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welcome you all to the Saturday weekly knowledge sharing session by mea and MAA today we have a session on Insight on into charges uh we'll be presented by one of the partners at Bangalore Miss Jin bindra and uh she'll be taking it ahead for charges and related aspects uh we have panelist Mr Bala sir who will be joining in a bit uh sudhakar sir and today's panelist is Dr CV madhusudan uh partner ksr and company company secretaries LLP uh so uh Dr CV Madu Sudan partner is a fellow member of The Institute of company secretaries of India he holds a bachelor's degree in science and law post graduate uh diploma in intellectual property law awarded by National Law School of India University Bangalore and PhD in corporate secretaryship researching on trademarks law in India and US domain he has also compl completed certificate program on corporate governance from the school of corporate governance and public policy at Indian Institute of corporate Affairs New Delhi he is a specialist in business structuring and transaction advisory Services ranging from structuring of foreign inbound investment domestic outbound investment foreign collaborations joint ventures corporate restructuring involving mergers and aminations Dem mergers and spin-offs private equities structuring and all other strategic corporate transactions we welcome you sir for today's session uh before starting the session I would request sudaka sir to say a few words about the topic and then jine and madus Sudan sir can take it up uh good morning everyone in fact Ash has introduced Dr malan but he is a very one of the eminent uh professionals especially South in southern region I'm sure that most of the people who are attending from Southern Region they know him very well and he's a the one of the finest professionals whom I come across having in-depth knowledge of the subjects and especially we are fortunate enough to have him here today because as far as charges is concerned only I take two names one is Dr RAV Chandra and second one Dr MSA so today Madu is here and in fact he was teaching in the banking Staff College for about six seven years on this particular subject only so you know that what sort of knowledge he must be having it I'm sure that uh all the participants will get benefited because of this so before I say a few words I request Dr Madu to to say the few words and for every time to call him as Dr Madu it is difficult for me sometimes I may call him as Madu also because I have that kind of a love and affection towards him and please don't mind mad for that welcome welcome Professor Bala yeah take care whether you can start yeah yeah say a few words first and then after that when the presentation is there we will definitely discuss in detail yeah thank you sudar G and Ash for introducing me profusely uh hopefully know I stand by what has been introduced uh good morning Bala sir uh good morning so this topic on charges used to hog some Limelight theer The Old Company act it used to be one of the major areas of practice then um even before the emergence of Secretarial compliance certificate secetary audit and things like that so this is one area in fact I would say under the companies act where though the registration responsibility is bed on the company but the benefit goes to the lender it is the vendor lender who has to really ensure that the company register the charges so has to protect its own interest you will not find any other provision under the companies act where all the obligation is cast on uh the uh company but the benefit accur to a third party so this is one area where uh a bit of knowledge of uh I would say transfer property act a bit of knowledge of contract law is is required and uh most of the time what happens is that uh what we think is that registration is one which ensures that the charges hold good even when the company goes into liquidation or winding and uh as long as the companies are going concern whether you register or you don't register it makes no difference because uh uh the entire process it is something like a will written by somebody and which uh comes into effect only after the person who has written the will no passes away so the bill takes its effect only after the demise of the testator similar is the situation here so the effect of a charge or the implication of registration or otherwise of a charge uh can be known only if the company U is uh I mean company goes into liquidation or is into winding up or somebody has been appointed as a receiver under either the contract or under law so this is the situation so I hope we will have a very interesting session though uh I would say that uh this particular topic has uh not been discussed very widely these days but this is a very important topic from the per view of the company because today you know that uh unlike the uh pre 2016 era where you had a very long winding process uh when it comes to enforcement of security and winding of liquidation post IBC 2016 the analysis and the you know acceptance of claims by the uh resolution professional or the Liquidator has really gained importance and that being the situation uh we will also discuss as to what will be the role of the Liquidator or the receiver uh and to what extent he can rely on the registration of charges when it is no when he is supposed to process a claim so I thought with this few words we can get into the session back to sudakar G yeah thank Dr Madu in fact as you rightly said the importance of the charges under the 1956 Act was phenomenal especially when I entered the profession in the year 1985 in those days the ability of the company secretary used to be monitored with three four sections three four topics which are very very important one is the manager demoner how you will get the manager deration approved by the central government is to be a big task in those days the second one is registration of charges filing of the charge is one thing but R has to register it in the register of charges and he has to issue a registration certificate that is also equally used to be important so the ability of the company secretary is to convince the regist that this charge is a genuine one and all there are no flaws as far as the registration is concerned that itself is also depend upon the ability of the company secretary third used to be the shared transfer work and the fourth used to be the fixer deposits in fact in those days we used to boost ourselves that I handled the fixer deposit scheme I got the my manager remuneration approved I got the charges registered as you rightly said there used to be some company secretary fors who were having the majority of the work is the registration of charges because it used to be a specialized field as film actors and yesterday we were discussing some film actors and celebrities they to lost the sheen over a period of Time same is the case has happened with these four things also nowadays the present generation of the company secretaries might be thinking that what these people are talking and okay how that charge registration is a big a big task how can it be but having said that the in fact n in several companies even today today also if you see that whether the charge register what the companies painted and the charges what we are filing whether they impeccable I have my own doubts about it several times it also happens that the loans are repaid the charges are satisfied we have filed the charge registration forms also and most of the company secretaries think that that is the end of it but if you see that in case of uh the registered mortgages whether the mortgage got reversed in the in the subre records most of the times it doesn't happen similarly if you deposit the title dates with the banker or financial institutions after satisfying the charge have you collected the title dates back it is also a big question mark is there because in the whether it is in Reliance or my previous company Berger pains both the places we have taken up as a project that linking the register of charges with the register of charges maintained by the r and