CREATION, MODIFICATION AND SATISFACTION OF CHARGE UNDER THE COMPANIES ACT 1956
All the companies borrow money for the purpose of its business. When they borrow money the lender normally insists for securities. The lender may be a Bank or a Company registered under the Companies Act 1956 or a Foreign Company or a Body Corporate.
Whenever any security is given for the purpose of obtaining loan a charge is created in favour of the lender. The loan may be borrowed by one charge holder or it may be from two charge holders or more as in case of consortium. Whenever any loan is taken on consortium, the Banks normally insists creation of charge separately in respect of all charge holders.
In accordance to Section 125 when a charge in respect of security on the company’s property or undertaking if not created is void against the liquidator. In view of this the charge holder is to ensure registration of charge of the property provided as security for the loan given. In case if it is not done the charge holder looses his right to claim the sale proceeds of the property in case of default by the borrower. In other words, the charge holder who has given the money later but his charge is registered first will have priority over the other charge holders in case of settlement of loan by sale of property.
CHARGES TO BE REGISTERED UNDER SECTION 125(4) OF COMPANIES ACT 1956:
As per section 125(4) of the Companies Act 1956, the following charges are required to be filed with the Registrar of Companies (ROC).
1. a charge for the purpose of securing any issue of debentures;
2. a charge on uncalled share capital of the company;
3. a charge on any immovable property, wherever situate, or any interest therein;
4. a charge on any book debts of the company;
5. a charge, not being a pledge, on any movable property of the company
6. a floating charge on the undertaking or any property of the company including stock in trade
7. a charge on calls made but not paid;
8. a charge on a ship or any share in a ship;
9. a charge on goodwill, on a patent or a license under a patent, on a trade mark, or on a copyright or a license under a copyright.
MODIFICATION OF CHARGE:
A modification of the loan amounts to charge. And particulars of modification are required to be filed with Registrar of Companies (ROC) in Form 8. Once a new charge is registered charge id will be created. The same can be viewed through index of charges option in the MCA website.
The Form 8 has to be filed within 30 days from the date of creation of charge or modification of charge. Another 30 days is given as a grace period for the filing of Form 8 with additional fees. In other words, form 8 has to be filed within 60 days from the date of creation of Charge or modification of charge failing which application for Condonation of delay has to be made to the concerned Regional Director, department of company affairs.
FORM 8 AND ROC FILING:
The steps for filing form 8 is given below
1. To fill up the CIN no or Foreign Company Registration no (FCRN) and click prefill option
2. To select whether creation of charge or modification of charge.
3. In case of modification, fill up the charge id
4. To fill up whether the charge is in favour of Asset Reconstruction Company or whether the charge is assigned based on an assigned agreement.
5. To click the type of charge
a. Uncalled Share Capital g. Floating Charge
b. Immovable property h. Calls made but not paid
c. Any interest in immovable property i. Ship
d. Book debts j. Good will
e. Movable property not being a pledge k. Patent, license under patent
f. Trademark l. Copyright or license under copyright
6. If the type of charge is others, the nature of charge has to be mentioned
7. Whether Consortium of charge is involved
8. Whether joint charge is created
In case of item no. 7 the particulars of other charge holder and in case of item no. 8 the particulars of joint charge holder/s should be given by way of attachment in Form 8
9. The charge holder’s detail has to be given. The charge holders name can be selected from the prescribed list. If the name of the charge holder is not given in the prescribed list ‘others’ can be selected.
10. If ‘others’ is selected enter CIN no if the charge holder is an Indian Company and click prefill button. The name, register offices address and email id of the charge holder will be prefilled by the system. If the charge holder is not an Indian Company the name, address and the email id of the charge holder can be typed and the CIN no is not mandatory.
11. The charge creation is based on the instruments. The nature of instrument like loan agreement, deed of hypothecation, deed of equitable mortgage, promissory note are to be mentioned
12. Date of instrument creation or modification of charge has to be mentioned
13. The details of amount secured have to be given in figures. It will be automatically prefilled in words. In case the amount secured is in foreign currency enter the rupee equivalent and the details of the foreign currency.
14. The rate of interest, terms of repayment, margin, extent and operation of charge has to be mentioned.
15. In case of acquisition of property is subject to charge, the date of acquisition, amount of charge, nature of agreement and particulars of property charged are to be given.
16. Short particulars of assets or property charged including complete address and the location of the property.
17. Whether any of the property or interest therein under reference is not registered in the name of the company. If yes is selected, in whose name it is registered to be mentioned.
18. Date of last modification prior to present modification to be mentioned
19. Particulars of present modification to be mentioned. Whatever particulars are given the same will be reflected in the certificate of the charge given by the registrar of companies (ROC).
20. Attachments to form 8 are
a. Instruments of creation or modification of charge,
b. Particulars of all joint charge holders or Consortium holders,
c. Optional attachments if any
SATISFACTION OF CHARGE:
In accordance with section 138 of Companies Act 1956, the company shall file particulars regarding satisfaction of charge in Form 17. For this purpose a letter has to be obtained from the bank stating that the loan is satisfied and the letter will be attached as evidence of satisfaction.
