30 December 2007
CHARGES* 131.1 Background note A company may raise funds through borrowings from Banks/Financial Institutions etc. for its term loan/working capital requirements and such loans may be secured or unsecured. In the case of secured loans, a charge is created on the assets of the company.The term “Charge” includes a mortgage. The Act provides for registration of charges with the Registrar of Companies which will help a prospective lender to ascertain whether the assets are mortgaged or not. 131.2 Approval from the financial institutions Wherever required, approvals from the financial institutions or banks or debenture holders should be obtained for creation/modification of charge. 131.3 Applicability Registration wih RoC is compulsory in respect of a charge : u for the purpose of securing any issue of debentures. u on uncalled share capital of the company. u on any immovable property wherever situate or any interest therein. For this purpose, the holding of debentures entitling the holder to a charge on immovable property shall not be deemed to be an interest in immovable property. u on any book debts of the company. However, where a negotiable instrument is given to secure the payment of book debts, the deposit of the instrument for the purpose of securing an advance to the company shall not be treated as a charge on those book debts. u on any movable property of the company (not being a pledge). u being a floating charge, on the undertaking or any property of the company including stock-in-trade. u on calls made but not paid. u on a ship or any share in a ship. u on goodwill, on a patent or a licence under a patent, on a trade mark, or on a copyright or a licence under a copyright. 131.4 Power of lender to register charge The charge may be effected on the application of the person in whose favour the charge is created and in such a case the lender has the right to recover the filing fees paid to the Registrar for registration of charge. 131.5 Board Resolution A Board Resolution (Annex 131.1) should be passed for approving the proposal to create/modify charge over the assets of the company, for approving the draft notice fixing the date, time, venue and agenda of the General Meeting and for authorising execution of documents. 131.5-1 Approval from members Since creation of charge amounts to disposal of assets, the approval of members is required to be obtained before creation of charge for every loan. A blanket permission cannot be obtained. 131.5-2 Exemption to private company In the case of a private company which is not a subsidiary of a public company, no approval from members is required and the Board is empowered to create charge over the assets. 131.6 Issue of notice of general meeting The notice of the general meeting (Annex 131.2) together with the explanatory statement should be sent to all eligible members and auditors of the company. 131.7 General Meeting Resolution The general meeting should accordingly be held and the ordinary resolution (Annex 131.3) for creation of charge should be duly passed. 131.8 Filing of eForm No. 23 with the Registrar of Companies Within 30 days of passing the resolution, a return in eForm No. 23 should be filed with the Registrar of Companies through MCA Portal www.mca.gov.in. Refer Chapter 171 for applicable guidelines. 131.9 Creation of charge The authorised person should execute documents for creation of charge under the common seal of the company. The instrument creating the charged should be duly stamped in accordance with the stamp duty applicable to the State in which the registered office of the company is situated. In case of creation of charge outside India, the provisions of Foreign Exchange Management Regulations should also be duly complied with. 131.10 Filing of eForm No. 8 with the Registrar of Companies Within 30 days from the date of creation of charge, a return in eForm No. 8 (Annex 131.4) should be filed with the Registrar of Companies within 30 days through MCA Portal www.mca.gov.in. 131.10-1 Who can file? The eform 8 shall be filed by the managing director or director or manager or secretary duly authorised by the Board. The signatory must hold a valid digital signature certificate. (Refer Chapter 360 for Digital Signature Certificates) 131.10-2 Time Limit The eform 8 should be filed within 30 days of creation of charge. If the charge relates to property to be acquired, the eform should be filed within 30 days of acquisition. If the charge is to be created outside India but comprises a property outside India, the eform should be filed within 30 days after the date on which it could have been received by India, if despatched with due diligence. This return should be filed nothwithstanding the further proceedings required to make the charge valid or effective according to the law of the country in which the property is situated. 131.10-3 Extension of time The e-form shall be filed within 30 days of creation of charge. Registrar has powers to extend the time by another 30 days on payment of standardised additional filing fee. Further extension shall have to be obtained from Company Law Board. 131.10-4 Attachment Instrument creating the charge should be attached. 131.10-5 Digital Signature The eform should be digitally signed by the managing director or director or manager or secretary duly authorised by the Board and also by the charge holder. The signatory must hold a valid digital signature certificate. (Refer Chapter 360 for Digital Signature Certificates) It should be certified by a CA/ICWA/CS (in whole-time practice by digitally signing the e-form).
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