Creation or Modification of Charge

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Overview of Satisfaction of Charge

Creating or modifying a charge over a company’s assets is a critical financial transaction that involves securing loans against the company’s assets. When a company takes out a loan from a financial institution, it may offer its assets as collateral to secure the loan. This process is known as the creation of a charge. The details of the charge, such as the assets involved and the terms of the loan, are formally registered with the Registrar of Companies (RoC), ensuring legal recognition and priority over other claims in case of insolvency.

Modification of a charge occurs when there are changes to the terms of the original loan agreement, such as changes in the loan amount, interest rates, or repayment terms. This requires both parties’ consent and must also be registered with the RoC. The registration helps maintain transparency and protects the rights of the creditor by updating the public record on the status and condition of the charged assets. This process is crucial for maintaining the financial stability and credibility of the company.

Relevant sections, Rules and forms at a Glance

ParticularsSection(S), Rule(S) and Name of e-Form(S)
The companies Act, 2013Sections 77, 78, 79, 81, 85, 87, 173 and 403
The Companies (Registration of Charges) Rules, 2014Rules 3, 5, 6, 7 and 10
The Companies (Management and Administration) Rules, 2014Rules 24
The Companies (Registration of offices and fees) Rules, 2014Rules 7, 8 and 12
Secretarial Standard-1 of ICSIClauses 3, 4, 5, 6, 7 and 8
e-form to be filedMGT-14 (board resolution)
CGH-1 (other than debentures)
CGH-9 (for debentures)

Minimum Requirements

creating or modifying a charge on a company’s assets

Board Resolution

Execution of Agreement

Filing with the Registrar of Companies (ROC)

Payment of Required Fees

Documents for Satisfaction of Charge

The following documents need to be scanned and attached for Satisfaction of Charge

Initial Documentation for Charge Creation

Additional Documentation and Special Cases

Initial Documentation for Charge Creation

Board Resolution for Charge Creation

Members’ Resolution for Excess Borrowing

Board Resolution for Issuing Debentures

Charge Creation or Modification Instrument

Deed of Hypothecation

Additional Documentation and Special Cases

Letter of Equitable Mortgage

Sanction Letter

Joint Charge Holder List

Reasons for Delay

Debenture Trust Deed

Board Resolution for Charge Creation

Letter of Equitable Mortgage

Members’ Resolution for Excess Borrowing

Sanction Letter

Board Resolution for Issuing Debentures

Joint Charge Holder List

Charge Creation or Modification Instrument

Reasons for Delay

Deed of Hypothecation

Debenture Trust Deed

Procedure for creation or modification of charge

Initially, an agreement is made between the lender and the company, specifying the assets to be charged and the terms of the debt.

The company’s board of directors must pass a resolution authorizing the creation of the charge on the company’s assets.

The company must file Form CHG-1 (or CHG-9 for debentures) with the Registrar of Companies (ROC) within 30 days of creating the charge. The filing must include the instrument of charge, board resolution, and other relevant documents.

The ROC reviews the submitted documents for completeness and compliance with statutory requirements. If approved, the ROC registers the charge and issues a certificate of charge creation.

The charge becomes a public record, accessible for inspection, which ensures transparency and informs potential creditors and other interested parties.

Any modification to a charge, such as changing the loan amount or the secured assets, requires the consent of the lender. A modified agreement or terms must be documented.

A new board resolution is needed to authorize the modification of the existing charge.

The company must file Form CHG-3 with the ROC within 30 days of the modification. This should include the modified agreement and the new board resolution.

The ROC reviews the modification documents. Upon approval, the modification is registered, and an updated certificate reflecting the modification is issued.

The public record is updated to reflect the new status of the charge, maintaining the transparency and up-to-date information for public inspection.

Note: Once registered, the details of the charge or its modification are available for public inspection, providing transparency and protecting the interests of other creditors and stakeholders.

Form to be Filed

S.noName of the FormAttachmentsTime Period for Filing
1.Form CHG-1 (For other than Debentures) (or) Form CHG-9 (For Debentures)Instruments of creation or modification of charges.
Instruments evidencing …… which is already subject to charge……... such acquisitions.
Particulars of all joint charge holders (if number of charge holder is more than one)
Within 30 days of creation or modification of charges with normal fees.

Frequently Asked Questions

What is Form CHG-1 used for?

Form CHG-1 is used by companies to register a new charge on their assets with the Registrar of Companies. This includes mortgages, loans, debentures, or other securities.

Who needs to file Form CHG-1?

Any company that creates a charge on its assets, such as securing a loan against company property or assets, must file Form CHG-1.

When should Form CHG-1 be filed?

Form CHG-1 must be filed within 30 days from the date of creation of the charge. This timeframe is crucial to ensure the charge is valid and enforceable.

What details are required in Form CHG-1?

The form requires details about the charge, including date of creation, amount secured by the charge, terms and conditions, description of the charged assets, and details about the charge holders.

What documents need to accompany Form CHG-1?

Supporting documents typically include the instrument creating the charge (like loan agreement or mortgage deed), particulars of the charge, and any other relevant agreements or documents.

Is there a filing fee for Form CHG-1?

Yes, there is a filing fee associated with Form CHG-1, which varies based on the amount secured by the charge. This fee is detailed on the Ministry of Corporate Affairs (MCA) website.

What happens if Form CHG-1 is not filed within the prescribed timeframe?

Failure to file within 30 days can result in penalties and the need to seek condonation for the delay. The company would have to file Form CHG-10 to get the delay condoned.

Can Form CHG-1 be filed online?

Yes, Form CHG-1 can be filed online through the MCA portal. It must be digitally signed by a director or company secretary and certified by a practicing chartered accountant or company secretary.

What are the legal implications if a charge is not registered?

If a charge is not registered, it may not be enforceable against a liquidator or creditors in the event of insolvency. This could impact the security of the loan for the lender.