thereafter what are the charges we have satisfied from our end but R has not taken it on H records there used to be a Reconciliation issues apart from that thing the collection of the original title dates and putting it in the proper order that itself also us to be a big task in those days even now also as far as the collection of title dates uh again reversal of the Mage what we have registered how many companies and how many company secretary are maintaining it without any kind of flaws I have my own apprehensions about that having said that even the significance and the importance of register of charges has increased even now because in the good olden days R used to have the power otherwise clb used to have the power to wave the in case of any kind of non-compliance or registered within the timelines now that they have lost the power beyond 120 days I don't think any anybody has any power to regularize the charge what has been filed so we will discuss all these nuances I will give a pause here okay jasine you can start your presentation thank you and just to tell the participants jasine is one of the finest Partners we have and she is taking care of our Bangor office and I'm sure that you will enjoy the presentation in fact today there is a PCS conference at aoda I was having my own apprehensions that how many people will attend the program as of now we have 164 participants this also shows 165 now this also shows the importance of this topic even under the companies act 2013 also yes J please go ahead thank you so much sir very good morning to the panelists and the participants it gives me immense pleasure to uh present on this really important topic and uh on behalf of the firm and myself I would like to wish all the practicing company secretaries a very happy PCS day today yeah happy PCS day same from all of us there yes so today the topic for discussion like was uh deliberated upon in the beginning is insights into charges including the accounting and the taxation aspects um as regards the companies act 2013 chapter six talks about uh the registration of the charges and the provisions there too with which covers section 77 to section 87 of the company's act and it is to be read with the company's registration of charges Rules 2014 so the these are the applicable Provisions first of all coming to the definition of charge as section 2 subsection 16 of the companies act 2013 defines charge as an interest Oran created on the property or assets of either the company or any of its undertaking or both which are taken as a security further in this definition they have gone ahead to specifically include a mortgage in the definition of charge highlighting a case law from the UK law that is Dublin City Distillery company versus degree uh in this case law this is though us UK based uh uh law the case law it says that in this case it was held that a charge would also include aan and an equitable charge what is the need or when does the need for registering uh the company's assets charge is required just so before we go into the next leg of the you know presentation on registration we need to understand that a charge can be either created by Act of parties that is through a contract or through operation of law so as long as the charges created by Act of parties that is uh a charge is generally created to secure a liability or a debt we need to understand that under the old companies act 1956 act we had a section called section 124 this section is just a one line section the entire act this is the only section which has only one line apart from the heading in fact the description under the section is mean shorter than the heading of the section so it simply said charge includes a mgage so it's an inclusive definition it just stopped at that and in fact if you see section 125 of the old act I'm I'm trying to compare the old Act and the new act just to give you a glimpse of what has under on change under the old act under section 125 it said what kind of charges can be created so it didn't went on describing about mortgage uh charge uh which is in the form of a hypothecation and all that it excluded two different charges one is a pledge a pledge is not required to be registered under the old companies act the second is in case of a lean so a lean and a pledge was not required to be registered in the sense even if you don't register it under the old company act you never had any impact of the charge going void against the Liquidator but under the present act you see you have a specific definition of What charges so section 2 subsection 16 clearly provides that charge is nothing but an interest or a lean created on the properties or assets of the company so by definition the the creation of lean is being brought within the meaning of charge one number two we don't have any exclusion with regard to pledge so that means both lean as well as Pledge can be registered or is required to be registered under the present companies act unlike the old act so whenever by Act of parties if a charge is created see always we need to understand a charge can be created for a future liability also the the intention under the law to register is from the act of creation of charge the law does ask you what is the charge secure so moment you create a charge which will secure an amount of money which may be borrowed in the past or borrowed in the present or to be borrowed in the future so the requirement to register or the trigger to register or trigger to comply with the provisions of chapter 6 arises upon creation of a charge and we should always understand it is the company or the borrower who has to create charge it is not that the lender can create charge lender can only impose the requirement of creation of a charge but it is the borrow because the assets belong to the Bor and it is only upon the borrow there is a requirement to create charge and unless the borrower creates charge the charge doesn't get created so these simple aspects need to be understood before we go into the aspects of actual process relating to registration yeah back to this thank you for your input sir yes so like s said that when does the uh necessity or the need for creating the charge on the asset arise so whether there's a company small or large depending on the capital they can either raise share capital or borrowed Capital uh for financing the projects in case they uh decide to raise borrowed Capital uh which can include debentures which may be secured unsecured or any financial assistance from a bank of financial institutions generally the banks and the financial institutions lend money by keeping collateral in the form of assets properties uh of the company and whenever there is such kind of a collateral taken there is a charge created on the assets of the company it can be pursu to execution of loan agreement hypothecation agreements mortgage Deeds or anything any other document of such name nature the main categories or the types of charges are uh two basic categories first being the fixed charge and the second being the floating charge so when we come to understand what is a fixed charge fixed charge is a charge which relates to a specific assets uh asset of the company wherein the asset is particularly decided and defined the company cannot dispose of that particular asset or property without the consent of the charge holder Visa V when we come to floating charge floating charge covers the floating and circulating nature of properties which are generally in the form of uh sry Data stock and trade Etc so the particular stock is not identified but it's a general uh uh it encompasses a general category type such as dors or stock and trade so the nature of property and floating charge can change from time to time and until the floating charge becomes a fixed charge get converted into that the company is free to deal with the property subject to charge subject to certain limits that will be imposed by the borrower uh the process of conversion of a floating charge to a fixed charge is known as the crystallization of the floating charge and there are certain circumstances under which uh the