[Case Study] Non-compliance relating to satisfaction of charges

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  • Last Updated on 7 July, 2022

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Non Compliance; Companies Act

[2022] 140 taxmann.com 116 (Article)

1. Charges – meaning

The Companies Act 2013, defines a charges as an interest or lien created on the assets of a company or any of its undertaking as security and includes a mortgage under section 2(16) of the Act.

2. Type of charges

The charge could be either a fixed charge or a floating charge.

2.1 Fixed charges: – The fixed charge is the one identifiable with specific and clear asset / property at the time of creating of the charge itself and the company cannot transfer such identified asset / property unless the charge holder – known as creditor – is paid off his dues in full and the charge is fully discharged or satisfied.
2.2 Floating charges: – The floating charge on the other hand is the one which covers the floating and circulating nature of properties of a company such as (i) sundry debtors, (ii) stock of trade etc., the nature of the asset / property charges may change from to time and the floating charge crystalizes into fixed charge if the company crystalizes or the undertaking ceases to be a going concern.

3. Charge creation

In order to secure the loans given by banks, financial institutions and other lenders, they insist in creating a right in the assets and properties of the borrowing companies in order to secure their loans. By and large, this is done by executing loan agreements, hypothecation agreements, mortgage deeds and such other similar nature of documents which the borrowing company is required to execute in favour of the lending institutions/ banks/ lenders etc.

4. Registration of the charge created

Sub-section (1) of section 77 of the Companies Act 2013, provides that it shall be the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise and situated in or outside India. The charge thus created is required to be registered with the Registrar of Companies by filing the prescribed form for charge registration. To register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating such charge is required to file form CGH-1 (for other than debentures) or form CHG-9 for debentures including rectification, on payment of prescribed fees within 30 days of the charge creation.

5. Satisfaction of charge

Within a period of thirty days from the date of the payment of or satisfaction in full
of any charge registered, the company is required to give intimation of the same to the Registrar of Companies in form No. CHG-4 along with the required fees. Upon receipt of the form, the Registrar of Companies enters a memorandum of satisfaction of charge in full and issue a certificate of registration of satisfaction of charge in form no. CHG-5 pursuant to 82 or 83 of the Companies Act 2013.

The provisions of section 82 and 83 of the Companies Act 2013 is given below.

S. no Section Provisions
(a) 82 1. A company shall give intimation to the Registrar in the prescribed form, of the payment or satisfaction in full of any charge registered under this chapter within a period of thirty days from the date of such payment or satisfaction.
Provided that the Reglistrar may, on an application by the company or the charge holder, allow such intimation of payment or satisfaction to be made within a period of three hundred days of such payment or satisfaction on payment of such additional fees as may be prescribed.
2. The Registrar shall, on receipt of intimation under sub-section (1), cause a notice to be sent to the holder of the charge calling upon him to show cause within such time not exceeding fourteen days, as may be specified in such notice, as to why payment or satisfaction in full should not be recorded as intimated to the Registrar, and if no cause is shown, by such holder of the charge, the Registrar shall order that a memorandum of satisfaction shall be entered in the register of charges kept by him under section 81 and shall inform the company that he has done so.
Provided that the notice referred to in this sub-section shall not be required to be sent, in case the intimation to the Registrar in this regard is in the specified form and signed by the holder of charge.
(3) If any cause is shown, the Registrar shall record a note to that effect in the register of charges and shall inform the company.
(4) Nothing in this section shall be deemed to affect the powers of the Registrar to make an entry in the register of charges under section 83 or otherwise than on receipt of on intimation from the company.
(b) Rule Rule 8 (1) of the Companies (Register of Charges) Rules, 2014 provides that a company or charge holder shall within a period of three hundred days from the date of the payment or satisfaction in full of any charge registered under Chapter Vl, give intimation of the same to the Registrar in Form No.CHG-4 along with the fee.
(c) 86 (1) lf any company is in default in complying with any of the provisions of this Chapter, the company shall be liable to a penalty of five lakhs rupees and every officer of the company who is in default shall he liable to a penalty of fifty thousand rupees.
(2) If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered in accordance with the provisions of section 77, he shall be liable for action under section 447.
(d) 87 The Central Government on being satisfied that-

(a) the omission to give intimation to the Registrar of the payment or satisfaction of a charge, within the time required under this Chapter; or
(b)   the omission or misstatement of any particulars, in any filing previously made to the Registrar with respect to any such charge or modification thereof or with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83, was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to preclude the position of creditors or shareholders of the company, it may, on the application of the company or any person interested and on such terms and conditions as it deems just and expedient, direct that the time for the giving of intimation of payment or satisfaction shall be extended or, as the case may require, that the omission or misstatement shall be rectified.

6. Penal Provisions for non-compliance

Section 86 of the Companies Act proscribes the penal provisions for non-compliance and section 87 of the Act spells out the details relating toextension of time, rectification etc. The extract of relevant sections are as given below:-

s. no Section Provisions
(a) 86 (3) lf any company is in default in complying with any of the provisions of this Chapter, the company shall be liable to a penalty of five lakhs rupees and every officer of the company who is in default shall he liable to a penalty of fifty thousand rupees.
(4) If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered in accordance with the provisions of section 77, he shall be liable for action under section 447.
(b) 87 The Central Government on being satisfied that-

(b) the omission to give intimation to the Registrar of the payment or satisfaction of a charge, within the time required under this Chapter; or
(b)  the omission or misstatement of any particulars, in any filing previously made to the Registrar with respect to any such charge or modification thereof or with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83, was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors or shareholders of the company, it may, on the application of the company or any person interested and on such terms and conditions as it deems just and expedient, direct that the time for the giving of intimation of payment or satisfaction shall be extended or, as the case may require, that the omission or misstatement shall be rectified.

7. Regulatory actions

To understand the regulatory action in cases of non-compliance relating to the section 82 and 83 of the Companies Act relating to giving intimation to the Registrar of Companies , it would be worthwhile to go through a decided case law on this matter.
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