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CA Intermediate · Corporate and Other Laws · Registration of Charges

Mehta Engineering Ltd created a charge on its plant in favour of a bank on 10 June, but neither the company nor the bank filed the particulars with the Registrar. The company later went into liquidation. Which statement is correct regarding the bank's charge?

An unregistered charge is not recognised by the liquidator or other creditors, so the bank loses its secured status. However, the debt itself is not extinguished, and the bank can still claim the money as an unsecured creditor in the liquidation.

  1. AThe charge is fully valid against the liquidator since the loan agreement was in writing
  2. BThe charge is not taken into account by the liquidator or any other creditor, though the bank's right to the loan money remainsCorrect
  3. CThe charge is valid but the loan is cancelled
  4. DThe charge is valid only against the unsecured creditors who had notice of it

Explanation

Under the Act, an unregistered charge that required registration is not taken into account by the liquidator or any other creditor. This does not extinguish the debt, so the bank remains an unsecured creditor for the money. Option one is wrong because a written agreement does not replace registration.

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