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CA Intermediate · Corporate and Other Laws · Registration of Charges

Sunrise Textiles Pvt. Ltd., Surat, borrowed Rs 2 crore from a bank and created a charge on its factory building on 1 June. The company did not file particulars of the charge with the Registrar within the prescribed period, and no extension was sought. Under the Companies Act, 2013, what is the position of this charge as against a liquidator and other creditors of the company?

An unregistered charge cannot be taken into account by the liquidator or any other creditor of the company. The lender loses its secured status, but the underlying debt remains repayable, so the lender ranks as an unsecured creditor for the amount owed.

  1. AThe charge is valid and enforceable because the bank holds the title documents
  2. BThe charge is not registered and therefore cannot be taken into account by the liquidator or any other creditorCorrect
  3. CThe charge is void for all purposes, including the borrower's obligation to repay the loan
  4. DThe charge becomes valid automatically after six months from creation

Explanation

An unregistered charge is not recognised by the liquidator or other creditors, so the lender loses its security priority. However, the debt itself remains payable, so the loan is not void; the lender becomes an unsecured creditor. The option saying the charge is void for repayment is therefore wrong.

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