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CA Intermediate · Corporate and Other Laws · Registration of Charges

Meenakshi Pharma Ltd. created a charge on its plant in favour of a lender. The company failed to register the charge, and the lender, Rajan Finance, did not file the particulars either. Later the company went into liquidation. Which statement reflects the legal position on the unregistered charge?

An unregistered charge that requires registration cannot be relied on against the liquidator or other creditors of the company. The lender loses its security but the debt itself survives, so the lender ranks as an unsecured creditor for the amount owed.

  1. AThe charge is fully valid against the liquidator and other creditors because the contract was in writing
  2. BThe charge is void against the liquidator and any creditor of the company, though the money remains a debt payable by the companyCorrect
  3. CThe charge is valid only if the lender is a scheduled bank
  4. DThe charge is void and the underlying loan is also cancelled, so the company need not repay

Explanation

A charge requiring registration but not registered cannot be taken into account by the liquidator or any other creditor, so it is ineffective against them. The loan itself is not extinguished; the lender remains an unsecured creditor for the money. Hence the option cancelling the debt is wrong.

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