other than debentures) or Form
CHG-9 (for debentures including rectification) approved. After due compliance, Registrar shall
issue certificate of registration in form CHG-2, where charge is registered under section 77(1) or
78 or in form CHG-3, where charge is registered under section 79.

PROCESS OF SATISFACTION OF CHARGE

 Gets the letter of satisfaction from the bank containing declaration that there are no dues towards
the facility provided.
 Conduct a Board meeting to consider the letter of satisfaction and after taking note of the same in
the said board meeting pass the resolution containing authorization to file form CHG-4 with
letter of satisfaction as an attachment. It must be noted that the said form CHG-4 is required to
be submitted within 30 days of satisfaction. The period of 300 days is applicable in case of
creation/modification of charges only and for satisfaction of charges, there is no relaxation of
time period.
 Make entries in the register of Charges maintained in form CHG-7 forthwith after the satisfaction
and get it authenticated by Director or Secretary of the company or any person authorized by the
board.
 Submit form CHG-4. After due compliance, Registrar shall issue certificate of registration of
satisfaction in form CHG-5.
 If CHG-4 is not being submitted within the period of 30 days, prepare an application for
condonation in form CHG-8 and submit the same with Regional Director having territorial
jurisdiction over the registered office of the company under The Companies Act, 2013.
 Process same like above after filling of CHG-8.

CONCLUSION

A charge is a right created by any person including a company referred to as “the borrower” on
its assets and properties, present and future, in favour of a financial institution or a bank, referred
to as “the lender”, which has agreed to extend financial assistance. This lesson will help students
understand various procedural aspects relating to creation, registration, modification and
satisfaction of charges by the companies under Companies Act, 2013.
 WEBLIOGRPAHY

 https://taxguru.in/company-law/analysis-charges-companies-act-2013.html
 https://studycafe.in/2013/11/creation-modification-and-satisfaction.html
 https://blogs.compliancecalendar.in/definition-types-registration-modification-
satisfaction-process-and-penalties-of-charges-under-companies-act-2013-by-shobhit-
agarwal-111

BIBLIOGRAPHY

 Dr. G.K Kapoor and Sanjay Dhamija, Company Law and Practice, 20th Edition,
Taxmann’s Publication, Page No 188-119

 Avtar Singh, Company Law, 16th Edition, EBC Publication, Page No: 206-237.