Dear All,
Can somebody help me with the case laws on Charges under section 124 to 145 of Companies Act
CA Dileep Surya Kumar
(B.com, ACA, CS)
(3786 Points)
Replied 31 March 2012
Part V of the Companies Act 1956 contains provisions related to Registration of the charges (section 124 to 145). These contains provision of charge including mortgage, date of notice of charge, registration of charges, registration on case of debentures, certificate of registration, register of charges, inspection, penalties, etc.
These provisions prescribe for the registration of charges with the Registrar of the Company and also provide a list of assets and separate them from the unencumbered assets. Registration of charge acts as protection to the lenders and creditors, banks and liquidators. Register of charges is to be maintained by Registrar of Companies as well as the companies concerned.
SECTION 124:
This section does not define the term ‘charge’ but states that a charge includes ‘mortgage’. For the applicability of section 124 – 145, charge would include a mortgage but shall exclude a pledge.
Charge has been defined in the Transfer of Property Act, 1882 under section 100 as “where immovable property of one person is by act of parties or operation of law made security for payment of money to another and the transaction does not amount to a mortgage, the later person is said to have a charge on the property”.
Charges include lien as well as an equitable charge whether created or evidenced by an instrument in writing or by deposit of title deeds or by an agreement to deposit. Deposit of title deeds results in creation of charges on the land even where the depositor is not a debtor. This section would apply to both Indian and Foreign companies. The ‘charge’ is no where defined in the Company Act 1956.
CASE LAW
PARMANENT HOUSES (HOLDINGS) LTD. 1988 BCLC 563(CH D)
In a case where a debenture creating a charge in favor of a lending bank mentioned that the charge shall crystallized on happening of an event or default in payment and when the payment was not made on demand by bank , it was held that the charge was no longer a floating charge at the time when receiver was appointed.
KINDS OF CHARGES
1. Fixed Charges: In a fixed charge a company creating a charge can only deal with the property subject to charge. The identification of the company does not change during the period for which the charge is created.
2. Floating Charge: In floating charge, Identification of the charge goes on changing and the final identification is at the time when the charge gets crystallized.
SECTION 125:
This section states that certain charges shall be void against the creditors and liquidators, unless they are registered. In respect of such charges registration becomes compulsory. This section makes it obligatory for the company to file particulars of the charge together with the instrument creating the charge with the concerned Registrar of Companies for registration. The registration of charges will depend upon the nature of rights acquired in the assets of the Company.
This section does not apply to charge created by partnership firm over its assets, merely because one of the partner may be a limited company is not the owner of the assets.
Essential conditions for Registration of charges
1. Charge for securing any issue of debenture.
2. Charge on uncalled share capital of company.
3. Charge on immovable property, where ever situated, including any interest therein.
4. Charge on book debts of company.
5. Charge on movable property (not a Pledge of company).
6. Floating charge on the undertaking or any property including stock in trade.
7. Charge on calls made but not paid.
8. Charge on a ship or any interest therein.
9. Charge on goodwill, patent licence, copyright or trade mark.
Consequences of Non-registration:
Non-registration would not prejudice any contract or obligation for payment of money secured by the charge and where the charge becomes void for registration, the debt secured becomes immediately payable. Also a charge on becoming void, no right if lien can be claimed on the documents of title as they were only ancillary to the charge and were delivered in pursuant to the charge.
If a registerable charge is not registered, the transaction does not become void or debt does not become irrecoverable but the security created by the charge or mortgage becomes void against liquidator and creditors.
PENALITY
It is mandatory for a company to file the particulars of charge and failure to do so or contravene the provisions of section 125 are punishable under sectio142 with fine extending up to rupees Five Hundred for every day of default.
CASE LAW
ANTIFRICTION BEARING CORPORATION LTD V. STATE OF MAHARASTRA (1999) 20 SCL, 373 (Bom)
Charges were held to be void against the liquidator or creditor unless registered. Court observed that filing of copy of document of charge with Registrar is not the formality but a definite legal requirement and that non-filing creates a certain legal impediments. Court also observed that where the company executed the debenture trust deed in Gujrat and was duly registered after paying stamp duty and where company wanted to issue debentures in Mumbai, company’s registered office being in Mumbai, Company was asked to pay stamp duty a prescribed on Maharashtra State.