crystallization of floating charge takes place some of these circumstances or events are when the dettor is unable to pay off the debts or when the company goes into liquidation or when the company ceases to carry on any of its business activity or the last condition being if the contract that has been entered into between the company and the uh lender if there is it it requires crystallization of charge upon happening of a particular event then on the occurrence of such event the crystallization will take place we also have a case law that supports uh what would be the treatment of floating charge when it's once it gets crystallized which is maduri Ura versus penala in this case it was held that when the floating charge gets crystallized and becomes a fixed charge then for all purposes the restrictions of a fixed charge will become applicable to the same to say here is that till the time the floating charge gets crystallized into a fixed charge it is as if there is no charge like that okay the borrower can utilize the assets the way he wants that's why most of the times it is the current assets on which the floating charge used to be there not on the fixed assets okay so once the charge gets ized at that point of time the legal restrictions the borrower will be having sorry the lender will be having an upper hand over the borrower as far as utilization of those assets are concerned yeah in fact sudhakar if you recall under the uh in fact in the old times probably some 20 years ago there used to be a a loan called key loan even by Banks especially to textile mills uh it is called a lock and key facility so what happens is that the the banker gives a cash credit loan against the stock of say cotton or something for which know he will have it in the good own of the company loged and the key will be lying with the banker so this is a uh key loan it is called so as and when the company wants to use it it has to go back to the banker and they should they should request they should uh substantiate as to the need why they have to use it then uh the banker opens the good on and the the goods are taken out so this this was old times in fact nowadays you don't have it so we have SIMPLE hypothecation where the charge is ambulatory in nature it HS around the overs over the assets and there's no uh uh what do you call there is no prohibition on the part of the borrow to utilize the assets as long as it complies with the requirements of the terms and conditions of the loan and uh it doesn't default because the moment it defaults and uh uh the loan is recalled then the charge becomes a fixed charge yeah there used to be major two terms in one is that there used to be a big uh this the assets hypothecated to so that that is to be clearly visible at the godor itself two three prominent places you have to put that so and so Bank we have hypothecated the stocks and this thing at the same point of time you have to file this monthly statements of the the stock statements you have to file it and once in a quarter or or once in two months depending upon the terms and conditions the bankers used to come for physical inspection also yeah in fact several times what the banks used to do was they used to Outsource this job to the chared accountant forms because they were not having that kind of bandwidth to go for physical verification so in fact okay as a CA article student you know I used to have that opportunity to go for the physical verification of the stocks that time the clients used to treat us like we were the prince prince and princesses in those days because we are coming from the banker side so we used to be pampered a lot all these kind of things you know so these are all the old memories which are coming back to me a kind of a Nostalgia so the moment that kind of requests come then you should understand that there's a shortfall in whatever security so by the time by the time in fact I came to my third year of articleship then we realized that it is more responsibility than of an enjoyment you know but as far as the preliminary this thing in the first few months we used to really enjoy that yes just go ahead yes so whenever we talk about charges what are the particulars that are uh that will become important uh to be maintained and to be kept in mind first is the date and the description of the instrument uh creating such charge the total amount secured uh and the value of the property being charged subject to charge date of resolution creating the charge the description of the property should be clearly defined whenever a charge is created a copy of the deed or instrument shall be maintained and a list of terms and conditions of the loan uh Additionally the name and address of the chair the charge holder which can be a bank or financial institution shall also be uh clearly defined coming to the provisions now under the companies act under chapter just a moment the particulars of charges that is required to be filled in say in form C cg1 uh is very important in the sense that as I was mentioning earlier the need or the importance of the creation of charge gets realized when the company goes into liquidation foring them and only when the charge is registered then it is valid before the Liquidator so the Liquidator when he starts accepting the claims from the you know from the creditors he has to verify as secure creditors whether the charges registered number one number two in the form that is the ch1 what is you know filed and registered we need to check the particulars of what has been registered so there are two things one is the banker would have created a document to create a charge to know have the security done but when you fill in the form if you have omitted something to be mentioned say for example if you omitted say hypothecation of say book debts whereas you have mentioned hypothecation of goods you have mentioned hotation of missionary you have even mentioned the mortgage aspects on the uh immovable property but you omitted say book debts you don't have a registration of charge over book Debs though the banker might have a charge but to have that charge classified as a registered charge you need to mention it in the form so what is registered is what is mentioned in the form just by attaching the documents the documents don't really get registered it is a particulars in the form which gets registered so the documents are only an Evidence or a proof to show that the charge is created and hence you find the particulars of the charge finds a place in the form so not the other way around just because I've attached a document the document doesn't get registered in fact this aspect has to be thoroughly understood and normally these days in fact most of the banks know they have this process of betting this cg1 done by their legal cell so they go through the particulars and know they uh they approve it in fact before the DSC of the banker is a fixed but in those days we we there was no such practice and because it was physical forms so even the company will be more keen to get the money so unless the registered charge the registration is shown to the banker he will not release the loan so there used to be a lot of urgency in registering and something would be mentioned in the form which the banker Also may not know may not realize because as far as he is concerned he must be thinking that he has the document done so the mentioning the particulars of charge in the form is very important as regards the banker because tomorrow when he stands in the queue before the Liquidator if he wants to be treated as a secured creditor the particulars of the security has to be mentioned in the form only then the registration would have an effect on the security so this is very important yes just Madu you brought a very good fin point and okay that several company secretaries think that the moment you are attaching the document to the the cg1 or in the good olded days we used to have form number eight so if you remember in the form number eight there used to be the entire form there are two important things one is the description of charge second thing is the particulars