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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai

ALL ABOUT REGISTRATION OF CHARGES UNDER COMPANIES ACT, 1956 INTRODUCTION

Part V of the Companies Act 1956 contains provisions related to Registration of the charges (section 142 to 145). These contains provision of charge including mortgage, date of notice of charge, registration of charges, registration in case of debentures, certificate of registration, register of charges, inspection, penalties, etc. These provisions prescribe for the registration of charges with the Registrar of Companies and also provide a list of assets and separate them from the unencumbered assets. Registration of charge acts as protection to the lenders and creditors, banks and liquidators. Register of charges is to be maintained by Registrar of Companies as well as the companies concerned. Sections 124 to 145 of the Companies Act, 1956 deal with registration of charges by companies. The subject can be conveniently divided in five topics: Filing of particulars of charge created. Filing of particulars of modification of charge. Filing of particulars of series of debentures. Filing of particulars of satisfaction of charge. Condonation of delay in filing of particulars of charges created / modified / satisfied. DEFINITION OF CHARGE (SECTION 124) This section does not define the term ‘charge’ but states that a charge includes ‘mortgage’. For the applicability of section 124 - 145, charge would include a mortgage but shall exclude a pledge. • •

Charges include lien as well as an equitable charge This section would apply to both Indian and Foreign companies.

However, the language of section 125 uses the expression "so far as any security on the company's property or undertaking is conferred thereby" which makes it clear that a charge

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai is nothing but security of its property by the company in favour of a creditor with the intent of securing his debt.

CHARGES Vs MORTGAGE

CONDITIONS TO CONSTITUTE A CHARGE: FIRST CONDITION

Charge is created after 1st April, 1914.

SECOND CONDITION

It is created by a Company.

THIRD CONDITION

It is a charge to which section 125 applies.

FOURTH CONDITION

It has conferred security on the company's property or undertaking.

WHAT IS MEANT BY CHARGE? UNDER COMPANIES ACT, 1956 UNDER TRANSFER OF PROPERTY ACT, 1882 The word Charge is not defined in the Transfer of Property Act, 1882 defines “mortgage’ Companies Act. Section 124 merely states the Section 100 of the Transfer of Property Act, 1882 expression ‘charge’ includes mortgage. defines “mortgage’ These two provisions give a fair idea that Charge is nothing but security of its property by the Company in favour of creditor with the intent of securing his debt.

DISTINCTION BETWEEN “CHARGE” AND “MORTGAGE”

CHARGE AS DEFINED IN SECTION 100 OF TRANSFER OF PROPERTY ACT, 1882 Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge. NATURE AND TYPES OF CHARGES 1. Fixed Charges: In a fixed charge a company creating a charge can only deal with the property subject to charge. The identification of the company does not change during the period for which the charge is created. 2. Floating Charge: In floating charge, Identification of the charge goes on changing and the final identification is at the time when the charge gets crystallized. These charges may be created in favour of the charge holders as per terms and conditions agreed by them, like:Pari passu charge: In pari passu charge, security is shared between two or more lenders in proportion of their out standings. It is created with the prior consent of the existing charge holders of the company. Exclusive charge: In exclusive charge the security on the particular property is provided to a particular lender only. Further charges: In such cases, with the consent of the first charge holders, security on particular assets may be provided to the further charge holders on the basis of second charge, third charge, etc. It means in case of liquidation of assets the first charge holder shall have right to recover his amount due on the company and any surplus remain on realisation of such properties shall be recovered by the second charge holder and so on. NATURE AND TYPES OF MORTGAGES The words “Mortgage”, “Mortgagor”, “Mortgagee”, “Mortgage-money”, “Mortgage-deed” and the types of mortgages have been explained in Section 58 of Transfer of Property Act, 1882. A mortgage is the transfer of an interest is specific immovable property for the

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability. The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money and the instrument (if any) by which the transfer is effected is called a mortgage-deed.

TYPES OF MORTGAGES Where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly or impliedly, that, in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee. Where the mortgagor ostensibly sells the mortgaged property on MORTGAGE BY condition that on default of payment of the mortgage-money on a CONDITIONAL certain date the sale shall become absolute, or on condition SALE that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale. USUFRUCTUARY Where the mortgagor delivers possession or expressly or by MORTGAGE: implication binds himself to deliver possession of the mortgaged property to the mortgagee, and authorizes him to retain such possession until payment of the mortgage-money, and to receive the rents and profits accruing from the. property or any part of such rents and profits and to appropriate the same in lieu of interest, or in payment of the mortgage-money, or partly in lieu of interest or partly in payment of the mortgage-money, the transaction is called an usufructuary mortgage and the mortgagee an usufructuary mortgagee. Where the mortgagor binds himself to repay the mortgageENGLISH MORTGAGE. money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgagemoney as agreed, the transaction is called an English mortgage. Where a person in any of the following towns, namely, the SIMPLE MORTGAGE

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai MORTGAGE towns of Calcutta, Madras and Bombay, and in any other town BY DEPOSIT OF which the State Government concerned may, by notification in the TITLE-DEEDS. Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds. A mortgage which is not a simple mortgage, a mortgage by ANOMALOUS MORTGAGE conditional sale, an usufructuary mortgage, an English mortgage or a mortgage by deposit of title-deeds within the meaning of this section is called an anomalous mortgage.

IMPACT AND BENEFITS OF CHARGE REGISTRATION (SECTION 125 ) This section states that certain charges shall be void against the creditors and liquidators, unless they are registered. In respect of such charges registration becomes compulsory. • • •

Company to file particulars of the charge together with the instrument creating the charge with the concerned Registrar of Companies for registration. The registration of charges will depend upon the nature of rights acquired in the assets of the Company. This section does not apply to charge created by partnership firm over its assets.

Essential conditions for Registration of charges 1.

Charge for securing any issue of debenture.

2.

Charge on uncalled share capital of company.

3.

Charge on immovable property, where ever situated, including any interest therein.

4.

Charge on book debts of company.

5.

Charge on movable property (not a Pledge of company).

6.

Floating charge on the undertaking or any property including stock in trade.

7.

Charge on calls made but not paid.

8.

Charge on a ship or any interest therein.

9.

Charge on goodwill, patent licence, copyright or trade mark.

Consequences of Non-registration: •

Does not prejudice any contract or obligation for payment of money secured by the charge.