SECTION 126:
This section provides that any person acquiring the property or any share therein which is subject to charge shall be deemed to have notice from the date of registration. From the date of registration, doctrine of deemed notice (constructive notice) shall apply. This constructive notice is general and to all concerned about registration of charge and not about terms and condition or contents of the charge.
It must be noted that registration charges is an important requirement to alert public (Investors) about the existence of the charge.
CASE LAW
WATSON & CO. V. SPIRAL GLOBE CO, (1902) 2 CH 209.
It has been held that the date of execution of a charge is the date of creation for the purpose of computing the time as laid down in section 125, although it may take effect on a future date or on the happening of a future event.
SECTION 127:
This section contains the provisions relating to registration of charges on property acquired subject to charge. This section deals where a company acquires a property which is already charged and such charge is not registered. In such a case, charge can be got registered by the acquiring company within a period of thirty days. This section require a company to file the particulars of property, if any, acquired by its, subject to charge. Such filing is required to be done within 30 days from which acquisition was completed.
In case of properties situated outside India, period of thirty days are counted from the date on which copy of instrument dispatched by the post with due diligence, have been received in India.
CASE LAW
T.R.TYAGARAJAN V. OFFICAIL LIQUIDATOR (1960) 30 COMP CAS 481(MAD).
It was held where a company acquires property subject to charge and fails to deliver particulars of charge to the Registrar of registration the validity of the charge is not affected.
SECTION 128:
This section provides for particulars in case of series of debenture entitling holders Pari Passu .This section provides the debenture holders the same protection as is available to other secured creditors by registration of particular of the debentures belonging to a series. Such registration would amount to registration of charge itself .Since debenture is defined to include debenture stock, the issue of debenture stock secured by s deed will also be covered in this section. This section applies to both Indian and Foreign companies.
CASE LAW
DUBLIN CITY DISTILLERY LTD. V. DOHERTY (1914) AC 823
It was held that it is the date of execution of debenture which brings the Pari Passu charge into existence. This date relevant for the purpose of reckoning the period of thirty days mentioned in section 125 and for the purpose of this section
SECTION 129:
Section 129 provides for filing particulars of commission, discount or allowance paid or payable on subscribing or agreeing to subscribe to debentures. If such particulars are not filed, validity of the issue of the debenture shall not be affected. This section provides legal basis for issue a debenture at a discount or on commission basis. It applies to both India and foreign companies.
This section prescribes that issue of debenture could be made by the company subject to payment of any commission, discount or allowance to any person, directly or indirectly and conditionally of absolutely.
SECTIO 130:
It prescribes register of charges to be kept by Registrar of Company in the prescribed manner. Every company is required to forward to the Registrar pf Company the particular of charges in Form 13 along with a fee of Rs. 10/- for being entered in the register of charge. Form 13 is to be filed with Form nos. 8, 10 or 17 as the case may be.
CASE LAW
BANARAS BANK LTD V. BANK OF BIHAR (1947) AIR ALL 117
It was held that the validity of charge does not depend upon the date on which the Registrar chooses to enter it into the register.
SECTION 131:
This section prescribes that the Registrar shall keep and maintain an index of register if charges in chronological order containing prescribed particulars.
Index of register of charges should be in prescribed format and contain prescribed particulars.
Particular to be contained in index of register of charges have been prescribed underCompanies Act (Central Government’s) General Rule and Forms, 1956.
These particulars are:
1. Serial number of charge in the Index.
2. Date of Registration.
3. Number of Company.
4. Name of Company.
5. Amount secured by charge.
6. Debentures issued.
7. Date of trust deed relating to debentures.
8. Other charges.
9. Party by whom registered.
10. Name and address of the person entitled to charge or of trustees for debenture holders
11. Signature of the Registrar of the Companies
SECTION 132:
This section provides that the Registrar should issue a Certificate of Registration for registering the charge. This certificate should be given under his hand and shall state the amount of security. Issue of such certificate is the conclusive evidence of compliance of provisions of part V of the Act.
