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CA Intermediate · Corporate and Other Laws · Registration of Charges

Deccan Steel Ltd. created a charge on its plant in favour of a lender. The charge was never registered with the Registrar. The company later went into liquidation, and an unsecured trade creditor claims priority. What is the legal position of the lender?

An unregistered charge cannot be taken into account by the liquidator or other creditors, so the lender loses its secured status. However, the loan itself is not void, so the lender can still claim the money as an ordinary unsecured creditor.

  1. AThe charge cannot be taken into account by the liquidator or any other creditor, though the lender's right to recover the loan as a contract debt remainsCorrect
  2. BThe charge remains fully enforceable against the liquidator because the plant was physically delivered to the lender
  3. CThe loan itself becomes void and the lender must return the money paid
  4. DThe lender gets priority over all creditors because it holds the oldest charge

Explanation

An unregistered charge cannot be taken into account by the liquidator or any other creditor. The lender, however, can still sue for the debt as an unsecured creditor, since the contract for the loan is not void. Option B is wrong, because physical possession is not the issue. Option C wrongly voids the loan. Option D is wrong because priority depends on valid registration.

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