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai • • •

Where the charge becomes void for registration, the debt secured becomes immediately payable. On a charge becoming void, no right of lien can be claimed on the documents of title. The transaction does not become void or debt does not become irrecoverable but the security created by the charge or mortgage becomes void against liquidator and creditors.

Penalty It is mandatory for a company to file the particulars of charge and failure to do so or contravene the provisions of section 125 are punishable under section 142 with fine extending up to rupees Five Thousand for every day of default.

JUDICIAL VIEW ON “MORTGAGE” AND “CHARGE”

In Raja Sri Shiva Prasad v. Beni Madhab AIR 1922 Pat. 529, Das J. stated that the broad distinction between a “mortgage” and “charge” is: “that whereas a charge only gives a right to payment out of a particular fund or particular property without transferring that fund or property, a mortgage is in essence a transfer of an interest in specific immovable property.” In other words – A “mortgage” effectuates transfer of property or an interest therein but there is no such transfer in “charge”. In every “mortgage” there is “charge” but in “charge” there is no “mortgage”.

REGISTRATION OF CHARGES: A transaction or an arrangement that amounts to a charge, requires registration under the Companies Act only if it satisfies the conditions laid down in Section 125 Such charge should be one among the kinds enumerated in Sub-section (4) of Section 125. Needless to state, a mortgage of every kind is a charge that requires registration. OBJECT OF REGISTRATION: The object of Registration of a charge is to give public notice which can be achieved:

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai (1)By requiring the Companies to maintain record of charges and make it available for inspection to the members of the public.

(2)By requiring the Registrar of Companies to maintain record of the Charges filed by the companies and make it available for public inspection.

The registration of a charge, thus is intended to give notice to people who may not otherwise be aware of it, particularly to persons who may advance money to the company, and it may also serve the purpose of preventing a fraudulent and belated claim of a charge in the event of liquidation. CHARGES REQUIRING REGISTRATION:

SECTION 125 ENUMERATES THE KINDS OF CHARGES WHICH REQUIRE REGISTRATION. THESE ARE:

(a) a charge for the purpose of securing any issue of debentures (b) a charge on uncalled share capital or the company; (c) a charge on any immovable property, wherever situated, or any interest therein; (d) a charge on any book debts of the company; (e) a charge, not being a pledge, on any movable property of the Company; (f) a floating charge on the undertaking or any property of the company including stock in trade; (g) a charge on calls made but not paid; (h) a charge on a ship or any share in a ship; (i) a charge on goodwill, on a patent or license, on a trade mark, or on a copy right or a license under a copyright.

CREATED WITHOUT EXECUTING ANY INSTRUMENT: A charge created without executing any instrument also requires registration. Execution of an instrument for creating a charge is not a condition precedent for the requirement of registration. RESOLUTION OF THE BOARD OF DIRECTORS: A resolution of the Board of Directors can be taken to be fact of creation of a Charge. A charge created by operation of law or by an order of the court and not by a contract is not a charge created by the company. It therefore does not need registration as Section 125 is applicable only to the charges created by the company itself.

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai CHARGE MOVABLE PROPERTY A charge on any movable property also requires registration (except a charge by way of pledge of movable property) vide clause (e) of sub- section(4). Thus, hypothecation of movable property is a charge that requires registration so long as it is not a pledge. A charge on book debts requires registration vide clause (d). PLEDGE OF PROMISSORY NOTES Pledge of promissory notes by endorsement thereof by a company in favour of its creditor does not require registration. If a transaction satisfies all the requirements of a valid pledge, it would be eligible for exemption from registration under clause (c) of subsection (4) of section 125, even it is also in the nature of mortgage. The reason for exempting pledge from registration is that in pledge the debtor parts with the possession of the property and passes it on to the creditor which is a sufficient notice of creation of a charge and, therefore, no registration of such a charge is necessary. A pledge of fixed deposit receipts with a Bank for obtaining a loan does not require registration. The Department of Company Affairs is of the view that registration of pledge, though not mandatory, is permissible at the instance of the company or of any interested person. A charge on future debts will be void if it is not registered. However, absolute assignment of a future debt is not a charge and a document making such assignment does not require registration. CONSEQUENCES OF NON-FILING: Charge requiring registration is void against the liquidator and any creditor of the Company if prescribed particulars are not filed with the Registrar of Companies (ROC) within thirty days of the date of creation of Charge. The words “Filing” and “Registration” are not synonymous and interchangeable. FILING REGISTRATION Filing is the delivering of The term Registration denotes the registration of particulars of Charges to the the Charge by the ROC office in its records as ROC per provisions of Companies Act, 1956. It is only the omission to file the particulars of a charge within 30 days that renders the charge void or within next 30 days with the permission of ROC.

Charge is valid even if ROC does not register it or makes unreasonable delay in registering it, provided the particulars thereof have been filed duly within thirty days.

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai FILING DEFECTIVE PARTICULARS: REGULATION 17 OF THE COMPANIES REGULATIONS, 1956 PROVIDES THAT: 1. ROC shall examine, or cause to be examined, every document received in his office 2. If any such document is found to be defective or incomplete in any respect, the ROC shall direct the company to rectify the defect or complete and no such document shall be registered and recorded until the defect has been so rectified or the document has been completed as the case may be. 3. ROC is thus, under an obligation to inform the Company about the defects. 4. However, the document shall be treated as filed on the date on which it was initially filed and not on the date it was rectified. CREATION OF CHARGE 1. Creation of Charge is an act of the parties, namely the Company and the creditor, by which a security on the Company’s property or undertaking is conferred thereby. 2. Charge is generally created by an instrument, the nature of it may vary from case to case 3. Charge which is created without any instrument is also registerable. Example is a mortgage by deposit of title deeds i.e., equitable mortgage. 4. Charge can be created orally and/or with a written document. It can even be created with a resolution of Board of Directors of the Company. It shall be the duty of a company to file with the Registrar for registration the particulars of every charge created by the company, and of every issue of debentures of a series, requiring registration under this Part; but registration of any such charge may also be effected on the application of any person interested therein. DATE OF CREATION OF CHARGE The date mentioned in the instrument being the date of execution thereof would be taken to be the date of creation of Charge. The period of 30 days would start from such date.

In the cases of mortgage of deposit of title deeds, it is the date on which the title deeds are actually deposited and not the date of the Memorandum of the deposit, even if the date of the memorandum is subsequent to the date of deposit of the title deeds.

