Quick Answer
When a company borrows money and pledges its assets as security, a charge is created. The Companies Act 2013 mandates that every such charge must be registered with the Registrar of Companies (ROC) to protect the interests of lenders and ensure transparency. Failure to register a charge within the prescribed time can attract penalties, render.
When a company borrows money and pledges its assets as security, a charge is created. The Companies Act 2013 mandates that every such charge must be registered with the Registrar of Companies (ROC) to protect the interests of lenders and ensure transparency. Failure to register a charge within the prescribed time can attract penalties, render the charge void against the liquidator, and expose directors to prosecution.
This comprehensive guide by CA V. Viswanathan, IBBI Registered Valuer (Reg. No. IBBI/RV/03/2019/12333), covers the entire lifecycle of charge registration — from creation and filing of CHG-1, through modification via CHG-4, to satisfaction through CHG-6 — along with CERSAI requirements, penalties under Section 86, and the condonation of delay mechanism.
The key elements that constitute a charge are:
It is important to note that not all security interests are charges. A lien (possessory or statutory) and a set-off are generally not treated as charges requiring registration, although the distinction can be nuanced. Companies should seek professional advice from a qualified Company Secretary to determine whether a particular transaction creates a registrable charge.
Understanding the different types of charges is essential for proper registration and for determining the priority of claims in the event of liquidation.
A fixed charge is created over specific, identifiable assets of the company. The asset subject to a fixed charge cannot be dealt with freely by the company without the consent of the charge holder. Common examples include:
A fixed charge gives the lender a high degree of security because the asset is earmarked and cannot be dissipated by the borrower.
A floating charge is created over a class of assets that are not specifically identified and may change from time to time in the ordinary course of business. The charge “floats” over the assets until a triggering event — known as crystallisation — converts it into a fixed charge. Crystallisation occurs upon:
Floating charges are commonly created over current assets such as stock-in-trade, raw materials, work-in-progress, and general book debts. They offer flexibility to the borrower while providing a blanket security to the lender.
A pledge involves the delivery of possession of goods or documents of title to the lender as security for a debt. While a pledge is technically governed by the Indian Contract Act 1872 (Sections 172-179), it is also treated as a form of charge under the Companies Act when created by a company. The distinguishing feature of a pledge is the transfer of possession — the pledgor (company) hands over the goods to the pledgee (lender), who holds them until the debt is repaid.
Pledges are commonly used for securing loans against gold, securities, or other movable goods. Unlike a hypothecation (where possession remains with the borrower), a pledge provides the lender with actual control over the collateral.
Additional forms of security that may constitute registrable charges include:
The registration of charges is governed by Sections 77 to 87 of the Companies Act 2013, read with the Companies (Registration of Charges) Rules, 2014. The key provisions are summarised below:
| Section | Subject Matter | Key Provision |
|---|---|---|
| Section 77 | Duty to register charges | Every company must register particulars of charge within 30 days of creation with ROC. |
| Section 78 | Application by charge holder | If the company fails to register, the charge holder may apply for registration. |
| Section 79 | Effect of non-registration | Unregistered charge is void against the liquidator and other creditors; debt remains payable. |
| Section 80 | Company to report satisfaction | Company must intimate ROC of payment or satisfaction of charge. |
| Section 81 | Intimation of appointment of receiver or manager | Any person obtaining an order for appointment must give notice to ROC within 30 days. |
| Section 82 | Company to keep register of charges | Every company must maintain a register of charges at its registered office. |
| Section 83 | Inspection of register of charges | Register and instruments creating charges are open to inspection. |
| Section 84 | Intimation of charge to ROC | ROC shall issue certificate of registration of charge. |
| Section 85 | ROC to maintain register of charges | ROC shall keep a register of charges for each company. |
| Section 86 | Punishment for contravention | Penalties for failure to register charges — up to Rs. 10 lakh for company and Rs. 5 lakh for officers. |
| Section 87 | Rectification by CG on company liquidation | Central Government may allow registration of charges even after the prescribed period. |
Form CHG-1 is the prescribed form for registering the creation or modification of a charge (other than a charge related to debentures, which requires Form CHG-9). This form must be filed electronically on the MCA portal.
The timeline for filing Form CHG-1 is structured as follows:
The following documents are typically required to be attached with Form CHG-1:
While filling Form CHG-1, particular attention must be paid to:
The Companies Act recognises that delays in filing may occur for genuine reasons. Accordingly, a graded system of additional fees and condonation has been established.
The additional fees payable for delayed filing of charge registration are prescribed under the Companies (Registration of Charges) Rules, 2014 and are calculated on an ad valorem basis. The fee structure increases progressively with the duration of the delay:
Under Section 87 of the Companies Act 2013, the Central Government has the power to condone the delay in registration of charges beyond the permissible period. The application for condonation must include:
The Central Government may, on being satisfied that the delay was accidental or due to inadvertence or other sufficient cause, direct that the time for registration shall be extended. Such extension is granted subject to conditions that the rights of any parties acquired during the intervening period are not prejudicially affected.
When the terms of an existing charge are altered — such as a change in the amount secured, the property charged, or the terms and conditions — the modification must be registered with the ROC by filing Form CHG-4.
Form CHG-4 must be filed in the following circumstances:
The timeline for filing Form CHG-4 mirrors that of CHG-1:
The documents to be attached include the certified copy of the instrument effecting the modification, the original certificate of registration of charge, and a board resolution authorising the modification.
When the debt secured by a charge has been fully repaid or the charge has otherwise ceased to exist, the company is required to intimate the ROC by filing Form CHG-6 (previously known as Form CHG-4 for satisfaction under the old regime).
