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A company needs funds and ROC for diversification, expansion or for financing various projects. For this, they depend upon share capital and borrowed capital for financing their projects. The Borrowed funds usually consist of funds raised by the issue of debentures (secured or unsecured) or by obtaining financial assistance from Bank or Financial Institutions.
The Bank or financial institutions do not lend funds unless they are sure that their funds are safe and would be repaid along with the principal amount & interest. For securing their loans they resort to creating rights on the assets of the borrowing companies, which is known as a charge on assets.
Now the question which arises that what exactly is Charge. A Charge means an interest or lien created on the assets or property of a company or on any its undertakings and includes a mortgage.
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For Creation of Charge, Form CHG-1 is required to be filed with the Registrar of Companies within 30 days of its creation. The Form is required to be signed by the Company and the Charge-holder and should be filed together with the instrument creating a charge.
After filling of CHG-1, a certificate of registration of charge ROC will be issued in CHG-2 which shall be conclusive evidence that the requirements of Chapter VI of the Act and the rules made thereunder have been complied with.
If a company has passed a special resolution authorizing its Board of directors to borrow funds for the satisfying the requirements of the company and thereby authorizing the Board to create a charge on the assets and properties of the company in favor of the lending bank or financial institutions, should follow the below mentioned procedure:
For Satisfaction of charge, Form CHG-4 is required to be filed within 30 days of satisfaction of charge. On failing to file form CHG-4, the company has to go for condonation of delay for the satisfaction of charge.
If the charge is not registered with ROC, the charge shall not be taken into account by the liquidator or any other Creditor.
However, this is so only in case the company goes in winding up. Otherwise, the obligation for repayment of the money is there even if the charge was not registered.
On contravening any provisions of the Act, the company shall be punishable with a fine which shall not be less than Rs. 1 Lakh and may extend to Rs. 10 lakhs and every officer in default shall be punishable with fine which shall not be less than Rs. 25000 which may extend to Rs. 1 Lakh or with imprisonment for a term which may extend to six months or both.
Read More: Corporate Compliance Calendar for the year 2019.
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