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai PROCEDURE FOR FILING OF PARTICULARS OF CREATION OF CHARGE The Companies (Central Government’s) General Rules and Forms, 1956 read with Sections 125, 127, 128, 130, 132, 135 and 138 of the Companies Act,1956 provides the procedure to file the documents. The Ministry of Company Affairs vide its Notification No.GSR 56(E) dated 12.2.2006 has issued the Companies (Central Government’s) General Rules and Forms (Amendment) Rules, 2006. Now, in place of physical filing of documents, the e-filing has been made mandatory to all incorporated companies whether private or public, listed or un- listed without any sectoral preferences. The prescribed particulars together with copy of the instrument creating the charge or modification thereof or satisfaction of charge the following Forms shall be filed with the ROC through electronic media or through any other computer readable media: FORM NO. 8 :

FORM NO.10 :

FORM NO. 17:

Creation of original Charge and Modification of charges (both creation and modification covered) Particulars for registration of charges for debentures. (both creation and modification covered) Memorandum of complete satisfaction of charge

A copy of every instrument evidencing any charge or modification of charge and required to be filed with the Registrar in pursuance of section 125, 127, 128 or 135 shall be verified as follows : (i)

Where the instrument or deed relates solely to property situate outside India, a copy shall be verified by a certificate either under the seal of the company, or under the hand of a responsible officer of the company, or under the hand of some person interested in the mortgage or charge on behalf of any person other than the company, stating that it is a true copy.

(ii)

Where the instrument or deed relates, whether wholly or partly, to property situate in India, the copy shall be verified by a certificate of a responsible officer of the company stating that it is true copy or by a certificate of a public officer given under and in accordance with the provisions of section 76 of the Indian Evidence Act, 1872.

Form 8 or Form 10 or Form 17 as the case may be, shall be signed on behalf of the company and the charge-holder. The electronic-form shall be authenticated by authorized signatories using digital signatures, as defined in the Information Technology Act, 2000.

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai

CERTIFICATE OF REGISTRATION

As per Section 132 of the Companies Act, 1956 The Registrar shall issue a certificate under his hand of the registration of any charge registered in pursuance of this Part, stating the amounts thereby secured; and the certificate shall be conclusive evidence that the requirements of this Part as to registration have been complied with.

PENALTIES UNDER SECTION 142 OF COMPANIES ACT, 1956:

If default is made in filing with the Registrar for registration the particulars— (a) of any charge created by the company; (b) of the payment or satisfaction of a debt in respect of which a charge has been registered under this Part; or (c) of the issues of debentures of a series;

requiring registration with the Registrar under the provisions of the Act, then, unless the registration has been effected on the application of some other person, the company, and every officer of the company or other person who is in default, shall be punishable with fine which may extend to five thousand rupees for every day during which the default continues.

Subject as aforesaid, if any company makes default in complying with any of the other requirements of this Act as to the registration with the Registrar of any charge created by the company or of any fact connected therewith, the company, and every officer of the company who is in default, shall, without prejudice to any other liability, be punishable with fine which may extend to ten thousand rupees.

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai

PROCEDURES INVOLVED IN THE REGISTRATON OF CHARGES

PROCEDURE FOR REGISTRATION OF PARTICULARS OF FRESH CHARGES 1) Particulars of charges created by the companies on their assets are required to be registered with the Registrar. 2) In accordance with the provisions of Section 292, the power to borrow shall be exercised by the Board of Directors of the company in its meeting by way of a resolution 3) Where Board passes a resolution, the Board will also authorize for affixation of common seal on the documents by which charge is created. 4) Before board considers creation of charge o company’s assets, prior approval of the members is required under section 293(1)(a). (Approval of shareholders under section 293(1)(a) is not compulsory in case of private company) 5) It should be noted that no particular form has been prescribed for creation of charge. The intention is to be gathered from the document executed. The document may be a formal agreement or a letter. In the case of mortgage by deposit of title deeds, no document exists. Such mortgage is legally allowed in certain towns only. 6) Verify whether charges created by the company fall under any one of the categories specified under sub-section (4) of section 125 of Act. 7) If the charge falls under any of the categories mentioned hereinabove, then file particulars of the charge with the concerned Registrar of Companies within thirty days of creation of charge in Form No 8 and attach the following documents to it: a. A certified true copy of the instrument or deed by which the charges are created or evidenced [section 125(1)]. Copy of the instrument or deed, before its being filed , shall be verified in the following manner: i. If the instruments or deed creation the charge relates solely to property situated outside India, by certificate either under the seal of the company or under the hand of some person interested in the mortgage or charge on behalf of any person other than the company, stating that it is a true copy. ii. If the instrument or deed creation the charge relates, whether wholly or partly, to property situate in India, by a certificate of the director, manager or secretary of the company stating that it is a true copy by a certificate of public officer given under and in accordance with the provisions of Section 76 of the Indian [Rule 6 of the Companies General Rules and Form]

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai b. Form No 8 shall be signed by both or all the parties in the charge ie lender and borrower. 8) In the case of a charge created out of India and comprising solely of property situate outside India. The particulars of charge shall be filed within thirty days after the date on which the instrument creation or evidencing the charge or a copy thereof could, in due course of post and if dispatched with due diligence, have been received in India. 9) If, due to unavoidable circumstances, the particulars of charge are not filed with the Registrar, the Registrar may accept the particulars for registration during next 30 days with payment of additional fee for delayed filing of the particulars of charge after being satisfied for the reasons of delay. 10) Pay the requisite filing fee as prescribed under Schedule X to the Companies Act, 1956, either on cash, postal order, demand draft or treasury challan. 11) The registration of the charge may be effected either by the company or and person interested therein (e.g. other party to the agreement). 12) The charge is complete as and when particulars are filed with Registrar even if the Registrar makes delay in making the entries in the books kept for the purpose. However, upon obtaining the certificate of registration the formalities are complete. The certificate is conclusive evidence that the Registrar has entered the particulars in the Register as required to be kept under section 130. 13) The particulars of charge created shall be entered in a Register of charges maintained by the company indication the particulars specified. The number and date of the certificate granted by the Registrar will also be entered in the Register. 14) Copy of the instrument creating the charge shall be kept at the registered office.(section 136)

PROCEDURE FOR REGISTRATION OF CHARGE SUBJECT TO WHICH PROPERTY IS ACQUIRED 1) The company can acquire any property on which charge has already been created. Such property may be movable or immovable. The agreement for purchase of property normally specify the particulars of charge. 2) Acquisition of property is usually approved by the board alternatively the agreement for acquisition of property may be placed before the Board for approval. 3) File particulars of the charge subject to which the property has been acquired with the concerned Registrar of companies within thirty days of acquisition of the property. The acquisition of the property shall be complete on execution of the documents, if it relates to movable property, and on registration under the Registration Act if it relates to immovable property. The particulars of charge shall be filed in Form No 8 along with the following documents.