of charge so in those days several company secretaries were not able to distinguish these two columns what is the description of the charge and what is the particulars of the charge several times R what he used to do was they used to read the document and whenever the charge components are not properly reflected in that good olden days form number eight they us to uh what's called keep it if it is a default document and not for registering purpose so you have to go to the r convince him that under what is happened then he used to say I will reject the form and you file it again so there used to be lot of issues even today also if I'm not wrong the same thing is there whatever the main assets you are on which you are creating the charge they have to be properly reflected in the form then only they will find a place in the register of charges maintained by the regist which is a public document also people go for an inspection and all that yeah Dr Dr Mudan and sudagar both of you actually brought in a very very valid point because I recall it I was working with the vone group of companies they used to actually create the charges and bankers are very much concerned about the way in which they want to drop the things agreement and the once the agreement is droped and other thing and all they are happy but when it come to the filing of the charges this particular group has to engage a professional to go through in filling up the form as you rightly touched upon at Le until it is actually forming on the face of the form itself it is mentioned the validity of the charge is actually not there you have brought it very well but most of the company secretary we are not very much aware of this thing as sudakar put it the moment we attach it that itself is get charged that has to be very very careful that is one and second thing is that you will also recall it uh earlier to 2013 act that means I'm talking about '90s and 2000 and all those things the charge was one of the major major practice area for the specialized people not only that all the bankers used to employ the practicing company is to find out the search report Etc and other things and all that was a major report search report used to run in pages and pages and other thing and all you'll recall it actually yesterday also we touched upon on this point so really speaking this is a very very important thing although we think the topic is very small body is there filing at ch1 or ch9 or all that is not so simple as that what we think to be but when the charges to be realized unless until it is properly registered the realization of the realizing the money will be very difficult yeah right thank you for your inputs um so coming to the legal Pro the compan Act somebody has put one question can the first and equable be created on the charge on marketable security when all the present and future current assets are already charged under conservative can you repeat the query sir can the first and equable be created on the CH on marketable Securities where all the present and future current assets are already charged under consultum yeah it can be done it can be done provided the first charge holder is agreed to that that is called as Paras par charge you talking about yeah yes yes I think that if I not WR the question is with regard to the parasu charge if that the first holder is agreeing to that you can do it otherwise it will be a second charge only I think the query uh is focusing about you know the marketable Securities so as regards marketable Securities it has to be a pledge so when you create a pledge it is a specific charge so as long as somebody has created a pledge then uh there is no question of creating any further charge thereafter number one number two uh see as I said charge is created either on the assets which are at present or in the future so you can also create that is why we say it as a floating charge so the present assets the future assets uh everything gets covered and uh uh the angle of no par passive charge comes into play uh only where know you have multiple banking Arrangement or more than one uh charge holder so it is up to them to know agree in between them as to nature of sharing of the charges so if I'm not wrong if I'm not wrong in case uh the borrower is a share broker so that point of time what will happen is that marketable Securities may be stock also it may not be an fixed asset or investment for them it maybe they might be showing it a stock also in such case it may not be a pledge as such they might be hypothecating the stocks that is called the so-called marketable securities they can take uh working Capital Loans in such case yes the second charge is Poss I mean the part charge is possible yeah uh any other questions that are there sir uh one minute let me check it out uh there is some question is there what is perfection of church uh there is no Perfection of charge in fact Perfection of charge uh may be a term which is Loosely used to ensure that the charge is registered see you create a charge then you perfect it by registering it so the very uh what do you call the uh the nature of registration is such that the charge becomes completely enforceable and it survives the test of itation also so Perfection is something where no you have done all that can be possibly done or what you're supposed to do under the law so as to know you take the complete benefit of having know created the security or registered the security so Perfection of charge is not a legal term it is a a Bankers term which normally they say they use it for for meaning that everything else has been done so that they have a complete control over the security in case of a newly Incorporated private limited company the bank ask for the fixed deposit against which they issue corporate credit card this card is in the name of the MD and CEO and CFO or any cxos the bank credits are lean on the fixed deposit of the files of the ch1 so will it be Arrangement be considered at a borrowing from Bank just is not even started 77 for the provisions once the she starts that time this question will be answered itself otherwise we will answer at the point of time okay no problem yeah yes starting with Section 77 that is the duty to register charges so ing to section 77 subsection one r with rule three of the registration of charges rule it shall be the duty of every company creating or modifying in charge whether the charges in India or outside on its property or assets or any of its undertaking whether it is tangible or otherwise situated in or outside India to register the particulars of the charge uh with the signature of the company and the charge holder within 30 days of the creation or modification of the charge as the case may be uh the forms to be filed in case of creation or modification of charges form cg1 uh for charges other than debentures including modifications there to and form chg9 in case the charges created pursu to debentures including modifications there to elaborating more upon the time limit for creation of the charge particularly uh with the introduction of uh company's Amendment ordinance 2019 so any charge created before the commencement of the company's Amendment ordinance 2019 uh which was effective considered to be effective from November to 2018 uh in such a case the charge shall be registered within 30 days from the date of creation if the company fails to do so then the company can register such a charge within 300 days of the date of the creation on the payment of an additional fees uh and a last opportunity was also provided to companies to register any charge prior to November 2 2018 within 6 months from the date of the company's Amendment ordinance 2019 uh this was as a last opportunity before the Amendments come into effect after the introduction of the company's Amendment ordinance 2019 there has been a major shift in the timelines provided for registration of the charges so any charge that is created after November 2 2018 the charge shall be registered within 30 days if the company fails to do so they are provided an additional time of 30 days meaning 60 days from the date of