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CA Intermediate · Corporate and Other Laws · Registration of Charges

Orion Steel Ltd. created a charge in favour of a bank. The charge instrument was not registered within 30 days or the extended 300 days. The bank later claims priority over unsecured creditors when Orion goes into liquidation. Which is the correct position under the Companies Act, 2013?

An unregistered charge cannot be relied on against the liquidator or other creditors, so the security fails. The loan debt itself is not extinguished and remains payable, with the bank ranking as an unsecured creditor in the liquidation.

  1. AThe charge is valid fully because the instrument was signed by both parties
  2. BThe charge is void against the liquidator and any creditor of the company, but the debt itself remains payable as an unsecured debtCorrect
  3. CThe entire loan becomes irrecoverable, as unregistered charge extinguishes the debt
  4. DThe charge is valid against the liquidator but void against other secured creditors

Explanation

An unregistered charge is not taken into account by the liquidator or any other creditor, so the lender cannot rely on it as security. The money debt still stands, so the bank ranks as an unsecured creditor. The idea that the debt is extinguished is wrong, since only the security fails.

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