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai a. A certified true copy of the instrument or deed by which the charge is created or evidenced copy of the instrument or deed mentioned above, before its filing, shall be verified in the following manner. i. If the instruments or deed creating the charge relates solely to property situate outside India, by a certificate either under the seal of the company or under the hand of some person interested in mortgage or charge on behalf of any person other than the company, stating that it is a true copy. ii. It should be noted that a document executed outside India but received in India must be stamped as per the Indian Stamp Act with in 30days. iii. If the instrument or deed creating the charge relates, whether wholly or partly, to property situate in India, by a certificate of the director, manager or secretary of the company stating that it is a true copy or by a certificate of public officer given under and in accordance with the provision of section 76 of Indian Evidence Act, 1872 [Rule 6 the companies General Rules and Forms]. b. Form no 8 shall be signed by both the parties in the charge ie lender and borrower. 4) If, due to unavoidable circumstances, the particulars of charge are not filed with the Registrar for registration then file within next thirty days after the expiry of first thirty days with payment of additional fee for delayed filing of the particulars of charge after satisfying the Registrar of Companies the reasons for delay. 5) In the case of a charge created out of India and comprising solely of property situate outside India, the particulars of charges shall be filed within thirty days after the date on which the instrument creating or evidencing the charge or a copy thereof could, in due course of post and if dispatched with due diligence, have been received in India. 6) Form 55 and 56 prescribed by the above Rules will be completed and submitted as regards the particulars of charge on property in India created by a foreign company. 7) The registration of the charge may be effected either by the company or any person interested therein 8) The charge is complete as and when particulars are filed with the Registrar even if the Registrar makes delay in making the entries in the books kept for the purpose. However, upon obtaining the certificate of registration the formalities are complete. The certificate is conclusive evidence that the Registrar has entered the particulars in the Register as required to be kept under section 130. 9) The particulars of charge created shall be entered in a Register of Charges maintained by the company indication the particulars specified. The number and date of certificate granted by the Registrar will also be entered in the Register. 10) Copy of the instrument creating the charge shall be kept at the registered office. ( Section 136)

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai

PROCEDURE FOR MODIFICATION OF EXISTING CHARGES 1) Whenever any term or condition or the extent or operation of any charge registered by the company under section 125 is modified, then, particulars of such modification are also required to be registered with the concerned Registrar of Companies. It is to be noted that assignment of rights by the charge holder is also regarded as a modification of charge. 2) Any modification that is effected as a result of change of law is also required to be registered. 3) Modification of charge is effected by an agreement or letter containing particulars of modification. The normal modifications are: a. Variation in the amount of charge b. Variation in the rate of interest c. Extension of the time of repayment. d. New charge to rank pari passu with the existing charge e. Assignment of charge in favour of another person. 4) The particulars of the modification of charge shall be approved at a meeting of the Board of Directors of the company and thereafter, the document, if any, shall be executed. 5) Particulars of modifications of charge shall be filed, with the concerned Registrar of companies in Form no 8 along with the following documents a. A certified true copy of the agreement or other instrument modifying the existing charges registered with the Registrar of Companies. b. A certified true copy of the registration certificate of charge already registered with the Register of companies and now being modified. 6) Form No 8 shall be signed by both the parties in the charge ie lender and borrower. 7) As the time-limit for filing particulars of modification of charge is the same as for the original charge, file it with in thirty days of modification. If due to unavoidable circumstances, the particulars of modification of charge are not filed with the Registrar for registration then file within next thirty days after the expiry of first thirty days with payment of additional fee for delayed filing of the particulars of charge after satisfying the Registrar of Companies the reasons for delay. 8) Make entries in the Register of Charges maintained by the company. 9) A copy of the agreement shall be maintained at the company’s registered office.

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai

PROCEDURE FOR FILING SATISFACTION OF CHARGES 1. In accordance with section 138, when a charge, the particulars of which are registered with the Registrar, particulars thereof should be filed. Part satisfaction does not attract this section but shall be registered as modification of charge under section 135. 2. When the company has repaid the amount in full for which the charge was created obtain a letter confirming satisfaction from the party in whose favour the charge was created. In some cases a deed of release (e.g. in the case of mortgage) is executed in which case, a certified copy of the said deed may be sent to the Registrar.(Letter confirming satisfaction of charge is not compulsory). 3. Particulars of satisfaction of charge are filed in Form No 17 of the Companies (Central Government) General Rules and Forms, 1956, along with the following documents a. A certified true copy of the registration certificate of the charge given by the Registrar of Companies under Section 132 for which the intimation of full payment or satisfaction is now being given to the Registrar of companies. b. A certified true copy of the receipt of full payment made or a certified true copy of any other document satisfying the charge. c. demand draft evidencing the payment of the requisite filing fee. The filing fee can be paid in cash also. d. In case of Foreign Company Form No 60 of the General Rules will be completed and filed. 4. The particulars must be filed by the company. 5. The form should be filed within 30 days of satisfaction. Otherwise approval of the Company Law Board will be necessary under the signature of both the parties interested in charge. 6. In case where banks are involved the period of 30 days will be counted from the date of issue of the bank’s letter intimating the companies about the satisfaction of charges. 7. The Registrar will issue a memorandum of satisfaction of charge which is the evidence of the fact the satisfaction of charge has been taken or record by the Registrar. Suitable entry shall be made in the register of charges maintained by the company against the concerned charge.