Filing Form CHG-6 is crucial because:
Under Section 82 of the Companies Act 2013, the company must file Form CHG-6 within 30 days of the payment or satisfaction of the charge in full. The form requires:
Upon filing, the ROC issues a notice to the charge holder, allowing them 14 days to raise objections. If no objection is received, the ROC records the memorandum of satisfaction.
In addition to registration with the ROC, certain charges must also be registered with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), established under Section 20 of the SARFAESI Act 2002.
CERSAI registration is mandatory for:
CERSAI registration is required to be completed within 30 days from the date of creation or modification of the security interest. The registration must be done through the CERSAI portal.
Under Section 26E of the SARFAESI Act (inserted by Amendment Act 2016), a security interest that is not registered with CERSAI shall not be enforceable against any subsequent secured creditor who has registered their security interest with CERSAI. This means that an unregistered charge holder may lose priority to a later charge holder who has duly registered with CERSAI.
Additionally, failure to register with CERSAI within 30 days attracts a penalty of up to Rs. 5,000 per day of delay, subject to a maximum of Rs. 5 lakh.
It is essential to understand that ROC registration under the Companies Act and CERSAI registration under the SARFAESI Act are independent and concurrent obligations. Filing with one does not excuse filing with the other. Companies must ensure timely compliance with both requirements to maintain the validity and enforceability of their charges.
Section 86 prescribes penalties for contravention of the provisions relating to registration of charges:
| Defaulter | Penalty |
|---|---|
| Company | Fine not less than Rs. 1 lakh, which may extend to Rs. 10 lakh |
| Every officer in default (including directors) | Imprisonment up to 6 months OR fine not less than Rs. 25,000, which may extend to Rs. 5 lakh, OR both |
The penalties under Section 86 apply to contraventions of Sections 77 to 80 (creation, modification, and satisfaction of charges) and Section 82 (maintenance of register of charges). These are compoundable offences and may be compounded by the Regional Director or the NCLT under Section 441 of the Companies Act.
It is important to note that under Section 79, if a charge is not registered within the prescribed time, the charge shall be void against the liquidator and any creditor of the company. However, this does not affect the underlying debt — the money secured by the charge remains payable. The consequence is that the lender loses its preferential status and becomes an unsecured creditor in the event of liquidation.
To ensure seamless compliance with charge registration requirements, companies should follow this checklist:
The Company Secretary plays a pivotal role in the registration, modification, and satisfaction of charges. Key responsibilities include:
For companies without an in-house Company Secretary, engaging a practising Company Secretary firm for charge management ensures that deadlines are met and penalties are avoided.
The MCA has progressively digitised the charge registration process through the MCA21 Version 3 portal. Key developments include:
Best practices for companies include:
If a company fails to register a charge within 30 days, it can still file Form CHG-1 with additional fees within 60 days. Beyond 60 days, condonation of delay from the Regional Director (up to 120 days) or the Central Government (up to 300 days) is required under Section 87. Beyond 300 days, the company must approach the NCLT. If the charge remains unregistered, it becomes void against the liquidator and creditors under Section 79, meaning the lender loses its secured status. Additionally, penalties under Section 86 apply — up to Rs. 10 lakh for the company and imprisonment or fine for officers in default.
Yes, CERSAI registration is a separate and concurrent obligation under the SARFAESI Act 2002. It applies to security interests over immovable property, hypothecation of movable assets, and securitisation transactions. Non-registration with CERSAI means the security interest is not enforceable against subsequent secured creditors who have registered with CERSAI. A penalty of up to Rs. 5,000 per day of delay (maximum Rs. 5 lakh) may also be levied. Companies must file with both the ROC (under the Companies Act) and CERSAI (under the SARFAESI Act) within their respective timelines.
CHG-1 is used for the initial registration of a charge (creation) with the ROC, covering all charges except debentures (which use CHG-9). CHG-4 is used for reporting the modification of an existing registered charge — such as a change in the amount secured, the property charged, or the charge holder. CHG-6 is used for reporting the satisfaction (full repayment) of a charge, so the encumbrance is removed from the company’s records. All three forms must be filed within 30 days of the respective event (creation, modification, or satisfaction).
No, the Central Government’s power to condone delay under Section 87 of the Companies Act 2013 is limited to 300 days from the date of creation of the charge. Beyond 300 days, the only remedy available is to approach the National Company Law Tribunal (NCLT), which has the power to allow registration of charges in exceptional circumstances, subject to conditions that protect the rights of intervening creditors. The NCLT route involves a more rigorous process, including notice to all affected parties and a hearing.
Yes, under Section 82 of the Companies Act 2013, every company is required to maintain a Register of Charges at its registered office. This register must contain details of all charges — their nature, amount, the property charged, and the charge holder. Under Section 83, the register and copies of instruments creating the charges are open to inspection by any member of the company (free of charge) and by any other person (on payment of a prescribed fee). Failure to maintain this register attracts penalties under Section 86.
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This article is for informational purposes only and does not constitute legal or professional advice. For specific guidance on charge registration and compliance, please consult a qualified Company Secretary or Chartered Accountant.
Understanding the different types of charges is essential for proper registration and for determining the priority of claims in the event of liquidation.
The registration of charges is governed by Sections 77 to 87 of the Companies Act 2013, read with the Companies (Registration of Charges) Rules, 2014. The key provisions are summarised below:
Form CHG-1 is the prescribed form for registering the creation or modification of a charge (other than a charge related to debentures, which requires Form CHG-9). This form must be filed electronically on the MCA portal.