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CS Executive · Company Law and Practice · Charges

Arvind Steels Ltd created a charge on 1 April in favour of Bharat Finance. Registration was not made in time and the charge was registered on 20 May by the Registrar. In the meantime, on 10 May, a third party acquired a right in the same property. What is the effect of the late registration on that third party's right?

The third party's right is not affected. A proviso to Section 77(1) says subsequent registration of a charge does not prejudice any right acquired in the property before the charge is actually registered. Since the right arose before registration, it stands and the charge does not relate back.

  1. AThe third party's right is not prejudiced by the subsequent registration of the chargeCorrect
  2. BThe charge relates back to 1 April and overrides the third party's right
  3. CThe third party's right becomes void on registration
  4. DThe charge is invalid because it was registered after thirty days

Explanation

A proviso to Section 77(1) states that any subsequent registration of a charge shall not prejudice any right acquired in respect of the property before the charge is actually registered. The third party acquired the right on 10 May, before registration on 20 May, so it is protected; there is no relation back.

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