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai

GUIDELINES FOR CHARGE REGISTRATION

TO REGISTER THE CHARGES CREATED ON YOUR COMPANY’S ASSETS [SECTIONS 124, 125 & 127 OF COMPANIES ACT AND RULE 6 OF THE COMPANIES GENERAL RULES AND FORMS] 1.Please note that ‘charge’ includes a mortgage and it should be filed whether it is created inside or outside India and relates to property situated either inside or outside India. 2.Verify whether your charges fall under any one of the following categories:a) a charge for the purpose of securing any issue of debentures; b) a charge on uncalled share capital of the company; c) a charge on any immovable property, wherever situate, or any interest therein; d) a charge on an book debts of the company; e) a charge, not being a pledge, on an movable property of the company; f) a floating charge on the undertaking or any property of the company including stock in trade; g) a charge on calls made but not paid; h) a charge on a ship or any share in a ship; i) a charge on goodwill, on a patent or a licence under a patent, on a trade mark or on a copyright or a licence under a copyright. 3.If your charge falls under any of the categories above, then file particulars of the charge with the concerned Registrar of Companies within thirty days of making the charge in Form No.8 and attach the following documents to it:i) A certified true copy of the instrument or deed by which the charge is created or evidenced. ii) Requisite filing fee as per Schedule X of the Companies Act, 1956. 4. If, for unavoidable circumstances, you are unable to file the particulars of the charge within thirty days, then file it latest within sixty days of creating the charge after satisfying the Registrar of Companies the reasons for delay.

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai 5. Verify the copy of the instrument or deed mentioned in item 3(i) above, before its filing, in the following manner:i) If the instruments or deed creating the charge relates solely to property situate outside India, by a certificate either under the seal of the company or under the hand of the director or manager or secretary of the company or under the hand of some person interested in the mortgage or charge on behalf of any person other than the company, stating that it is a true copy. ii) If the instrument or deed creating the charge relates, whether wholly or partly, to property situate in India, by a certificate of the director manager or secretary of the company stating that it is a true copy of by a certificate of a public officer given under and in accordance with the provisions of section 76 of the Indian Evidence Act, 1872. 6. In the case of a charge created out of India and comprising solely of property situate outside India, file the particular of the charge in Form No.8 within thirty days after the date on which the instrument creating or evidencing the charge or a copy thereof could in due course of post and if dispatched with due diligence, have been received in India. 7. See that the charges so filed with the Registrar of Companies are duly certified as correct by a chartered accountant or cost accountant or company secretary in practice then the same will be taken on record within ten days. TO CREATE A CHARGE FOR SECURING THE ISSUE OF A SERIES OF DEBENTURES [SECTION 128 & RULE 6] [RULE 6 OF THE COMPANIES GENERAL RULES & FORMS, 1956]

1.File with the concerned Registrar of Companies within thirty days after the execution of the deed containing the charge or after the execution of any debentures of a series (if there is no such deed) particulars of the charge created in Form No.10. 2. If there is more than one issue of debentures in the series, then file with the Registrar particulars of the date and amount of each issue along with the Form No.10 mentioned above. 3. If any commission, allowance or discount, has been paid or made either directly or indirectly by the company to any person for subscribing or procuring or for agreeing to subscribe or procure any debentures in the issue of a series of debentures, then include in the particulars of the charge to be filed with the Registrar of companies under item (I) above also the particulars as to the amount or rate per cent of the commission, discount or allowance paid or made. 4. File Form No.10 with the concerned Registrar of Companies after attaching to it the following documents:--

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai

i)

ii)

A certified true copy of the instrument or deed creating or evidencing the charge verified in the prescribed manner or if there is no such deed then one of the debentures of the series; Requisite filing fee in cash or postal order (if the requisite fee is Rs.50 or less) as per Schedule X(5) of the companies Act, 1956.

5. The particulars to be mentioned in the Form No.10 are:-i) the total amount secured by the whole series. ii) The dates of the resolutions authorizing the issue of the series and date of the covering deed, if any, by which the security is created or defined; iii) a general description of the property charged; iv) the names of the trustees, if any, for the debenture-holders. 6. Verify the copy of the instrument or deed creating or evidencing the charge as mentioned in Item 4(i) by a Certificate of the director, manager or secretary of the company stating that it is a true copy or by a certificate of a public officer given under and in accordance with the provisions of section 76 of the Indian Evidence Act, 1872. 7. See that the charges so filed with the Registrar of Companies are duly certified as correct by a Chartered Accountant or Cost Accountant or Company Secretary in practice then the same will be taken on record within ten days.

REGISTRATION OF CHARGE IN CONNECTION WITH THE ISSUE OF DEBENTURES Section 128 allows registration of certain particulars in case where a company issues a series of debentures and the debenture holders are entitled pari passu to the benefit of a charge created for the benefit of debenture holders. The company shall file following particulars with the concerned Registrar of Companies for registration of charge under section 125(4):(1) The total amount secured by the whole series. (2) The dates of the resolutions authorising the issue of the series and the date of the covering deed, if any, by which the security is created or defined. (3) A general description of the property charged. (4) The names of the trustees, if any, for the debenture holders. (5) The deed containing the charge or a duly verified copy thereof.

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai (6) Particulars as to the amount or rate percent of the commission discount or allowance paid or made in connection with debentures. [Section 129]

FOLLOWING POINTS ARE IMPORTANT IN THIS ASPECT:(a) Failure to file particulars of such charge with the Registrar of Companies shall not affect the validity of the debentures issued. (b) Debentures may itself contain a charge or give a reference as to any other instrument in this regard. (c) The particulars of charge as given above shall be filed together with the deed containing the charge, or a copy of the deed verified in the prescribed manner, or if there is no such deed, one of the debentures of the series. (d) The company shall file with the Registrar, particulars of the date and amount of each issue of debentures of series, if there is more than one, but failure to file such particulars shall not affect the validity of the debentures issued. (e) Debentures must also be registered under the Indian Registration Act. (f) Section 133 requires that the company shall cause a copy of every certificate of registration given under section 132, to be endorsed on every debenture e or certificate of debenture stock which is issued by the company and the payment of which is secured by the charge so registered. A company shall not be required to cause a certificate of registration to be endorsed on any debenture or certificate of debenture stock issued by the company, before the charge was created. [Proviso to section 133] If any person knowingly delivers, or authorises or permits the delivery of any debenture or certificate of debenture stock which is required to be endorsed with a copy of a certificate of registration, as stated above, without the copy being so endorsed upon it, he shall, without prejudice to any other liability, be punishable with fine which may extend to rupees ten thousand. Prescribed forms The new prescribed e-Form 8 & 10 vide Companies (Central Government's) General Rules and Forms (Amendment) Rules, 2006 (Form 13 omitted) along with the instruments evidencing the charge shall be filed in on line basis to the MCA/ROC, under the digital signatures of both the company and the creditor along with the requisite fee.