CASE LAW
EXETER TRUST LTD V. SCREEN WAYS LTD (1991) BCLC 888
It was held that a certificate for registration of a charge is conclusive evidence that the relevant registration requirements have been satisfied despite the registration was affected and the certificate was also issued in reliance of an order extending the time for registration.
This was later set aside in
ROC V. CENTRAL BANK OF INDIA (1986) 1 ALL ER 105 (CA).
It was held that judicial revive of the Registrar’s Issuing a certificate of registration was not available, Save in cases of fraud.
SECTION 133:
This section provides for compulsory endorsement of certificates of registration on debenture or certificate of debenture stock issued by the company, which are secured by the charge so registered. However, such endorsement would not be required to be endorsed on certificates issued before charge was created.
Offence under section 133 is a compoundable offence under section 621A by Regional Director.
SECTION 134:
This section provide for duty of a company as regards registration and regards registration and rights of interested party. The duty of registration of charge with Registrar of Companies is that of the company, i.e. company creating the charge or issuing the debentures. Any other person having any interest therein can also file particulars of charges.
This section applies to foreign companies also.
According to this section, although it is the duty of the concerned company to register the charges, a charge holder can also file the particulars of charge for the registration with the Registrar of Companies (According to Circular no. 12/90 dated 6-6-1990).
SECTION 135:
This section provides that provisions of part V of the Act relating to registration of charges shall also apply to modification of charges. It specifies that whenever there is a modification of charge it is the duty of the company to file particulars of such modifications to the Registrar in the Form. 8 &13.Every instrument by which a change is brought about in the terms and conditions or operation of any charge is treated as an instrument of charge in terms of section 125 and all the provision s of particulars of charges should apply . The section gives a clue to the circumstance under which it shall be the duty of a company to send to the Registrar the particulars of modification.
SECTION 136:
This section provides that the company should keep at its registered office a copy of instrument creating a charge .In case of series of uniform debentures, a copy of one debenture of that series shall be kept at the registered office.
It must be ensured that for all the charges created by a company which are required to be registered with the Registrar under Part V of the Act, one copy of the instrument must be kept and be available at the registered office of the Company.
SECTION 137:
Sectio137 contains provisions for entry of appointment of receiver or manager in the register of charges. This section applies to all kind of receivers, whether appointed by the debenture holders under the terms of debenture deed by a court. It lays down that any appointment of a receiver or manager should be reported to Registrar within 30 days of the appointment. Receiver is al so required to give notice of his appointment to the assessing officer within 30 days. Cessation of appointment should also be reported to Registrar for necessary entries in Register of Charges.
Receiver can be appointed by the court or under power as deed. A company cannot be appointed as a receiver or manager such appointment will be illegal. Manager implied persons appointed to manage the property of the company, and not a manager under section 2(24) of the Act.
CASE LAW
ALCOCK ASHDOWN & CO. LTD.
In this case the court receiver was appointed by High Court on 26th Feb, 1972 and he took possession of the property in May, 1992. When asked by Registrar of the Companies, that a notice of appointment of receiver should be filed with him under section 137, the petitioning creditor (Bank of Maharashtra) did so under protest, their solicitors contending that the provisions of section 137 are not applicable to a company in liquidation.
It is clarified that sections 147 & 421 are applicable to all receivers whether appointed by the debenture holder the terms of the debenture deed or by the court. The section does not exclude receivers appointed in respect of assts of the companies in liquidation. However since receiver appointed by the court have to render periodic account to court, there may be no difficulty for the receivers to furnish a copy of such accounts to the Registrar of Companies under section 421.(Circular No. 16/76, dated 28th June 1976).
SECTION 138:
This section deals with satisfaction of charge and applies to foreign companies also. It provides that the full satisfaction of charges should be intimated to the Registrar of companies within thirty days of full satisfaction or payment. Partial satisfaction is treated as modification of charge.