Creation in total uh within with the uh payment of additional fees and if the company still fails to register it within that timeline an additional period of 60 days which amounts to 120 days in total from the date of regist uh date of creation of the charge with the payment of an adum fee coming to the uh uh what would be the additional fees and adum fees applicable so in case of any charge created or modified before 2nd November 2018 and allowed to be filed within a period of 300 days from the date of creation or 6 months time period that was provided as a large last opportunity whichever is later in that case if the period of delay is up to 30 days then the additional fees applicable would be two times of the normal fee uh for a time period of more than 30 days but up to 60 days four times of the normal fees and uh 60 if it is beyond 60 days but up to 90 days then the additional fees applicable would be six times or the normal fee and if the delay goes beyond 90 days but up to 180 days then the uh then 10 times of the normal fees would be uh charged as an additional fees and uh for a delay more than 180 days 12 times of the normal fees would be charged coming to the second scenario which is if the charge is created or modified on or after 2 November 2018 that is after introduction of of the ordinance uh the 2019 ORD ordinance then in that case additional fees or adum fees as the case may be that would be payable up to 31st July 2019 by the companies would be if the delay is up to 30 days then two times of the normal fee more than 30 days but up to 60 days four times of the normal fees would be the additional fees and if the delay is more than 60 days but up to 90 days then six times of the normal fee would be applicable as the additional fees uh however after with effect from 1st August 2019 there has been a revision in the uh company's regist uh registration offices and fees Rules 2014 which has revised this entire structure of delayed fees which states that if the delay in filing is up to 30 days then in case of small companies and one person companies uh the additional fees uh or the adum fees would be three times of the normal fees and in case of other than uh small companies or opcs it shall be six times of the normal fees uh if the delay is more than 30 days but up to 90 days then for small companies uh three times of the normal fees plus an adum fees of 0.05% of the amount secured by charge whichever is maximum of uh rupees one lakh or whichever is higher of the two that would be applicable and in case of other than small companies uh and opcs it shall be six times of the normal fees plus an adum fees of 0.05% of the amount secured or rupees 5 lakh maximum capping uh coming to the meaning of the term adum adum is a term which says that whenever the amount is imposed as a percentage or a rate of the value like these provision says 0.05% of the amount secured then such a term is defined as edum that's why they have the word used is edum fee is applicable for the delay so this is the only provision under the ACT where you have a fee which is liquidated and a fee which is unliquidated so liquidated fee is one where you have a fixed fee where it says based on the capital so much is the fee you have to pay 300 rupes 600 rupes whatnot then in respect of an unliquidated fee is fee which is based on the amount that is secured so depending on the amount that is secured the fee varies 05% or subject to the maximum of 1 lakh or 5 lakhs which uh certificate certificate of registration so upon filing of the form if the form meets the requirements and is uh uh is free from any kind of defects the registar shall issue a certificate of registration of such charge uh in favor of uh and that shall be shall act as a conclusive proof of the charge being created this shall be issued in form chg 2 in case of registration of the charge and in case the form is filed for modification the regist will will issue a certificate in form chg three for registration of modification of the charge effective non-registration as madus Sudan the company shall not be taken into account by the Liquidator or any other creditor until it is duly registered and the certificate of registration of such charge is given by the registral so hence this provision becomes really important especially for the bankers and the financial institution so the emphasis here is will yeah uh the emphasis here is with regard to charges created by Act of parties the registration is compulsory to have the charge effective once the company goes into Liquidation in respect of charges which are created by operation of law the entire chapter six would not apply there no requirement of filing cg1 or something because by operation of especially if you take tax laws the local Corporation or municipality laws and all that where non- payment of any dues to the government would bring about a charge on the assets for the properties there the act itself in what you call fixes the charge over the asset and there's no application of this law even if the asset is to be owned by a company so this is the difference so so the this is the most important outcome of registration of charge of course as I said uh the this is only provision under the companies act where the filing of a filing of a form an e form um in terms of the law actually benefits the third party rather than the company as far as the companies concerned it complains the law because there is a non- complain there is a penal provision applicable but the real the real use or real benefit of having filed charge is really to the lender or the person who has the security yeah right uh will the non-registration of the charge affect the uh repayment of the money so the answer to this is no the even if the charge is not registered uh merely the creation of the charge would would be questionable however the obligation to repay the money if the company is going on as a going concern will always remain so just mean what we need to understand here is that the non-registration of a charge is only void against the liquid not against any other person so the the lender can as well go to a court of law and enforce the security so only at the in the situation of the company going into liquidation are winding up then the the charge becomes void otherwise if the company hasn't gone for liquidation but if the banker wants to enforce the security even though the charge is not filed or registered still he can do so right so the situation of the charge getting void is only upon liquidation or winding up not in any other case right yes thank you for that input sir uh section 78 application for registration of charge uh read with rule 3 and six this says this section says that when a company fails to register a charge within the stipulated time the person in whose favor the charge is created meaning the charge holder may also apply to the register for the registration of such a charge by filing uh e form cg1 or chg9 as the case may be this is is the owners of the charge holder to secure their charge over the property uh the registar May within a period of 14 days after giving notice to the company unless the company states that uh the charge has already been registered or show a sufficient cause that why the charge should not be registered can allow the registration of the said charge uh the provisor to section 78 states there that where the registration is affected by the charge holder itself the person shall be entitled to recover from the company the amount of any fees or additional fees or adum fees that is paid by the charge holder to the registar for the purpose of such registration uh just just a moment in fact another important aspect which I thought I would uh I mean I would make it because it's very very important if you see under Section 77 U I think under subsection one I think provisor three the provisor clearly states that any right obtained prior to registration of the charge will succeed that means if I don't file within time and there is a delay in registration of the charge the interum if some other lender or some other person was lent money gets a charge over