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai

TO MODIFY THE EXISTING CHARGES [SECTION 135] 1.If any term or condition or the extent or operation of any charge registered by the company under section 125 is modified, then, particulars of such modification should be sent to the concerned Registrar of Companies. 2. File particulars of modifications with the concerned Registrar of companies in Form No.8. 3. As the time-limit for filing particulars of modification of charge is the same as for the original charge, file it within thirty days or at the latest within thirty seven days of the modification. 4. Attach to Form No.8, showing particulars of modification of charge, the following documents:-i) A certified true copy of the agreement or other instrument modifying the existing charges registered with the Registrar of Companies; ii) Requisite filing fee, as per Schedule X (5) of the Companies Act, 1956. iii) A certified true copy of the registration certificate of the charge already registered with the Registrar of Companies and now being modified. 5. Along with Form No.8 mentioned in item 2 forward to the concerned Registrar of companies the particulars of modification of charges in form

TO FILE SATISFACTION OF CHARGE [SECTION 138] 1.Verify whether the charges created by you and registered under section 125 are due for payment in full, or are satisfied through release of the property charged or otherwise. 2. Make the payment so due and within thirty days of making full payment or within thirty days of the charge being satisfied otherwise, file with the concerned Registrar of Companies an intimation in Form No.17. 3.Attach to the intimation in Form No.17 above, the following documents:i)

i) A certified true copy of the registration certificate of the charge given by the Registrar of Companies under section 132 for which the intimation of full payment or satisfaction is now being given to the Registrar of Companies;

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai A certified true copy of the receipt of full payment made or a certified true copy of any other document satisfying the charge;

TIME-LIMIT FOR FILING OF E-FORM 8 & 10 E-Form 8 with complete requirement must be filed within a period of 30 days from the date of creation u/s 125 or modification of charge u/s 135 on online basis with the RoC. The particulars of charges in connection with issue of debentures of a series shall be filed with Registrar of Companies in Form 10, along with copy of instrument creating the charge and with the required filing fees as per Schedule X to the Companies Act, 1956, within a period of 30 days after the execution of deed containing the charge or if there is no such deed, after the execution of any debentures of the series. The concerned RoC may allow filing requisite particulars within a period of thirty days next following the expiry of initial thirty days after the date of creation or modification of charge subject to payment of such additional fee not exceeding ten times the amount of fee specified in Schedule X of the Companies Act. However, it is expected that only one time additional filing fee shall be charged by the computer as penalty.

STEPWISE CHECKLIST FOR REGISTRATION OF FRESH CHARGES STEPS

CHECKLIST

FIRST STEP TO HOLD BOARD MEETING

In accordance with the provisions of Section 292, the power to borrow shall be exercised by the Board of Directors of the company in its meeting by way of a resolution. Whether Board has passed a resolution and also authorize for affixation of common seal on the documents by which charge is created?

SECOND STEP PRIOR APPROVAL OF MEMBERS

Before board considers creation of charge o company’s assets, prior approval of the members is required under section 293(1)(a).(Approval of shareholders under section 293(1)(a) is not compulsory in case of private company). Whether such approval has been obtained from the members?

THIRD STEP

It should be noted that no particular form has been prescribed for creation of charge. The intention is to be gathered from the document executed. Whether document like a formal agreement or a letter has been executed? In the case of mortgage by deposit of title deeds, no document exists. Such mortgage is legally allowed in certain towns only. The registration of the charge may be effected either by the company or and person interested therein (e.g. other party to the agreement). Whether the same is complied with?

EXECUTION OF DOCUMENTS

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai FOURTH STEP categories specified

Whether charges created by the company fall under any one of the categories specified under sub-section (4) of section 125 of Act.

FIFTH STEP FILING OF FORM 8

If the charge falls under any of the categories mentioned hereinabove, then file particulars of the charge with the concerned Registrar of Companies within thirty days of creation of charge in Form No 8. DOCUMENTS TO BE ATTACHED 1. 2. 3.

Instrument(s) of creation or modification of charge is a mandatory attachment. In case of acquisition of property, already subjected to charge; instrument evidencing creation or modification of charge is a mandatory attachment. In case of joint charge and consortium finance; particulars of other charge holders should be attached

4. Any other information can be provided as an optional attachment.

SIXTH STEP

charge created out of India

Whether the charge created out of India and comprising solely of property situate outside India? The particulars of charge has to be filed within thirty days after the date on which the instrument creation or evidencing the charge or a copy thereof could, in due course of post and if dispatched with due diligence, have been received in India. Whether the same have been complied with?

SEVENTH STEP Particulars of charge are not filed with the Registrar

Due to unavoidable circumstances, the particulars of charge are not filed with the Registrar; the Registrar may accept the particulars for registration during next 30 days with payment of additional fee for delayed filing of the particulars of charge.

EIGHT STEP

Whether the 60 days expired from the date of creation of charge? If the particulars of the charge are not filed within 60 days from the date of its creation. Then the company has to file an application under section 141 of the Companies Act, 1956 praying to condone the delay in filing the particulars of the charge by filing Form 8 with the registrar of Companies.

FILING OF FORM 8 AFTER EXPIRY OF 60 DAYS

NINTH STEP FILING OF FORM 61

TENTH STEP

condone the delay and extend the time

Whether Form 61 has been filed with the Registrar of Companies (Form for filing an application with Registrar of Companies) for filing petition under section 141 before Company Law Board praying to condone the delay in filing the particulars of charge with the Registrar of Companies?

After consideration, the Company Law Board may condone the delay and extend the time up to to the date on which the particulars of creation were filed with The Registrar of Companies and shall make such other order as it may deem fit and proper in the circumstances of the case.

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai ELEVENTH STEP

COMPLETION CHARGE REGISTRATION

The charge is complete as and when particulars are filed with Registrar even if the Registrar makes delay in making the entries in the books kept for the purpose. However, upon obtaining the certificate of registration the formalities are complete. The certificate is conclusive evidence that the Registrar has entered the particulars the Register as required to be kept under section 130

TWELFTH STEP entered in a Register of charges maintained by the company

Whether the particulars of charge created shall be entered in a Register of charges maintained by the company indication the particulars specified? The number and date of the certificate granted by the Registrar will also be entered in the Register.

THIRTEENTH STEP Copy of the instrument

Whether the Copy of the instrument creating the charge has been kept at the registered office as per section 136?

SECTIONWISE ANALSIS OF CHARGES UNDER COMPANIES ACT 1956 SECTION 124 This section does not define the term ‘charge’ but states that a charge includes ‘mortgage’. For the applicability of section 124 – 145, charge would include a mortgage but shall exclude a pledge. • •

Charges include lien as well as an equitable charge This section would apply to both Indian and Foreign companies.

