Company Charges: Registration, Satisfaction and Modification Under Section 77-87

When a company raises secured loans by creating a charge (mortgage, hypothecation, or pledge) on its assets, it must register that charge with the Registrar of Companies (ROC) within the prescribed timeframe. This public registration protects creditors and provides a public record of the company's encumbrances.

What is a Charge? (Section 2(16))

A charge is an interest or lien over the property/assets of a company as security for money borrowed or obligation/duty to be discharged. Charges include:

• Fixed charge: Attached to specific identified assets (land, building, plant, specific securities). The company cannot dispose of the asset without lender's consent.
• Floating charge: Hovers over a class of assets (inventory, receivables, debtors) that changes in the ordinary course of business. Crystallizes into a fixed charge on insolvency/enforcement.
• Hypothecation: Creating charge on movable property without transfer of possession (vehicles, stock, plant)
• Mortgage: Transfer of interest in immovable property as security
• Pledge: Delivery of movable goods as security with possession transferred
• Assignment of book debts: Assignment of receivables to lender as security

Obligation to Register (Section 77)

Every company creating a charge on its property must register it with the ROC within 30 days of creation. The charge holder (typically the bank/NBFC) may also register if the company fails.

Filing Forms

Contents of CHG-1

• Charge identification number (allotted by ROC on creation)
• Type of charge (fixed/floating/hybrid)
• Description of assets charged
• Amount secured
• Name and address of charge holder (bank/lender)
• Terms and conditions of the charge (ROI, repayment schedule)
• Property description (address, survey number for immovable; description for movable)

Consequences of Non-Registration (Section 77(3))

• Charge becomes void against the liquidator and any creditor of the company
• The money secured by the charge becomes immediately payable (acceleration clause triggered)
• Company and every officer in default: penalty up to Rs.1 lakh
• The lender loses priority over other creditors in insolvency/winding up

Register of Charges (Section 85)

Every company must maintain a register of charges in Form CHG-7 at its registered office. This register is open for inspection during business hours by: any member/creditor/trustee for debenture holders (free of charge); by any other person (nominal fee).

Priority of Charges

• Between registered charges: First-in-time, first-in-right (Section 80)
• Unregistered charge rank below registered charges and rank equally among themselves
• Floating charge crystallizes on liquidation and has lower priority than: government dues, workmen dues, fixed charge holders

IBC Interaction

In CIRP (Corporate Insolvency Resolution Process) under IBC 2016, secured creditors with registered charges are classified as Financial Creditors and part of the Committee of Creditors (CoC). Unregistered charges rank as unsecured/operational creditors in the waterfall under Section 53 of IBC.