the same properties because the properties are being I mean the charge being a you know a floating charge so only in case of a specific fixed charge then I need to have the permission of the lender and H the charg is created if it is a floating charge I may be creating charges to various lenders so if say Banker a from whom I have borrowed money and I delayed the registration of charge in terms of uh the money is borrowed from Banker let us say Banker b as lenp money after the banker ha has executed the documents but I have registered the banker B's charge prior to the registration of charge of Banker a then the banker B's registration would rank in priority even though the DAT of creation of charge is after the creation uh mean affected to Banker I think I made it clear so any right obtained by any other party over the properties which are subject to charge if the charge registration gets delayed and if such people get some right over the property then that right survives and it is upon I mean it is the I would say the ill luck of the you know the actual lender the prior lender whose registration gets delayed and hence his ranking of securities also gets know delayed see the the beauty of the the charge dating back to the date of creation is that from the date of creation the registration gets validated but however I mean the charge gets uh validated the registration gets validated but however the date of registration is important because when the Liquidator ranks the creditors at the time of no assessment of claims the ranking happens based on the date of registration not on the date of creation so it is where the date of registration becomes very important because unless the charge is registered it doesn't get into the ranking At All by the Liquidator the Liquidator would not even consider it or recognize the charge for the purpose of ranking of creditors Liquidator even in case of a charge which is not registered the claims will be accepted by the Liquidator but he will not put the claim in the secured credit list he will have he has to mark it against the unsecured creditors that is the difference but even amongst the secured creditors it is the date of registration which decides where the Creditor ranks in the list of creditors so that whoever register on the first he will get the top priority exactly and whoever come subsequently he will be actually second third like that only it know all those charges created earlier that is the point you saying exactly so the 30 time limit itself is huge these days because in case of a big Enterprise when you borrow from multiple lenders the registration that is why these days Bankers don't lend or they don't really know disperse the loan unless you produce the certificate of registration in fact uh I would like to further add one more point the purpose of registration of charges why it is so important because uh once the charge is registered then only the public will come to know about the charge what has been created on that it is called a doctrine of constructive notice so unless until the charge is registered the constructive notice is not there to the public as such so you might have created a charge so it is only between you and the lender it is there but the information is not there outside in the meantime if the borrower is a nasty fellow that he may go and create another charge and if he creates that charge if he go and get it registered first the first charge holder even if he has created it he will not get any right first right he will not get it as far as the O is concerned I mean God forbids if anything happens and all as Madu has rightly mentioned whoever is the first registered charge holder he will get the right not who has created the charts first yeah thank you so much for bringing uh such an important point uh to highlight uh so the procedure to be followed by the charge holder in case they want to register the charge uh uh themselves is the charge holder has to make an application to the regist in cg1 or chg9 uh if the company fails to do so the registar will issue a notice to the company uh if the registar issues an objection uh from the company stating that the company has already gone ahead with the registration or the company has sufficient CA to show that the charge should not be registered then the regist will not uh register such a charge but if there is no objection received uh within 40 days 14 days from the date of issue of notice then the charge shall be registered section 79 states that uh section 77 relating to registration shall also be applicable uh for modification of the charges coming to section 80 that is the date of notice of charge it states that when where any charge on the property or the assets of the company of the company or any of its undertaking is registered under Section 77 any person acquiring such property assets or undertaking on behalf or any part there to uh shall be deemed to have notice of the charge from the date of the registration this is what sir said the doctrine of constructive notice which has been put into law as well under Section 188 section 81 talks about the register of charge to be maintained by the regist of companies uh in ance with Section 81 and Rule 7 the regist of companies shall maintain a register of charge uh containing the particulars of the charge registered in respect of every company on the MCA portal and uh uh the register shall be open to inspection this is in the form of the MCA portal stating the register of charges itself section 82 coming to the aspect of uh satisfaction of the charge so the term satisfaction of charge means when the tenure of financial assistance has expired or where the instrument of charge has been revoked by both the parties before the ex the expiry of the tenure with mutual consent so it can be either subject to repayment or any other condition as agreed to in that case the satisfaction or release of the charge shall be reported to the registar of companies sections 82 read withth rule 8 states that the company shall give information to the regist of companies of satisfaction of the charge in full within a period of 30 days from the date of uh such payment or satisfaction in the form chg 4 along with the applicable fees where the satisfaction is not the Char the CH4 form is not filed within 30 days from the date of satisfaction the registar can be informed within 300 days from the satisfaction uh about and the cg4 form can be filed there too the register shall give a notice to the charge holder before registering the satisfaction of charge which shall be a minimum uh 14 days notice however if the ination to the registar is already signed by the charge holder which is the general practice then in that case no such requirement of issuing a notice by the regist of companies is required once cg4 is filed and if it is free from defects uh the regist of company shall issue a certificate of satisfaction in form number cg5 the two things to be uh understood here one is the satisfaction which means that the loan is repaid or the liability is I mean nullified and thereby there is a release of charge right now by not filing the satisfaction of charge the register of companies doesn't mean that the charge still continues see the charge gets released the moment you make the payment in the sense you settle the liability the charge gets released it is nothing but a what you call nullifying nullifying effect it will have when you file it because you have created an entry with regard to creation of charge so you have to caned by filing to say that the charge is satisfied again only for public notice so just because because the charge is uh the satisfaction of charge is not filed or not registered doesn't give any right to the lender to proceed on the company the moment know the loan is repaid the charge charge gets canceled automatically the registration is only for public notice so that not only you comply with the law because the law requires you to find the satisfaction of charge but also inform the public that the charge that was created on so on has been Ned cancel but just to add further to that you