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CA Intermediate · Corporate and Other Laws · Registration of Charges

Vihaan Pharma Ltd. obtained a loan from Axis Bank by creating a charge on its plant. The company failed to register the charge, and the bank also did not apply for registration. Later the company went into liquidation. What is the position of the bank regarding the unregistered charge?

An unregistered charge cannot be relied on against the liquidator or other creditors, so the bank cannot enforce its security. However, the underlying debt remains payable, and the bank can claim it as an unsecured creditor in the liquidation.

  1. AThe bank can enforce the charge against the liquidator and other creditors as the charge was validly created
  2. BThe charge is void against the liquidator and any other creditor of the company, though the bank remains entitled to the money as an unsecured claimCorrect
  3. CThe charge is valid only if the company's board ratifies it
  4. DThe bank loses the right to claim the loan amount entirely

Explanation

An unregistered charge cannot be taken into account by the liquidator or any other creditor, so it is ineffective against them. The debt itself is not wiped out, so the bank ranks as an unsecured creditor. Option D wrongly says the debt is lost.

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