Published on

Thanks to the authors

1 Comment
No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide


  1. 1. CREATION OF CHARGES Presented by, Deepak Gopal Thejesh Kumar
  2. 2. Contents <ul><li>Creation of charges. </li></ul><ul><li>Fixed and Floating charge. </li></ul><ul><li>Mortgage and charges. </li></ul><ul><li>Registration of charge. </li></ul><ul><li>Certificate of registration. </li></ul>
  3. 3. INTRODUCTION <ul><li>The debt owed by a person(debtor) to another (creditor) may be either unsecured or secured.If the debtor defaults,the creditor can sue for the amount owed.If the debtor becomes insolvent or disappears,creditor has no security.A wise creditor,therefore will demand security,ie;a right over the debtor’s property which is in addition to his right of action. </li></ul>
  4. 4. FIXED AND FLOATING CHARGES <ul><li>The power of a company to borrow includes the power to create a charge upon its assets.The charge includes a ‘mortgage’ also{Sec.124}.The charge that may be created on the assets of a company may be a fixed charge or a floating charge. </li></ul>
  5. 5. FIXED CHARGE(SPECIFIC CHARGE) <ul><li>A fixed charge is one which is created on some specific and definite assets of the company,eg;a charge on land and building.It predicules the company from dealing in the property without the consent of the holder of the charge.The company can,if it wants to deal in that property,do so subject to the charge. </li></ul>
  6. 6. FLOATING CHARGE <ul><li>A floating charge is an equitable charge which is created on some class of property which is constantly changing,eg;a charge on stock in trade,trade debtors,etc.The company can deal in such property in the normal course of its business until the charge becomes fixed on the happening of an event .The main idea behind a floating charge is to allow the company to carry on its business in the ordinary course as if no charge had been created.Debentures usually creates a floating charge on the assets of a company. </li></ul>
  7. 7. Characteristics of a floating charge <ul><li>It is a charge on a class of assets of the company both present and future. </li></ul><ul><li>The class of asset is one which,in the ordinary course of the business of the company,is changing from time to time. </li></ul><ul><li>It is contemplated by the charge that ,until some steps are taken by or on behalf of those interested in the charge,the company may carry on its business in the ordinary way. </li></ul>
  8. 8. Consequences of floating charge <ul><li>The company can- </li></ul><ul><li>deal in the property on which a floating charge is created,till the charge crystallises; </li></ul><ul><li>Notwithstanding the floating charge,create specific mortgages of its property having priority over the floating charge;and </li></ul><ul><li>Sell the whole of its undertaking if that is one of its objects specified in the Memorandum,in spite of the floating charge on the undertaking. </li></ul>
  9. 9. Crystallisation of a floating charge. <ul><li>Cristallisation is the conversion of a floating charge into a fixed charge on the assets charged at the moment of crystallisation. </li></ul>
  10. 10. A floating charge crystallises or gets fixed when- <ul><li>The company goes into liquidation,or </li></ul><ul><li>The company ceases to carry on business,or </li></ul><ul><li>A receiver is appointed,or </li></ul><ul><li>A default is made in paying the principal and/or interest and the holder of the charge brings an action to enforce his security. </li></ul>
  11. 11. MORTGAGES AND CHARGES <ul><li>Power to give securities ; Where a company has the power to borrow,it has,as an incident to such power,a power to give security for the debt by a mortgage or charge on all or any of its property.A power to borrow includes ,if there is nothing to the contrary in the Memorandum and the Articles,the power to charge uncalled capital of the company. </li></ul><ul><li>[Jackson v. Rainford Coal Co.,[1896] 3 Ch.340] </li></ul>
  12. 12. Contd… <ul><li>A company cannot,however,borrow on the security of its reserve capital(ie;capital which can be called up only in the event of its winding up)or its book.This is because reserve capital is not capable of being called up except in the event of the companies being wound up,and books are required to be kept at the company’s office and open for inspection. </li></ul>
  14. 14. Charges to be registered(Sec.125 and 127) <ul><li>The following charges shall be registered with the Registrar: </li></ul><ul><li>(a) A charge for the purpose of securing any issue of debentures;. Where for any reason any debentures which have been issued are omitted to be registered, the company may cancel the debentures and issue a new series and register the latter within 30 days of their issue. </li></ul><ul><li>(b) A charge on uncalled share capital of the company; If there is nothing to the contrary in the Memorandum or the Articles,power to borrow includes power to charge the uncalled capital. </li></ul>
