Startup

ROC Creation of Charges Process India

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.

Types of Charges Creation of Companies act 2013

• within or outside India,
• on property or assets of the company or any of its undertakings,
• whether tangible or intangible

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.

Certificate of Registration of Charge(RoC)

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.

The process of Creation of Charge is as under:-

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:

• Hold a Board meeting and pass a resolution to avail the facility including security of Charges. While availing such facility, an authority to execute necessary documents is also required to be given.
• File extracts of the resolution passed with the ROC in form MGT 14 within 30 days of passing the resolution.
• Execution of necessary documents for availing the facility including the security being given.
• Make entries in the register of Charges maintained in form CHG-7 forthwith after the creation/ modification/ satisfaction and get it authenticated by Director or Secretary of the company or any person authorized by the board.
• Form CHG-1 is required to be filed along with the prerequisite fees within a period of 30 days from the date of creation/ modification of charge.
• Attach the following documents with e-form:
• A certified true copy of every instrument evidencing creation or modification of charge.
• In case of joint charge and consortium finance, particulars of other charge holders.
• The instrument evidencing creation or modification of charge in case of acquisition of property which is already subject to charge together with the instrument evidencing such acquisitions
• A certificate of registration in form CHG-2 shall be issued by ROC after proper examination of all the documents submitted.
• If CHG-1 is not submitted within a period of 30 days but is submitted within a period of 300 days, an application for condonation in form CHG-10, supported by a declaration from CS or director of the company that the delay will not be affecting the rights of creditors. After due compliance, the ROC shall issue a certificate of registration in form CHG-2.
• Where a charge registered with the ROC is required to be modified, Form CHG-3 along with the particulars of modification of charge is filed with the Registrar.
• If CHG-1 is filed after 300 days, an application for condonation of delay in form CHG-8 is required to be filed the same with Regional Director in whose territorial jurisdiction the registered office of the company falls.
• Pay the penalty imposed by the Regional Director. Normally, a time of 15 days is given for payment of the penalty.
• Once the requisite penalty is paid, the Challans are to be submitted to RD for obtaining the covering letter containing order allowing condonation of delay.
• Submit the order issued by the RD with the Registrar of Companies within the stipulated time, in Form INC 28.
• On approval of the Form INC 28, get Form CHG-1 approved. The Registrar shall issue a certificate of registration in form CHG-2.

Satisfaction of Charge

For Satisfaction of charge, Form CHG-4^[1] 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.

Effect of Non-Registration 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.

The penalty for not Filing Charges

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.