Wednesday, 8 October 2014

Companies Act 1956: Charge of the Company

Charge Of a Company
Charge means to create a security over the assets and charge is made by any company for taking the loan. So charge is a type of security which is created by company for taking loans, for issuing debentures and drafts etc.
A charge is created as per the provisions of companies act and the purpose of charge is to borrow money.

Types of charge:

Charge is of two types, Fixed charge and Floating Charge.

Fixed charge:-

Fixed Charge is a charge which is created upon the fixed assets of company. This charge is created upon the assets like land and building.

 Floating Charge:- 

It is a charge upon the current assets of company. This charge is created upon the assets like debtors, prepaid expenses, bank balance and cash in hand.

When the floating charge is created on assets then the debtor can deal on assets and these assets keep on changing. In this case it is not compulsory that the debtor must have the same assets this is because the assets are of fluctuating nature.

Creation of Charge:

Charges are created when the loans are taken and charges are always created by written documents charge cannot be created by oral agreements. After creation of charge it is compulsory that the charges are registered, hence without registration charges cannot be made.

Registration of charge with ROC:

Every charge created by company must be registered with the ROC and after registration the charge will be valid if not the charge will be invalid and it will not have any legal effect. In this case charge is not created and the loan agreement is not valid.

Register of charge:

The company as well as ROC have to maintain a register of charge in which all the particulars regarding the charge must be mentioned. These particulars include following information regarding the charge:
  • Date of creation of charge
  • Amount of loan
  • Date of repayment of loan
  • The nature of charge

The register of charge is a public document and it can be inspected by anyone from the public. The purpose of register of charge is to provide information to any person dealing with the company regarding the assets of company.

Modifications in charge:

If there is any modification in the loan agreement or there is a modification in the nature of charge the modifications must be mentioned in the register of charge. In this case the information is given to the ROC also, ROC will also enter the modifications in his register of charge. If the modification is not registered the charge will become invalid and the company will be liable to penalties.

Satisfaction of Charge:

When a charge is repaid then the charge is satisfied. In this case the charge will be terminated and both parties are freed from liabilities. The company will inform the ROC at the same time the company will make entries in the register of charge. At the same time ROC will also enter the repayment in his register.

Default in satisfaction:

When a debtor makes a default in repayment of loan then the creditor may file a court case against the debtor for recovery of money. Hence the creditor will apply to the court for sale of assets. If the assets are fixed then the creditor may sell the assets of the debtor however if the assets are fluctuating assets then the creditor will give a notice to the debtor and the floating will become fixed after which the creditor will sell the assets of debtor. This is known as crystallisation of charge.

Due dates of intimation to ROC:

Whenever a charge is created then the intimation must be given within 30 days of creation/modification/satisfaction. Otherwise the company is liable to penalties.

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