unless until you create the satisfaction of the charge in the r records that it will show that as if there is a charge still continuing because of that what will happen is no other lender will lend you the money because on this particular asset because still there is a charge continuing the ROC records that is the reason why you have to do is you have to file the satisfaction of the charge and get that particular entry nullified in the r records number one number two though it is said that within 30 days of such repayment of the low you have to file the charge but unless until the lender give you a no objection certificate you will not be able to file that satisfaction of the charge because R will not accept it several times it happened that by the time the lender issue the no objection certificate they will take the time because they have to ensure that there are no du left out as far as the borrower is concerned so if I am not wrong ing to me it is the 30 days will start counting from the date I receive the objection certificate within 30 days of that I have to file because by merly loan repayment is not the end of it suppose say for example I say from my side I have repaid everything but the banker has to certify that he has recovered all the juice from the borrower that is considered as the payment of the loan repayment of the loan from there 30 days is to be there so the banker has to certify by way of issuing a no objection certificate for filing the satisfaction of the church that is how the 30 days is to be worked out if I not wrong please correct me you are absolutely right sudagar because if you also recall because you are also Oldtimer even Madu also equally because he has been in the practice for the last 20 years in fact in those days we used to get the money borrowed from the various Banks or financial institutions and there used to be a concept called nomination director the nominee director they used to be there so he used to be present in the meetings Etc and when the loan is repaid normally they withdraw the nomination director and the particular meeting he says that I'm putting up Myer I'm resigning from this we get it record but the problem is unless until we get a official no objection certificate as you rightly said we cannot file the satisfaction of the charges which definitely takes a long period that is one and similarly he has also resigned even for filing the Dr toal form today those days it is form 32 that was also difficulty Because unless we get a proper letter from the banks who are nominated him because he is nominated he is withdrawing it because he himself is not there he one of the employees of the company so he is nominated unless we to get the official letter from them then this form filing was also difficult as you rightly say it is that 30 days start running from only after getting the no objection certificate that is definitely the case just to take a longer time actually Madu can share his experiences on this yeah see the concept of obtaining a no objection certificate is something which is by practice not because of prescription of law uh uh see that is one way of saying that or ensuring that no I can say with confidence that the charge has been satisfied or the liabilities have been rep see the pro the provision section 82 itself provides for a a process whereby if the company notifies The ROC that the charge has been satisfied and if there is no evidence to show apart from just the statement of the company the register has a right to issue a notice to the charge holder wait for 14 days and if there is no reply then he can proceed to register the satisfaction so the law has foreseen this requirement because there is unlike for creation of charge where you have to execute a document it is a by by by execution by contract you create charge whereas in case of a satisfaction there is no such requirement of executing any document or any letter or any uh what do you call there's no requirement of any real um um agreement between parties to prove that no the charge has been satisfied so the law has foreseen this requirement that is why there is process of a notice to be issued by the ROC is prescribed but this process in my opinion as I have never come across being utilized or used by roc I I don't think even Roc realizes that is a process of this nature because the moment you don't have the uh no objection certificate as no attachment to your form the form is not going to be registered as simple as that forget about the r issuing a notice so the law is beautiful in the sense the law has foreseen the situation but the practice is otherwise so as I said this no objection certificate is nothing but a conclusive proof I would say to say that no the liabilities have been repaid and the banker I mean the company owes nothing to the banker but it is not the requirement under law but correct me if I Wrong doctor is it not that a form is required to be signed both the parties actually you on mute yeah yeah so what happens is the these Provisions are not new to the 2013 act this has been copied from 1956 but the 1956 act we had the physical filing uh and until know this e filing kicked in so there you had this concept of no physically filing the the where even if the company has only signed the form without the bank the signature physically filed then R seeing it and know taking up the process that is possible in today's context it is not possible at all so this process which is there under the section cannot be enforced because you will not be in a position to fight in fact if you have I think J there is yet another provision where the ROC has been given a power so Moto power to clean up the register of charges to so probably when you go to that we can learn about it as of now the process of filing itself would not get completed if the banker has not signed as I said this provision was actually lifted from the earlier act so it is actually a misfit in today's context of no e now why I write this point is in 2013 act some I do not have the Practical experience I only know the law in 2013 act because by the time 2013 act I actually retired but in 1956 I categorically remembered unless until both the parties signed the form cannot be registered that is definitely that was the case that is why I ra this question so that mean today what you are saying is even if the other party that is letter is not signing it we can still file the form No No in fact you can't file it now in fact I'm seeing the other way around under the old act yeah even though the requirement is that both the lender and the borrower has to sign the form yeah but with a single signature with the borrow signature at least you can manage to the form saying that no the charge is satisfied because it was a physical file not an e fil okay and you can also know educate The ROC saying that there is a provision in the law like this where you can issue a notice but today there are no such I mean I mean Avenues at all unless you file the form the r would not get a notice that the satisfaction is filed so for filing you require both the bankers as well as the borrow signature so it is not possible so this process is only in the letter not in the spirit to context I see right um moving on to section 83 the power of the registra themselves to make entries of satisfaction or release this is the provision that Ser was referring to so if the registar is satisfied that the debt has been paid and the asset is released uh from charge the registar May Su more to register the satisfaction of the charge and inform the parties within 30 days of making the entry in the register of charges kept under maintained by it under Section 81 section 84 uh talks about intimation of appointment of receiv receiver or manager so uh uh in case if a person obtains an order pursu to a court order is appointed as a receiver uh or the manager of the assets or property of the company which is subject to charge then within a period of 30 days from the date of such order uh or the date of appointment as the case may be the person shall give a notice of his or her appointment to the company uh such