When a company borrows money whether from a bank, financial institution, or another party it often has to give something valuable as a promise that it will repay. This promise, when made using company assets as security, is called the “creation of a charge.” It is a legal process governed by the Companies Act, 2013.
What is a Charge?
A charge is essentially a lender’s legal right over a company’s assets, used as security for a loan or credit. It does not mean that the asset is transferred or sold, but it gives the lender a right to take action against that asset if the company fails to repay the debt.
There are two types of charges:
- Fixed Charge – On specific assets like land, building, or machinery. The company cannot sell or dispose of these without the lender’s permission.
- Floating Charge – On assets like stock, receivables, etc , which keep changing in the ordinary course of business. The company can use these freely until the charge “crystallizes” (i.e., becomes fixed, usually when the company defaults or is wound up).
Why is it Important to Register the Charge?
The Companies Act, 2013 requires companies to register the charge with the Registrar of Companies (ROC) within 30 days of its creation. This is done by filing Form CHG-1 online.
Why register?
✅ It becomes part of the public record.
✅ It protects the lender’s rights over the assets.
✅ It helps other lenders or buyers know if an asset is already pledged.
If the charge is not registered, the lender’s rights may not be legally protected, especially during company liquidation.
Which Forms Are Used?
✅ CHG-1 – For creating a charge (except for debentures).
✅ CHG-9 – For charges related to debentures.
✅ CHG-4 – For satisfaction (closing) of charge after full repayment.
✅ CHG-6 – For appointment or cessation of a receiver or manager.
What if We Miss the Deadline?
If the company fails to file within 30 days, it may get an additional 90 days with additional fees, but it’s always best to file on time to avoid legal issues.
What Happens If We Don’t Register?
✅ The charge may be invalid in the eyes of law.
✅ The lender may lose priority over the asset if other creditors step in.
✅ It could affect the company’s creditworthiness and future loans.
Takeaway for Business Owners:
✅ Always ensure your company’s charges are registered with ROC.
✅ Maintain proper records of loans, securities, and filings.
✅ Consult a Company Secretary or professional for compliance.
Also Read: MCA Introduces Mandatory Disclosures on Sexual Harassment and Maternity Benefit Compliance