Under subsection (2) registrar is required to send a notice to the holder of the charge to show cause why payment or satisfaction should not be recorded. A intimation must be given to the Registrar of Companies within 30 days of actual payment or satisfaction and the Registrar will in turn obtain conformation from the charge holder within 14 days about the full satisfaction or payment.
Contravention of provisions of section 138 is a punishable offence under section 142.
SECTION 139:
This section confers powers on the Registrar of Companies to make entries of satisfaction, when not intimated by company. This also complies to foreign companies. If the Registrar is satisfied about the payment of satisfaction charge on full or in part and/ or property or undertaking or any part thereof charged has been released from the charge or ceased to form part of the property charged, he is empowered to make entries in register of charge for satisfaction of charge even if he does not receive any intimation of satisfaction or payment.
SECTION 140:
Memorandum of satisfaction of the charge should be sent to the company by the Registrar of Companies. Company is entitled to the copy of the Memorandum of satisfaction of charge entered by the Registrar under section 138 or 139.
SECTION 141:
This section empowers Company Law Board (w.e.f. 1-2-1975 earlier, courts) to effect rectification of registration of charges. The powers given to Company Law Board are wide enough to cover not only grant of extension of time or condonation of delay in filing particular s of charge created or modified or issue of debenture of a series or intimation of satisfaction of charge to the Registrar of Companies. Ratification can also be made on the ground if justice and equity to grant relief. This section again applies to foreign countries.
Company Law Board order under section 141 is mandatory and the Registrar cannot take the document on record, which are filed out of time even on payment of additional fee unless Company Law Board order under section 141 is obtained by the Company.
CASE LAW
TIMES BANK LIMITED V. SRI SHARDA PARAMESHWARI TEXTILE LTD (2000) 38 CLA 270.
It was held that Company Law Board is not empowered to go into the validity of a charge and cannot declare charge null and void and delete the same from register of charges. There is no reference in section 141 to the Company Law Board being satisfied as to the validity of a charge.
SECTION 142:
Section 142 prescribes for the penalties. Under Part V of the Act, penalties can be imposed for contravention of provisions of sections 125, 127, 128, and 138. All offences are compoundable under section 621A.The section also applies to foreign Companies.
Penalties can be imposed for the contravention or non-compliance of-
a) Section 125 - Certain charges to be void against liquidators and
Creditors unless registered.
b) Section 127 - Registration of charges on properties acquired subject
to charge.
c) Section 128 - Particulars in case of series in debentures entitling
holders Pari Passu.
d) Section 138 - Company to report satisfaction and procedure
thereafter.
Default should be made in filing of charges for registration of –
i. Any charge created by the company.
ii. Payment or satisfaction of a debt in case of registered charges.
iii. Issue of debenture of a series.
WHO IS PUNISHABLE
The punishment for contravention shall be given to company, and every officer of the company or other person who is in default.
FINE
The penalty or fine can extend upto rupees five hundred (Rs. 5000/- wef 13/12/2000) for every day of default during which the delay or default continues.
Offences punishable under section 142 are compoundable under section 621A.
SECTION 143:
This section contains provisions relating to register of charges to be kept by the company.
Ram Maroo
(8 Points)
Replied 09 December 2017
In cases of demergers, can a transferee company create a charge or a mortgage on the basis of the documents by the transferor company, with relevant case laws?
P C Agrawal
(Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad)
(8229 Points)
Replied 09 December 2017
Yes, it is possible to create mortgage in the above case. However, it would be advisable to first pay stamp duty on High Court order if applicable in your State after adjudication from the concerned authority and then get the High Cour order registered under Registration Act so that it becomes a public document and everyone is made aware about the demerger. It would also be advisable to submit copy of such adjudicated order to the concerned local authority for noting the change in the revenue records. Before creation of mortgage the concerned bank/financial institution may also ask for compliance of these formalities.
Ram Maroo
(8 Points)
Replied 09 December 2017
can somebody please help me with this:
In cases of demerger, can a transferee company create a charge on the basis of the documents by the transferor company with respect to the Companies Act, 2013, with relevant case laws ?
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