a notice shall be in the form chg 6 U additionally in case of secession as well or secession of the person to act as receiver or manager the same form has to be filed with the company section 85 talks about the uh register of charges to be maintained by the company itself so section 85 read with rule 10 provides that every company shall keep at its registered office a register of charge in the format of form chg7 such register of charges shall contain the particular of all the charge registered with the regist of companies as well as the entire particulars of the charge holder as well as the property that is subject to the charge a copy of the instrument creating the charge whether it is puru to an agreement or any other document shall also be kept at the registered Office of the company along with the register of charges the entries in such register shall be authenticated by by a director or the Secretary of of the company or any other person authorized by the board in this behalf the register of charges shall be preserved permanently at the register of registered Office of the company and the instrument creating the charge or modification there too shall be preserved for a time period of 8 years from the date of satisfaction of the particular charge inspection of charges the register of charges and the instrument uh kept shall be kept at the company and shall be open for inspection by any member or creditor of the company without payment of fees and by any other person on the payment of a particular fees section 86 is the penalty provision the punishment for contention in these Provisions so if any company is in default with complying with the provisions the company shall be liable for a penalty of rupees 5 lakh rupees and every officer in default shall be liable to a penalty of 50,000 Rupees in case a person willfully furnishes any false or incorrect information or knowingly suppresses any material information relating to charges uh such a person uh is liable for action under 447 relating to fraud rectification by central government and register of charges the central government May on an application filed in form cg8 direct the rectification of any Omission or misstatement of any particulars in any filing that was previously recorded with the regist of companies uh with respect to the charges creation modification a or with respect to any satisfaction as well uh the second scenario is the central government may direct extension of time for particularly only satisfaction of charges if such filing is not made within a period of 300 days from the date of repayment or satisfaction however this is uh the point to be noted is uh this is only with respect to satisfaction of charges verification of documents yeah yes sir here we need to understand that as I was mentioning the particulars of registration what is mentioned in the form is what is registered so in case if there is an Omission to mention any particular security or a charge upon a security at the time of registration and the form is registered and later it is discovered that know the there is an omission and as as I was mentioning what is mentioned in the form only survives before the Liquidator so the Liquidator would not be seeing the charge creating documents that is the agreements he will be only seeing what is mentioned in the form so in that context before the company goes into liquidation the the lender realizes that there is an Omission to mention a particular of a particular security or whatever in the form there is is a process provided under the law to rectify that and once you Rectify that it is as good as the form being filed without the defect from the date of registration it takes effect I mean the rectification doesn't know really interfere in the ranking of creditors so the rectification is only an opportunity provided to revisit what has been registered and to rectify if there is any Omission as regards the conation of delay in respect of filing charges it applies only for satisfaction and not for creation or modification so for in respect of creation or modification the maximum is I think 20 days and once you cross that limit the gate is closed that means that the lender loses the opportunity to register the charge and he has to really face the uh uh I mean the the uh the problem of not being listed as a secur creditor in case of the company goes into liquidations and I repeat non registration really doesn't affect the charge as long as the company is going concern please understand that so as long as the companies are going concerned the charge is completely enforceable there is no question the the company which has failed to register the charge cannot take it as a defense at all as long as the companies are going concerned so the entire uh benefit of registration comes only upon the company going to liquidation of right uh verification of documents rule three sub rule 4 of company's registration of charges rule 2014 states that uh the copy of every instrument evidencing the creation or modification of charge uh shall be verified as follows so where the instrument or deed relates solely to the property situated outside IND the copy of the document shall be verified by a certificate issue issued either under the Seal of the company or by any director or company Secretary of the company or any other authorized officer of the charge holder or under the hand of some person other than the company who is interested in the morgage or charge where the instrument or deed relates to uh whether holy or partly to the property situated in India the copy shall be verified by a certificate issued under the hand of the director or company Secretary of the company or any other authorized officer uh of the charge holder the list of forms uh relating particularly to charge uh though we have discussed it during the course but U uh just to reiterate cg1 is for the application to register for creation or modification of charge other than in case of debentures cg2 is the certificate issued by the registar Ina for concluding the registration of the charge as a conclusive evidence cg3 is the certificate for modification of the charge issued by registar of companies cg4 is intimation relating to satisfaction of charge cg5 is the certificate issued by the registar of companies evidencing satisfaction of the charge cg6 is a notice of appointment or secession of receiver or manager in respect of the property which is subject to charge chg7 is the register of charges created mod including the creation modification and satisfaction to be maintained by the company at its registered office cg8 is the application to central government uh requesting either extension of or rectification of any Omission or misstatement chg9 relates to application for registration or modification in case of uh charge relating to debentures per se and chj 10 is application for delay to be filed with the registra Dr madhusudan I just want to know for my information when you talk about the rectification of the charges uh how do you actually go about it really how do you deal with it yeah you have the prescribed process of making the application before the regional director um no intimating as to the details of omission or mistake that has happened know at the time of finding of C1 and you would uh know evidence the uh Omission through a document I mean suppose if there is an agreement which has provided for or a particular uh property which has to be know secured or on which charge has to be created and if that particular particulars of that is not entered in the say the ch1 then you would you would show that and you would ask for the rectification but rectification you rectification you'll do it what from gnl form or you no there is a C8 that is what J just mentioned it is a form which has been prescribed for making an application okay okay eight form is there okay yeah C8 Regional director will keep the hearing and at that time we have to produce all the uh evidence and then they will pass the order okay okay so the central government has delegated this power to the Rd who takes up these uh applications thanks thanks a lo