SECTION 125: This section states that certain charges shall be void against the creditors and liquidators, unless they are registered. In respect of such charges registration becomes compulsory. • •

Company to file particulars of the charge together with the instrument creating the charge with the concerned Registrar of Companies for registration. The registration of charges will depend upon the nature of rights acquired in the assets of the Company.

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S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai •

This section does not apply to charge created by partnership firm over its assets.

SECTION 126: This section provides that any person acquiring the property or any share therein which is subject to charge shall be deemed to have notice from the date of registration. From the date of registration, doctrine of deemed notice (constructive notice) shall apply. This constructive notice is general and to all concerned about registration of charge and not about terms and condition or contents of the charge. It must be noted that registration charges is an important requirement to alert public (Investors) about the existence of the charge. SECTION 127: This section contains the provisions relating to registration of charges on property acquired subject to charge. This section deals where a company acquires a property which is already charged and such charge is not registered. • •

Charge can be registered by the acquiring company within a period of thirty days. In case of properties situated outside India, period of thirty days are counted from the date on which copy of instrument dispatched by the post with due diligence, have been received in India.

SECTION 128: This section provides for registration of particulars in case of series of debenture entitling holders Pari Passu. • • • •

Debenture holders have the same protection as is available to other secured creditors. Such registration would amount to registration of charge itself . Since debenture is defined to include debenture stock, the issue of debenture stock secured by deed will also be covered in this section. This section applies to both Indian and Foreign companies.

SECTION 129: Section 129 provides for filing particulars of commission, discount or allowance paid or payable on subscribing or agreeing to subscribe to debentures. If such particulars are not filed, validity of the issue of the debenture shall not be affected. This section provides legal basis for issue of debenture at a discount or on commission basis. It applies to both India and foreign companies.

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai This section prescribes that issue of debenture could be made by the company subject to payment of any commission, discount or allowance to any person, directly or indirectly and conditionally of absolutely. SECTION 130: It prescribes register of charges to be kept by Registrar of Company in the prescribed manner. • • • •

•

Registrar to maintain registers containing the particulars of all the charges requiring registration under this Part. The pages of the register shall be consecutively numbered. Registrar to Sign or initial every page of such register. Every company shall forward to the Registrar all the charges requiring registration under this Part in such form and manner, and after payment of, such fees as may be prescribed. Register shall be kept open for inspection by any person on payment of prescribed fee.

Register of charges The Registrar of Companies is required to maintain a Register of charges, separately, in respect of each company pursuant to the provisions of section 130 of the Companies Act, 1956. The Registrar of Companies shall cause to be kept a register containing the particulars of all the charges requiring registration under Part V of the Act. Following provisions should be taken into consideration in this regard:— (i) Requirement of Registrar to maintain Register of charges: As per section 130(1) it is a duty of the Registrar of Companies to keep a Register of charges of each company containing the particulars of all the charges requiring registration under Part V of the Companies Act, 1956. (ii) Obligation on company to forward necessary particulars to Registrar: As per section 130(1A) every company is under an obligation to forward to the Registrar the particulars of the charges as are specified in sections 128 and 129 in the case of a charge to the benefit of which the holder of a series of debentures are entitled and in case of other charge particulars as given below, in such form and manner as prescribed and after payment of such fee as given in Schedule X of the Companies Act, 1956, being entered in the Register kept under sub-section (1) of section 130.

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai Details of particulars required to be filed with the Registrar for making entry in the Register of charges are as under:— (1) if the charge is created by the company, the date of its creation, and if the charge was existing on property acquired by the company, the date of the acquisition of the property; (2) the amount secured by the charge; (3) short particulars of the property charged; and (4) the persons entitled to the charge. SECTION 131: This section prescribes that the Registrar shall keep and maintain an index of register of charges in chronological order containing prescribed particulars. • •

Index of register of charges should be in prescribed format and contain prescribed particulars. Particular to be entered in index of register of charges have been prescribed under Companies Act (Central Government’s) General Rule and Forms, 1956.

These particulars are: 1.

Serial number of charge in the Index.

2.

Date of Registration.

3.

Number of Company.

4.

Name of Company.

5.

Amount secured by charge.

6.

Debentures issued.

7.

Date of trust deed relating to debentures.

8.

Other charges.

9.

Party by whom registered.

10. Name and address of the person entitled to charge or of trustees for debenture holders. 11. Signature of the Registrar of the Companies. SECTION 132: This section provides that the Registrar should issue a Certificate of Registration for registering the charge. This certificate should be given under his hand and shall state the

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai amount of security. Issue of such certificate is the conclusive evidence of compliance of provisions of part V of the Act. SECTION 133: This section provides for compulsory endorsement of certificates of registration on debenture or certificate of debenture stock issued by the company, which are secured by the charge so registered. However, such endorsement would not be required to be endorsed on certificates issued before charge was created. Offence under section 133 is a compoundable offence under section 621A by Regional Director. SECTION 134: This section provide for duty of a company as regards registration and regards registration and rights of interested party. The duty of registration of charge with Registrar of Companies is that of the company, i.e. company creating the charge or issuing the debentures. Any other person having any interest therein can also file particulars of charges.This section applies to foreign companies also. According to this section, although it is the duty of the concerned company to register the charges, a charge holder can also file the particulars of charge for the registration with the Registrar of Companies (According to Circular no. 12/90 dated 6-6-1990). SECTION 135 – MODIFICATION OF CHARGES This section provides that provisions of part V of the Act relating to registration of charges shall also apply to modification of charges. It specifies that whenever there is a modification of charge it is the duty of the company to file particulars of such modifications to the Registrar. Every instrument by which a change is brought about in the terms and conditions or operation of any charge is treated as an instrument of charge in terms of section 125 and all the provisions of particulars of charges should apply . The section gives a clue to the circumstance under which it shall be the duty of a company to send to the Registrar the particulars of modification. Any change in terms / conditions / extent of operation of any charge already registered tantamount to modification under Companies Act, 1956, such as : • Change in rate of interest (other than bank rate), repayment period or any other material term of loan. • Further charge for the same loan by way of additional security. • Increase in limit. • Change in nature of security in respect of charge already created.

