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CA Intermediate · Corporate and Other Laws · Registration of Charges

Meera Engineering Ltd has created a charge on its book debts in favour of Axis Bank. The company fails to register it. Later the company goes into liquidation, and an unsecured trade creditor claims against the book debts. What is the legal position regarding the bank's charge?

An unregistered charge that required registration cannot be relied on against the liquidator or any creditor of the company. However, the lender's contractual right to repayment survives, so the bank ranks as an unsecured creditor and does not lose the loan amount itself.

  1. AThe charge is valid against the liquidator and other creditors because the bank has the original deed
  2. BThe charge is void against the liquidator and any creditor of the company, but the bank's right to recover the money as a debt is not affectedCorrect
  3. CThe charge is void and the bank also loses its right to recover the loan
  4. DThe charge is valid against creditors but void against shareholders

Explanation

An unregistered charge required to be registered is not taken into account by the liquidator or any other creditor. The underlying debt is still owed, so the bank remains an unsecured creditor. Option C is wrong because the contractual right to the money is not lost.

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