CS Executive · Company Law and Practice

Charges: formula sheet

Full chapter guide

Key formulas

Meaning of charge: Charge = security interest over company property or assets (or undertakings) to secure a debt; Section 77(1) covers property or assets or undertakings, tangible or otherwise, in or outside India.
Fixed charge: Fixed charge = specific, ascertained asset + company cannot dispose of it free of the charge; Example: land, building, plant.
Floating charge: Floating charge = class of changing assets + company deals freely until crystallisation; Example: stock, book debts. It crystallises on default or winding up.
Mortgage: Mortgage = interest in specific immovable property as security; possession may remain with owner; Fixed security on immovable property.
Pledge: Pledge = movable goods delivered to lender as security; Possession passes to the lender.
Hypothecation: Hypothecation = charge on movables; possession stays with borrower; Can be fixed or floating in nature.
Lien: Lien = right to retain goods until debt is paid; Usually arises by operation of law.
Floating charge before winding up (Section 332): Floating charge created within 12 months before winding up commenced is invalid unless company proved solvent immediately after creation; Valid only for cash paid in consideration, plus interest at 5% p.a. or notified rate.
Basic time limit: Registration within 30 days of creation of the charge; Particulars signed by company and charge-holder, with instruments, in prescribed form and fees, filed with the Registrar.
First extension (charges created on or after commencement of the 2019 Amendment Act): Up to 60 days from creation, on application by the company, with additional fees; The Registrar may allow it. It is not a right.
Second extension: A further 60 days, on application, after payment of ad valorem fees; Applies where registration is not made within the 60-day period.
Effect of non-registration (section 77(3)): Charge not taken into account by liquidator or any other creditor unless registered and certificate issued; Applies notwithstanding any other law.
Money obligation (section 77(4)): Contract or obligation to repay the secured money is not prejudiced; The lender can still sue for the debt as an unsecured creditor.
Subsequent registration (third proviso): Later registration does not prejudice rights acquired in the property before the charge is actually registered; Rights of others in the gap period are protected.
Application by charge-holder (section 78): Charge-holder may apply if the company fails to register; Registrar acts within 14 days after notice to company; Charge-holder can recover fees paid from the company.
Condonation (section 460): Central Government may condone delay in filing a document with the Registrar, for reasons recorded in writing; Applies notwithstanding anything in the Act.
Modification or acquired property (s. 79): Section 77 applies, so far as may be, to (a) property acquired subject to a charge and (b) modification of a registered charge; Use the section 77 timeline, form and fee approach. Do not cite a separate period.
Intimation of satisfaction (s. 82(1)): Intimation to Registrar within 30 days of payment or satisfaction in full; Registrar may allow up to 300 days on application of company or charge holder, with additional fees.
Registrar's notice to charge holder (s. 82(2)): Show cause within time not exceeding 14 days; Notice not needed if the intimation is in the specified form and signed by the charge holder.
If cause is shown (s. 82(3)): Registrar records a note in the register of charges and informs the company; Without cause, a memorandum of satisfaction is entered.
Satisfaction without company's intimation (s. 83): Registrar may enter memorandum of satisfaction or release on evidence; inform affected parties within 30 days of the entry; Covers whole or part satisfaction and release of part of the property.
Rectification (s. 87): Central Government may extend time or rectify omission or misstatement on application of company or interested person; Requires accident, inadvertence, other sufficient cause, or no prejudice to creditors or shareholders.
Application by charge holder (s. 78): Where company fails to register within the s. 77 period, the person in whose favour the charge is created may apply to the Registrar; Registrar acts within 14 days after giving notice to the company; the applicant can recover fees from the company.
Registrar's register (Section 81(1)): Registrar keeps, for every company, a register of particulars of charges registered under the Chapter; Form and manner as prescribed.
Inspection of Registrar's register (Section 81(2)): Open to any person on payment of the prescribed fee for each inspection; No free inspection for anyone under this section.
Company's register (Section 85(1)): Kept at the registered office; includes all charges and floating charges on any property, assets or undertakings, with prescribed particulars; Copy of the instrument creating the charge is also kept at the registered office.
Inspection of company's register (Section 85(2)): Business hours; member or creditor: no fee; any other person: prescribed fee; Subject to reasonable restrictions the company imposes by its articles.
Electronic form (Sections 120 and 399): Records may be kept and inspected electronically as prescribed; Registrar's documents may be inspected by electronic means on fee; Section 398 allows rules requiring electronic filing of particulars of charges.

Quick revision

A charge is security created on the company's property or assets to secure a debt.
Section 77 applies to charges created within or outside India, on assets situated in or outside India.
The company must file particulars, signed by the company and the charge-holder, with the Registrar within 30 days of creation.
Late filing: Registrar may allow up to 60 days on application with additional fees, for charges created on or after the 2019 Amendment commencement.
A further 60 days may be allowed on application, on payment of ad valorem fees.
Late registration does not prejudice rights acquired in the property before the charge was actually registered.
The Registrar issues a certificate of registration to the company and to the person in whose favour the charge is created.
An unregistered charge is not taken into account by the liquidator or any other creditor, but the repayment obligation stays valid.
Section 79 applies Section 77 to acquiring property subject to a charge and to modification of a registered charge.
Section 82: intimate payment or satisfaction in full within 30 days; Registrar may allow up to 300 days on application with additional fees.
Under Section 82, the Registrar sends a show-cause notice to the charge-holder with a time of not more than 14 days, unless the form is signed by the holder.
Section 81: Registrar keeps the register, open to inspection by anyone on fee. Section 85: company keeps its register at the registered office, open to members and creditors free.

Common mistakes

Calling a charge on stock-in-trade a fixed charge. Fix: Test whether the company may deal with the asset in the ordinary course. If yes, it is floating.
Saying a pledge leaves possession with the borrower. Fix: Remember: pledge means possession goes to the lender; hypothecation means the borrower keeps it.
Saying the charge-holder is the person who must register under section 77(1). Fix: Section 77 puts the duty on the company. Section 78 lets the charge-holder apply only when the company fails.
Treating the 60-day and further 60-day periods as automatic. Fix: Write that the Registrar may allow it on an application, with additional fees or ad valorem fees as prescribed.
Saying satisfaction must be reported within 30 days of creation of the charge. Fix: Under s. 82 the 30 days run from the date of payment or satisfaction in full.
Giving a fresh time limit for modification of a charge. Fix: Section 79 applies s. 77 so far as may be to modification and to property acquired subject to a charge.
Saying members can inspect the Registrar's register free of charge. Fix: Remember Section 81(2) applies to any person on payment of fees. Free inspection is only for members and creditors of the company's own register.
Leaving out floating charges from the contents of the company's register. Fix: Section 85(1) says all charges and floating charges affecting any property or assets or any undertaking.

Exam tips

Write definitions in one line, then use a short bulleted comparison of fixed and floating charges. Examiners reward clear contrast.
Always give an example asset with each type of charge.
For Section 332 questions, count the twelve months from the date of creation to the commencement of winding up, and state the solvency exception and the cash-paid exception.
Cite sections only where sure: 77 (duty to register), 85 (register of charges), 332 (floating charge on winding up).
End every answer with a clear conclusion in one sentence.
Write the section number with each point: 77(1) duty, 77(2) certificate, 77(3) effect, 77(4) debt survives.
Always present the three time windows in order: 30 days, 60 days, and a further 60 days, with the fees at each stage.
Show the day count when dates are given. Examiners reward the working.