Creation of charges in the ROC (Registrar of Companies) is a mandatory compliance process for companies to secure their assets in favour of banks or other financial institutions. Each time a company borrows money and provides its assets as security, it must submit the charge to the ROC under the Companies Act, 2013. The rights of the lender are safeguarded through proper registration, transparency, and the prevention of legal hitches. This blog outlines the definition, procedure, forms, documents, fines, and adherence required for creating charges.
Meaning of Charge Creation in ROC
Creation of charges implies a security interest in the assets of a company with the Registrar of Companies. It serves as a publicly registered document that a lender has the right to some assets until a loan is completely repaid. The charges may be established over movable, immovable property, intellectual property, current assets or any other secured property.
Types of Charges
- Fixed Charge: A strict fee is imposed on a particular asset, such as land, building, machinery, and equipment. Without the consent of the lender, the company is not allowed to sell or transfer the asset.
- Floating Charge: A floating charge is established on the changing assets like stock, inventory, raw materials or receivables. It takes a permanent status in case the company goes into default or halts its operations.
Legal Provision on Charge Registration
The registration of charges is provided by Section 77 of the Companies Act, 2013 and the Companies (Registration of Charges) Rules, 2014. Every company, including the OPCs and the private limited companies, will be subject to these provisions.
Significance of Charge Registration
The right registration of charges assists in building transparency between the lender and the borrower. It secures the rights of creditors, averts problems in asset claims, enhances creditworthiness, and promotes compliance with the law. Registered charges are also used in banks, where banks must verify existing liabilities before issuing loans.
Forms of ROCs that are used in Charge Creation
- Form CHG-1: Applied in making and altering a charge on any property other than debentures.
- Form CHG-9: Applied to the establishment and amendment of a fee dealing with debentures.
- Form CHG-4: Utilised as satisfaction of the charge on full repayment.
- Form CHG-8: This is a filing by the lender in an event where the company does not use the time allowed to register the charge.
Documents Required for Charge Creation
- Loan agreement
- Bank sanction letter
- Hypothecation or mortgage deed
- Instrument of charge
- Property valuation report, where necessary
- Board Resolution of charge creation.
- Assent or statement of the lender
- List of assets provided as security
- MOA-AOA, where necessary, and a certificate of incorporation
Timeline to File Charge with ROC
A company is required to submit the charge within 30 days of preparing it. Any late filing must be completed within a 30-day period, accompanied by additional fees. It can be extended for a period of 180 days on ad valorem fees and with a lender declaration. If the company fails to register the charge, the lender may file it individually using CHG-8.
Step-by-Step Process for Charge Creation in ROC
- Passing of Board Resolution
The company has to convene a board meeting and make a resolution that would approve the loan and creation of charges.
- Execution of Loan Documents
The loan contract, mortgage, or hypothecation contract is carried out between the company and the lender.
- Gathering of Charge Information
The information collected by the company includes the loan amount, description of the assets, interest rate, loan term, and lender.
- Filing Form CHG-1 or CHG-9
It is filled out in the required form online on the MCA portal, accompanied by supporting documents and payment of the required fee.
- Checking of Registrar of Companies
ROC examines the forms and documentation
- Delivery of Certificate of Registration of Charge
Upon approval, the ROC initiates a digitally signed Certificate of Registration of Charge serving as a legal confirmation of the creation of a charge.
Consequences of Non-Registration of Charge
The unregistered charge is voided by the liquidator and the creditors. The company may be fined, lenders may lose their security rights, and loans may become unsecured. It also has an impact on credit rating and borrowing ability in future.
Change and Contentment of Pay
Whenever there is a change in terms of a loan or security, a charge modification must be filed with the relevant authorities. Charge satisfaction should be submitted in CHG-4 within 30 days following repayment of the loan. Late payments will incur additional charges and may lead to regulatory investigation.
Conclusion
Creation of a charge in the ROC is one of the most fundamental corporate compliance measures that ensures transparency, protects lender interests, and maintains financial trust. To avoid penalties, companies should adhere to the appropriate procedures, provide proper documentation, and comply with MCA schedules. With the proper registration of charges, businesses will be able to maintain accurate financial records and enhance their credibility with banks and investors.
Frequently Asked Questions
1. What does it mean by charge creation in ROC?
Creation of a charge involves recording with the Registrar of Companies a security of assets of the company, to have a legal signature of a lender on the assets of the company.
2. What is the Companies Act charge creation form?
Form CHG-1 is applied to establish or amend a charge on other than debenture assets and form CHG-9 applies to charges on debentures.
3. What will occur when a firm fails to record a charge in time?
If a company fails to file a charge, it is voided against the liquidator and creditors, and the company may be liable to penalties. The lender can also initiate the charge on its own.
4. What is the number of days to be permitted to register charges?
A company should file a charge within 30 days, and an additional 30 days should be provided with an extra charge, followed by a further 180 days with an ad valorem charge.
5. What is the importance of charge registration to companies?
Registration of charges provides transparency, security for lenders, avoids disputes over assets, and enhances a company’s creditworthiness for future transactions.
