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CA Intermediate · Corporate and Other Laws · Registration of Charges

Ananya Steels Ltd. has defaulted in registering a charge. Which of the following is the correct consequence for the company and its officers under the Companies Act, 2013 for contravention of the charge registration provisions?

Both the company and every officer in default face a fine for failing to register a charge as required, and the unregistered charge stays ineffective against the liquidator and other creditors. The debt itself is not extinguished, and directors are not automatically disqualified for this default.

  1. AThe company and every officer in default are punishable with fine, and the company's charge remains void against creditors until registeredCorrect
  2. BOnly the charge-holder is penalised and the company is not liable
  3. CThe company's directors are automatically disqualified for 5 years
  4. DThe charge is cancelled and the debt is wiped out

Explanation

Contravention of the charge provisions attracts a penalty on the company and on every officer in default, with fine as provided in the Act. In addition, non-registration makes the charge ineffective against the liquidator and creditors. The debt itself is not cancelled and there is no automatic disqualification of directors.

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