Charges
Charges
Charges
What is a Charge?
Charge – a brief
Charge specially gives security and empower the charge holder that in case the
Company makes a default for the repayment of the loan than charge holder can
get the claim amount from the security which was charged by the Company in
favour of the charge holder.
Charge Under Companies Act, 2013
As per Section 2(16) of Companies Act 2013, "charge" means an interest or lien
created on the property or assets of a company or any of its undertakings or both
as security and includes a mortgage.
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Types Of Charges
Floating Exclusive
Fixed Charge
Charge Charge
Crystalization
Subsequent Pari-Passu of Floating
Charge Charge Charge
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Charges – a brief
Fixed Charge:
A charge which is identifiable with specific and clear asset/property at the time of
creation of charge.
The Company cannot transfer such identified and defined property unless the charge
holder (creditor) is paid off his dues.
Floating Charge:
It covers the floating and circulating nature of properties of a company, like sundry
debtors, stock in trade etc.
The nature of the property charged may change from time to time.
The floating charge crystallizes into fixed charge if the Company crystallizes or the
undertaking ceases to be a going concern.
Crystallisation of Floating Charge
This conversion of floating charge into a fixed charge is usually called
Crystallisation of floating charge. Such an event happens under the following
circumstances:
The debtor is unable to pay off the debts.
The business couldn’t be carried out when the creditor/debenture Holder takes action
against the debtor for not repaying the debts and in all such circumstances which are
listed out under the relevant provisions of the Companies Act, 2013.
Company goes into liquidation
Company cease to carry on its business
On the happening of any event as specified in deed of agreement.
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Registration of Charges
The main purpose of registration of a Charge is to give notice to the
Registrar of Companies ("ROC") and to people who intend to advance
money to the company about the encumbrance created on the assets of
the company.
A charge created by a company is required to be registered with the
Registrar within thirty days of its creation in the prescribed form and
on payment of specified fees. According to Companies
(Registration of Charges) Rules, 2014 e-forms prescribed for the
purpose of creating or modifying the charge is Form No. CHG-1
The charge created over security offered becomes void if it is not
registered within the stipulated period prescribed Companies Acts.
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Every company creating charge within or outside India on it’s property assets or
any undertaking shall register the charge with the Registrar of Company within 30
days from the date of creation or modification of charge
CHG-1 CHG-9
When the charge is registered with the ROC, he shall give a registration certificate
to the person in whose favor the charge is created
Note : No charge shall be taken into account by any liquidator, appointed under
Companies Act 2013 or Insolvency and Bankruptcy Code, or any creditor unless
the charge is duly registered and certificate to this effect is issued.
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Rule 12
All the fees shall be paid as per Rule 12.
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Non-registration of the Charges with the Registrar of Companies shall not invalidate the
Charge created but the same shall not be taken into account by the liquidator appointed
under the Companies Act, 2013 or the Insolvency and Bankruptcy Code, 2016 on winding
up of the company and the creditor. However, this does not prejudice any contract or
obligation for the repayment of the money secured by the Charge.
Regulation 18 A:
An Indian party may create charge by of mortgage, pledge, hypothecation or otherwise,
on its assets in favour of overseas lender as security for availing of the fund based
and/or non-fund based facility for its Joint Venture (JV) or Wholly Owned Subsidiary
(WOS) or Step Down Subsidiary (SDS) outside India.
Provided that
a) The value of the facility is reckoned as financial commitment for the Indian party and
the total financial commitment of the Indian party remains within the limit stipulated by
the Reserve Bank from time to time for overseas direct investments in the JV / WOS;
b) The overseas lender is regulated and supervised as a bank as per the law of the host
country;
c) A ‘No Objection’ is obtained from the domestic lender in whose favour if charge is
already created on the domestic assets; and
d) Subject to the additional terms and conditions prescribed by the Reserve Bank from
time to time.
An Indian party may create charge by of mortgage, pledge, hypothecation or otherwise
on the assets of its overseas JV or WOS or SDS in favour of an AD bank in India as
security for availing of the fund based and/or non-fund based facility for itself or its JV
or WOS or SDS outside India.
Provided that
a) The value of the facility is reckoned as financial commitment for the Indian party and
the total financial commitment of the Indian party remains within the limit stipulated by
the Reserve Bank from time to time for overseas direct investments in the JV / WOS;
b) The overseas lender is regulated and supervised as a bank as per the law of the host
country;
c) A ‘No Objection’ is obtained from the overseas lender or domestic AD bank in whose
favour if charge is already created on the overseas assets;
d) The facility extended by the domestic AD bank to the Indian party / JV / WOS / SDS is
governed by the prudential norms and other guidelines issued by the Department of
Banking Operations and Development, Reserve Bank; and
e) Subject to the additional terms and conditions prescribed by the Reserve Bank from
time to time.”
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The following are the compliance requirements under FEMA
Compliance to the provisions under Regulation 18A(2) of the Notification ibid;
The overseas assets, on which charge is being created, are not securitized;
The period of charge, if not specified upfront, may be co-terminus with the
period of end use (like loan or other facility) for which charge has been created;
The loan / facility availed by the JV / WOS / SDS from the domestic lender shall
be utilized only for its core business activities overseas and not for investing
back in India in any manner whatsoever;
A certificate from the Statutory Auditors’ of the Indian party, to the effect that the
loan / facility availed by the JV / WOS / SDS has not been utilized for direct or
indirect investments in India, is to be obtained and kept by the designated AD;
The invocation of charge resulting into the domestic lender acquiring the
overseas assets shall require prior approval of the Reserve Bank.
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