  15. 15. Contd… <ul><li>(c) A charge on any immovable property , wherever situate or any interest therein: </li></ul><ul><li>Immovable property includes “land,bene- </li></ul><ul><li>fits to arise out of land and things attach- </li></ul><ul><li>ed to the earth or permanently fastened to anything attached to the earth”. </li></ul><ul><li>(d) A charge on any book debt of the company: The expression ‘book debt’: is defined as any debt accruing in the ordinary course of business as is usually entered in the trade books. A charge may be created not only on </li></ul><ul><li>book debts which have actually come into existence.In future, the moment a book debt results, the charge will attach. </li></ul><ul><li>(e) A charge, not being a pledge, on any movable property of the company. A pledge of movables is excluded from the cumbersome procedure of registration. Thus where a company delivers certain fixed deposit receipts to a bank and raises a loan on the security of those deposit receipts, it is a case of pledge of movable property and need not be registered. </li></ul>
  16. 16. Contd… <ul><li>(f) A floating charge on the undertaking or any property of the company including stock in trade. The word ‘property’ includes all property, present or future, of the company and a charge thereon is effective and operates by way of a floating security. </li></ul><ul><li>(g) A charge on calls made but not paid. Unless there is an express power given in the Memorandum or the Articles, a charge on unpaid capital cannot be created. </li></ul><ul><li>(h) A charge on a ship or any share in a ship. </li></ul><ul><li>(i) A charge on goodwill, on a patent or licence under a patent, on a trade mark or on a copyright or a licence under a copyright. </li></ul>
  17. 17. Contd… <ul><li>2. A charge created out of India comprising solely property situated outside India with particulars and the instrument creating or evidencing the charge or a copy thereof. </li></ul><ul><li>3. A charge created in India comprising property outside India with the instrument creating or purporting to create the charge or a verified copy thereof (sec.125). </li></ul><ul><li>4. A charge on a property acquired subject to charge(sec.127). </li></ul><ul><li>Where a company acquires any property which is already subject to a registrable charge(i.e. a charge which, if created by the company, would have required registration), the company shall register the particulars of the charge together with a certified copy of instrument creating it, within 30 days after the date on which the acquisition is completed. If default is made in complying with this provision, the company, and every officer of the company who is default, shall be punishable with fine which may extent to Rs.5,000. </li></ul>
  18. 18. Time of registration: <ul><li>The prescribed particulars of charge, together with the instrument, if any by which the charge is created or evidenced, or a copy thereof, shall be filed with the Registrar within 30 days after the date of the creation of the charge. The registrar may extended the period of 30 days by another 30 days on payment of such additional fee not exceeding 10 times the amount of fee specified in schedule X as the Registrar may determine, if the company satisfies the Registrar that it had sufficient cause for not filing the particulars and instrument or copy within 30 days(sec.125). When these requirements are complied with, the Registrar shall issue a certificate of registration of the charge. </li></ul>
  19. 19. Contd… <ul><li>The Tribunal may also extend the time for the registration of charge on such terms and conditions as it may think expedient, in case omission to file particulars of a charge within the prescribed period is accidental or due to inadvertence or some other sufficient cause[sec.141(1)]. Once the time is extended, and it is made out that the particulars have been filed within the extended time, the Registrar is bound to register the charge. </li></ul>
  20. 20. Effects of non-registration of a charge: <ul><li>The charge is void [sec.125(1)]. If any charge required to be registered is not so registered, it shall be void as against the subsequent creditors as well as against the liquidators. </li></ul><ul><li>The money secured becomes immediately payable[sec.125(2) and(3)]. </li></ul><ul><li>when a charge becomes void under sec.125, the money secured thereby shall become immediately payable. Further nothing in sec.125(1) shall prejudice any contract or obligation for the repayment of the money secured by the charge. </li></ul>
  21. 21. Contd… <ul><li>3. No right of lien on the documents of title. When a charge becomes void for non-registration, no right of lien can be claimed on the documents of title as they are only ancillary to, and where delivered pursuant to, the charge. </li></ul><ul><li>4. Penalties[sec.142]. Some times a default is made in filling with the Registrar for registration the particulars of the following charges requiring the registration with the Registrar, namely, </li></ul><ul><li>Any charge created by the company; </li></ul><ul><li>The payment or satisfaction of a debt in respect of which a charge has been registered; or </li></ul><ul><li>The issue of debentures of a series. </li></ul>
