Almost all the large and small companies depend upon share capital and borrowed capital for financing their projects. Borrowed capital may consist of funds raised by issuing debentures, which may be secured or unsecured, or by obtaining financial assistance from financial institution or banks.
The financial institutions/banks do not lend their monies unless they are sure that their funds are safe and they would be repaid as per agreed repayment schedule along with payment of interest. In order to secure their loans they resort to creating right in the assets and properties of the borrowing companies, which is known as a charge on assets. This is done by executing loan agreements, hypothecation agreements, mortgage deeds and other similar documents, which the borrowing company is required to execute in favour of the lending institutions/ banks etc.
We at StartupEase LLP would assist you in creation/cessation or modification of charge.
Registration of Charges in Company
A charge on a company is a right created by a company “the borrower” on its assets and properties, present and future, in favor of a financial institution or bank “the lender”. Most companies and LLPs borrow from banks and financial institutions to finance their short-term and long-term capital requirements. To secure the funds lent to the company, banks use a number of legal documents like loan agreements, hypothecation agreements, mortgage deeds, etc., to lay out the terms of the loan and ensure repayment with interest as per schedule.
Companies and LLPs have the ability to borrow from a number of banks or financial institutions based on their financial requirements, therefore it is then important to track the assets pledged to the bank(s) and the loans provided to ensure security for the lenders. In this aspect, the creation of charges over the assets of a company helps lenders know the lenders of the company and the assets pledge to the lenders – thereby avoiding double financing. The charges on a company is public information and can be found in the MCA website.
Creation of charge
The process for creation of charge begins with passing of a board resolution by the Board of Directors of the Company for availing loan from the lender and includes execution of relevant loan documents or deeds.
Once, the borrower and the lender agree on the terms and conditions of the loan or financial assistance, they both sign on the loan document and other relevant paperwork. Once, the loan documents are signed, the charges over the properties of the company have been created.
Registration of charge
Once a charge is created, it becomes the responsibility of the company to register those charges with the Registrar of Companies, along with the documents, that create a charge over the company.
As per the Companies Act, 2013, the following charges created on a company must be registered with the Registrar of Companies.
- A charge created for the purpose of securing any issue of debentures or deposits;
- A charge on uncalled share capital of the company;
- A charge on any immovable property, wherever situated, or any interest therein;
- A charge on any book debt of the company;
- A charge, not being a pledge, on any movable property of the company;
- A floating charge on the undertaking or any property of the company including stock-in-trade;
- A charge on calls made but not paid;
- A charge on a ship or any share in a ship;
- A charge on intangible assets, including goodwill, patent, a license under a patent, trademark, copyright or a license under a copyright.
Registration of charges of a motor vehicle is not mandatory, unless required by the lender. Further, in case of non-registration of charges, a disclosure must be made in the balance sheet of the company.
The time period for registration of charge with the ROC is thirty days of creation of a charge. A filing of registration of charge can be made upto three hundred days from date of creation of charge, provided relevant explanation and applicable fee is paid for late filing of registration of charges.
If an application is made for registration of charges to the ROC in the prescribed format and the ROC is satisfied with the application, then a certificate of registration of charge would be issued by the ROC. The charge created on the assets of the company can be also be viewed online on the MCA website.