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai

Again Form No. 8 is required to be filed with ROC within 30 days (within 60 days with additional fee). The said forms will include the instrument modifying the original charge. SECTION 136: This section provides that the company should keep at its registered office a copy of instrument creating a charge .In case of series of uniform debentures, a copy of one debenture of that series shall be kept at the registered office. It must be ensured that for all the charges created by a company which are required to be registered with the Registrar under Part V of the Act, one copy of the instrument must be kept and be available at the registered office of the Company. SECTION 137: Section 137 contains provisions for entry of appointment of receiver or manager in the register of charges. This section applies to all kind of receivers, whether appointed by the debenture holders under the terms of debenture deed by a court. It lays down that any appointment of a receiver or manager should be reported to Registrar within 30 days of the appointment. Receiver is al so required to give notice of his appointment to the assessing officer within 30 days. Cessation of appointment should also be reported to Registrar for necessary entries in Register of Charges. Receiver can be appointed by the court or under power as deed. A company cannot be appointed as a receiver or manager such appointment will be illegal. Manager implied persons appointed to manage the property of the company, and not a manager under section 2(24) of the Act. SECTION 138: This section deals with satisfaction of charge and applies to foreign companies also. It provides that the full satisfaction of charges should be intimated to the Registrar of companies within thirty days of full satisfaction or payment. Partial satisfaction is treated as modification of charge. Under subsection (2) registrar is required to send a notice to the holder of the charge to show cause why payment or satisfaction should not be recorded. Intimation must be given to the Registrar of Companies within 30 days of actual payment or satisfaction and the Registrar will in turn obtain conformation from the charge holder within 14 days about the full satisfaction or payment. Contravention of provisions of section 138 is a punishable offence under section 142.

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai SECTION 139: This section confers powers on the Registrar of Companies to make entries of satisfaction, when not intimated by company. This also complies to foreign companies. If the Registrar is satisfied about the payment of satisfaction charge on full or in part and/ or property or undertaking or any part thereof charged has been released from the charge or ceased to form part of the property charged, he is empowered to make entries in register of charge for satisfaction of charge even if he does not receive any intimation of satisfaction or payment. SECTION 140: Memorandum of satisfaction of the charge should be sent to the company by the Registrar of Companies. Company is entitled to the copy of the Memorandum of satisfaction of charge entered by the Registrar under section 138 or 139. SECTION 141: This section empowers Company Law Board (w.e.f. 1-2-1975 earlier, courts) to effect rectification of registration of charges. The powers given to Company Law Board are wide enough to cover not only grant of extension of time or condonation of delay in filing particular s of charge created or modified or issue of debenture of a series or intimation of satisfaction of charge to the Registrar of Companies. Ratification can also be made on the ground if justice and equity to grant relief. This section again applies to foreign countries. Company Law Board order under section 141 is mandatory and the Registrar cannot take the document on record, which are filed out of time even on payment of additional fee unless Company Law Board order under section 141 is obtained by the Company. PETITION TO CLB FOR CONDONATION OF DELAY / RECTIFICATION OF CHARGE (Sec. 141) If for any reason charge (creation or modification) could not be filed with ROC within 60 days (30 days under law + 30 days with additional fee under ROC power ) and in case of satisfaction 30 days, then the Company have to take the condonation of delay in filing such particulars with Company Law Board. In case of rectification / corrections required in a registered charge, the same can be done only with the order of Company Law Board under this section. The condonation petition under section 141 includes the following: • •

Petition containing details about company, charge delayed and reason thereof. Affidavit verifying the petition.

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai • •

Board Resolution authorising director to make affidavit. Memorandum of Appearance by professional appearing on behalf of the company.

The Company Law Board on hearing of the case or otherwise decide about the genuineness of the case on the ground of just and equitable will levy cost for such delay and condone the delay / rectification by issuing order in this behalf. The Company will file the copy of order along with Form No. 21 with ROC and get the registration in this behalf. SECTION 142: Section 142 prescribes for the penalties. Under Part V of the Act, penalties can be imposed for contravention of provisions of sections 125, 127, 128, and 138. All offences are compoundable under section 621A.The section also applies to foreign Companies. PENALTY FOR CONTRAVENTION (Section 142) If default is made in filing of any charge created by the company or of the payment or satisfaction of a debt in respect of which a charge has been registered or of the issues of debentures of a series, requiring registration then, unless the registration has been effected on the application of some other person, the company, and every officer of the company or other person who is in default shall be punishable with fine which may extend to Rs.5000/- for every day during which the default continues. In case of default in compliance of any of the other requirements of this act, the company, and every officer of the company who is in default, shall, without prejudice to any other liability, be punishable with fine which may extend to Rs.10000/-. WHO IS PUNISHABLE The punishment for contravention shall be given to company, and every officer of the company or other person who is in default. FINE The penalty or fine can extend upto rupees thousand for every day of default during which the delay or default continues. Offences punishable under section 142 are compoundable under section 621A.

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai SECTION 143: This section contains provisions relating to register of charges to be kept by the company. ENTRIES IN THE REGISTER OF CHARGES (Section 143) Every company shall keep register of charges and enter therein all charges specifically affecting property of the company, giving the details of: Date of charge Property charged Amount of charge Charge holder In case of default in compliance with the said section, any officer who knowingly omits or wilfully authorises or permits the omission, shall be punishable with fine which may extend to Rs.5000/-.

CONCLUSION The significant cause for registering a charge is that the stakeholders those are dealing with the company should be aware of the particulars of the properties, which are mortgaged, or subject to a charge failing which the securities shall get diluted and no creditor will be in a position to recover the loan granted, therefore it act as a shield to protect the creditors statutorily in the event of the company being wound up. Thus the securities which are hypothecated or mortgaged can be safeguarded and kept aside for the lending parties of the company at the time of its winding up or liquidation only if the charge on such securities is registered. Thus the main purpose of registration of charges is to give a notice so as to enable a prospective banker or other types of lenders to ascertain the nature and extent of the security created on the company’s property in order to arrive at a decision on the manner, extent and type of the lending. Registration of charges is all the more important for the banks intending to lend funds to companies because various companies may otherwise try to take advantage of the banks by obtaining funds from various sources at a time thereby diluting the bank’s interest in the properties mortgaged.

S.Dhanapal, B.Com, BABL, ACS Managing Partner

S.DHANAPAL & ASSOCIATES Practising Company Secretaries Chennai

DISCLAIMER The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

S.Dhanapal, B.Com, BABL, ACS Managing Partner