UPLOADING OF FORM 8 AND FORM 17:
1. Form 8 or Form 17 has to be digitally signed by the director of the Company, by the charge holder and the practicing professional like, Practicing Company Secretary or Practicing Chartered Accountant or Practicing Cost Accountant.
2. The form 8 or Form 17 filing is under Straight through Process method. Therefore one has to be very careful before uploading the form as Form 8 filed once cannot be rectified easily and it may require another form 8 for modification.
3. Once the form is approved the registration of charge certificate will be generated and available and the approval email will go to the charge holder’s, Company’s and practicing profession’s email id.
4. The roll check for the banker’s digital signature is also mandatory. Some times while uploading the remarks will come that the banker’s digital signature is revoked. In that case it is to be ensure that the banker’s digital signature is roll checked or the uploading may be tried after some time as at times the website may not be working.
OTHER POINTS RELATING TO CHARGES:
1. In case of pledge Form 8 is not required to be filed. Fore example Car loan from bank. However, if the company is availing car loan from a bank, the bank may be interested to file Form 8 in view of the loan amount. This can be done at the instance of the company or of any interested person by filing Form 8 with prescribed fees.
2. In case of any security is given by the public limited company to a private limited company in which a director of a public limited company is a director or a member in a private limited company sec. 295 of the companies act is attracted. Hence, care should be taken not to give security by a limited company to a private limited company.
3. Whenever loan is granted and agreements are entered the bank or lender is interested to file Form 8 even without the company’s knowledge also the bank may file form 8 after taking the digital signature of the director. In case of satisfaction of loan the bank is least bothered to file Form 17 and it is only the company’s duty to follow up and file Form 17.
4. In many cases there are number of redundant charges are appearing on the index of charges of the company. The company is required to obtain satisfaction letter from the bank and file Form 17 and remove the unnecessary charges from the MCA website.
5. A company wants to exist under Section 560 of the Companies Act, has to ensure that no charge is pending in the index of charges of MCA website.
6. The form 8 and Form 17 has to be signed by the Director, Company Secretary or Managing Director or the Manager of the Company or authorised representative in case of foreign company.
7. In case any charge is created or modified in favour of chargeholder by issue of debentures then Form 10 has to be filed with Registrar of Companies (ROC) in accordance with Section 125(4)(a) of the Companies Act 1956. In case repayment of loan and satisfaction of charges Form 17 has to be filed with ROC.
8. In case of paripasu charge, Form 8 has to be filed in respect of all the chargeholders.
9. In case of the Charge is created outside India, comprising solely property situated outside India, Form 8 shall be filed within 30 days from the date of receipt of the instrument creating or evidencing the charge by post.
10. When the charge is created in India, but comprises property situated outside India, the instrument creating the charge verified in the prescribed manner has to be filed with ROC.
11. The bank or chargeholder normally requires search report to find out what are the charges the company has created. The search report has to be prepared based on Charge ID and forms relating to charge filed which is available in MCA website. The registered charge certificates are also available in the MCA website. But, in certain circumstances the Charge ID in MCA website may not contain all the charges. Hence, wherever the search report is relating to charges prior to the year 2006 then it is advisable to make physical inspection of documents at ROC and give the search report.
LATE FILING OF FORM 8, FORM 10 AND FORM 17 AND CONDONATION OF DELAY:
1. If there is a delay in filing Form 8 or Form 10 and Form 17 even if it is one day or one year a petition for Condonation of delay has to be filed with concerned Regional Director, Ministry of Corporate affairs. The due dates for filing the above forms are as follows:
a. Form 8 for creation or modification of charge - within 30 days from the date of creation or modification of charge. Another 30 days is given as a grace period for the filing of Form 8 with additional fees.
b. Form 10 for creation or modification of charge of issue of debentures - within 30 days from the date of creation or modification of charge. Another 30 days is given as a grace period for the filing of Form 10 with additional fees.
c. Form 17 for satisfaction of charge – within 30 days from the date of satisfaction of loan.
2. In case of delayed filing beyond the due date, 60 days from the date of creation of charge or 30 days from the date of satisfaction of charge the forms can be filed with one time payment of fees. However, a remark will appear in the challan that a delay of filing is of so many days and condonation of delay is required.
3. For condonation of delay petition has to be prepared containing the reasons for the delay and Form 61 has to be filed with ROC prescribed filing fees (Rs. 1000)
4. Form 24AAA has to be filed with Regional Director (RD) containing the petition and affidavits with the filing fees (Rs. 1000)
5. After the petitions are filed with RD the order will be issued condoning the delay and in the order the amount of fees to be paid will also be mentioned (as may be decided by RD)
6. The order issued by RD has to be filed with ROC in Form 21 with prescribed filing fees.
7. Once the form 21 is filed the ROC will approve Form 8 or Form 10 or Form 17.
To conclude delay in filing of particulars of charges will attract cumbersome procedure for filing petition which will further delay the process; it is advisable to file the ROC forms in time.