Overview

In corporate law, a charge is a security interest created by a company on its assets or properties to secure borrowings or financial assistance. It acts as collateral in favour of lenders, ensuring repayment.

Under the Companies Act, 2013, charges must be registered with the Registrar of Companies (RoC) whenever they are created, modified, or satisfied.

Charge compliance broadly covers two aspects:

1. Charge Creation Compliance – Filing details when a company borrows money by creating security over its assets.
2. Charge Satisfaction Compliance – Filing details when the loan is repaid and the charge is released.

Both compliances enhance corporate transparency, safeguard creditors’ rights, and ensure accurate public records.

Why It Is Important

• Legal Requirement (Sec. 77 & 82): Mandatory under the Companies Act; failure attracts penalties under Sec. 86.
• Creditor Protection: It prevents multiple charges on the same asset without disclosure.
• Corporate Transparency: Reflects financial obligations to stakeholders.
• Ease in Future Borrowings: Lenders verify and examine the existing charge records before granting loans.
• Prevents Disputes: Reduces risks during default, insolvency or liquidation.

Process

1. Charge Creation Compliance (Sec. 77)

Step 1: Company passes a Board Resolution authorizing charge creation.

Step 2: Execute loan agreement and charge documents with lender.

Step 3: File Form CHG-1 (for other than debentures) or Form CHG-9 (for debentures) with the RoC.

Step 4: Pay prescribed government fees and stamp duty (as per state laws).

Step 5: RoC issues Certificate of Registration of Charge (CHG-2) or Modification (CHG-3).

2. Charge Satisfaction Compliance (Sec. 82)

Step 1: On repayment, lender issues a No Objection/No Dues Certificate.

Step 2: Company files Form CHG-4 with RoC within 30 days.

Step 3: RoC verifies and updates records.

Step 4: Company receives Certificate of Satisfaction of Charge (CHG-5).

Documents Required

• Loan agreement/charge instrument (duly stamped).
• Board resolution approving charge creation.
• Asset details offered as security.
• Particulars of lender/charge-holder.
• Certificate of registration (for satisfaction filings).
• No Dues Certificate from lender (for satisfaction).
• DSC of director/authorized person.

Register of Charges (Sec. 85)

• Every company must maintain a Register of Charges (Form CHG-7) at its registered office.
• Entries must include particulars of all charges and modifications.
• Instruments must be preserved for the duration of 8 years after satisfaction.

Benefits of Compliance

• Legally valid security interest.
• Builds credibility with lenders and investors.
• Prevents penalties and litigation.
• Strengthens corporate governance.
• Enhances creditworthiness and borrowing potential.

Fee Structure (Government RoC Fees)

• Based on authorised share capital; higher capital attracts higher fees.
• Additional ad valorem charges apply for late filing.
• Professional/consultancy fees may apply if a service provider is engaged.

Timeline for Compliance

1. Charge Creation (CHG-1/CHG-9): Within 30 days of creation.

• Delay: Up to 120 days allowed with additional fees/condonation via Form CHG-8 and INC-28 (approval of Central Government/NCLT).

2. Charge Satisfaction (CHG-4): Within 30 days of repayment.

• Delay: Up to 300 days allowed with additional fees; beyond this, condonation required.

Consequences of Non-Compliance (Sec. 86)

• Charge becomes void against the liquidator and other creditors.
• Loan remains payable, but lender loses its security rights.
• Penalties imposed on both the company and its officers.
• Company may need to approach Regional Director/NCLT for condonation.

FAQs