  22. 22. Contd… <ul><li>In such case, unless the registration has been effected on the application of some other person, the company, and every officer of the company or the person who is in default, shall be punishable with fine which may extend to RS.500 Every day during which the default continues. </li></ul><ul><li>Further if the company make default in complying with any of the other requirements as to registration with the Registrar of any charge created by the company or of any fact connected therewith, shall be punishable with fine which may extended to Rs.1,000. This penalty does not prejudice any other liability. </li></ul>
  23. 23. <ul><li>Date of notice of charge[sec.126]: </li></ul><ul><li>where any charge on any property of a company required to be registered under sec.125 has been so registered, any person acquiring such property shall be deemed to have notice of the charge as from the date of such registration. Such a charge is binding on the company even in its binding up. </li></ul>
  24. 24. Register of charge kept by the Registrar[Sec. 130]
  25. 25. <ul><li>The Registrar shall,in respect of each company,cause to be kept a register,containing the particulars of all the charges requiring registration.The suming procedure of entering by hand the particulars of charges in the register of charges.As a safeguard the amendment also provides for signing or initialling of each page of the register by the Registrar. </li></ul>
  26. 26. Particulars of charges to for be warded by the company <ul><li>Every company shall forward to the Registrar for being entered in the register kept under Sec.130 the particulars of all the charges requiring registration in such form and manner ,and after payment of ,such fees as may be prescribed.The sum prescribed is Rs.10 with effect from April 17,1989. </li></ul>
  27. 27. The particulars of charges shall relate to- <ul><li>(a)In the case of a charge to the benefit of which the holders of a series of debentures are entitled,such particulars as are specified in Secs.128 and 129; </li></ul><ul><li>(b)In the case of any other charge- </li></ul><ul><li>If the charge is a charge created by the company,the date of its creation,and if the charge was a charge existing on property acquired by the company,the date of acquisition of the property; </li></ul>
  28. 28. Contd… <ul><li>The amount secured by the charge; </li></ul><ul><li>Short particulars of the property charged;and </li></ul><ul><li>The persons entitled to the charge. </li></ul>
  29. 29. Index to register of charges [Sec.131] <ul><li>The Registrar shall keep a chronological index of the charges registered wit him.The index shall be in the prescribed form and contain the prescribed particulars. </li></ul>
  30. 30. Certificate of Registration [Sec.132] <ul><li>On the registration of a charge the Registrar shall give a certificate of registration of the charge.The certificate shall state the amount secured by the charge.It shall be a conclusive evidence that the requirements of the Act as to registration have been complied with.It shall also be conclusive even though some particulars of the property charged as entered in the register are discovered to be incorrect. </li></ul>
  31. 31. The memorandum of satisfaction[Sec. 138 to 140] <ul><li>Company to report satisfaction(Sec. 138).After acharge has been created and registered,the debt has got to be paid or satisfied by the company.When the charge is paid off or satisfied in full,the company shall give notice of this fact to the Registrar within 30 days from the date of such payment or satisfaction.On receipt of such intimation .the Registrar shall inform the holder of the charge of the fact of the payment or satisfaction of the charge. </li></ul>
  32. 32. Contd… <ul><li>The Registrar shall further call upon the holder of the charge to show cause within a period,not exceeding 14 days,why payment or satisfaction should not be recorded as intimated to him.If no cause is shown or if the holder of the charge raises no objection,the Registrar shall enter in the register of charges a memorandum of satisfaction recording this fact.If cause is shown,or any objection is raised by the holder of the charge,the Registrar shall record a note to that effect in the register and inform the company accordingly. </li></ul>
  33. 33. Company’s register of charges (Sec.143) <ul><li>Every company shall keep at its registered office a register of charges.It shall enter therein all charges specifically affecting property of the company.It shall give there in each case the following particulars; </li></ul><ul><li>A short description of the property charged; </li></ul><ul><li>The amount of the charge;and </li></ul><ul><li>Except in the case of securities to bearer,the names of the persons entitled to the charge. </li></ul>
  34. 34. Penalty <ul><li>If any officer of the company knowingly omits or wilfully authorises or permits the omission of any entry required to be made in the company’s register of charges,he shall be punishable with fine which may extend to Rs.5000. </li></ul>
  35. 35. Queries...???