Your Company Took a Loan Against Its Assets? Registering the Charge Under Sections 77–86

Every secured loan a company takes — a bank term loan, a vehicle hypothecation, a director's secured advance — creates a "charge" on the company's property, assets or undertakings. Chapter VI of the Companies Act, 2013 makes registration of that charge with the Registrar a precondition for the charge being taken into account by a liquidator or any other creditor. The chapter also covers what happens when the loan is repaid, the two registers a company and the Registrar keep, and fixed penalties for default.

Legal basis: Companies Act, 2013, ss.77–80, 82, 85–86. Effective: ongoing. Form numbers, fees and filing mechanics are prescribed by rules and are not covered here; confirm them on the MCA portal before filing.

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The duty: register within thirty days, wherever the asset sits

Section 77(1) reads: "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, to register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating such charge in such form, on payment of such fees and in such manner as may be prescribed, with the Registrar within thirty days of its creation" (s.77(1), Companies Act 2013).

Four features stand out.

The duty covers charges "within or outside India" on property "situated in or outside India". Security over foreign assets is not carved out.
It covers "any of its undertakings, whether tangible or otherwise", so security over intangible assets is within the words of the section.
The particulars must be "signed by the company and the charge-holder together with the instruments, if any". Both sides sign.
The clock is thirty days "of its creation". The section does not say thirty days from disbursement or from the first repayment.

The section carries a further proviso that it "shall not apply to such charges as may be prescribed in consultation with the Reserve Bank of India" (s.77(1), last proviso). Whether a particular charge is within that carve-out is a question for the rules, so check before relying on it.

Late registration: an application, and fees

The Registrar may, "on an application by the company", allow registration after the thirty days. For charges created on or after the commencement of the Companies (Amendment) Act, 2019, the first proviso allows registration "within a period of sixty days of such creation, on payment of such additional fees as may be prescribed" (s.77(1), first proviso, clause (b)). If registration is still not made, the Registrar "may, on an application, allow such registration to be made within a further period of sixty days after payment of such ad valorem fees as may be prescribed" (s.77(1), second proviso, clause (b)).

Two points follow. First, both extensions need an application and the Registrar "may" allow them; they are not automatic. Second, the amount of the additional and ad valorem fees is left to the rules, so this article does not state it. Check the fee schedule on the MCA portal at the time of filing.

A further proviso limits what late registration can do: "any subsequent registration of a charge shall not prejudice any right acquired in respect of any property before the charge is actually registered" (s.77(1), third proviso). A right acquired in the property before the charge is registered is not overridden by the later registration.

The certificate, and what an unregistered charge loses

"Where a charge is registered with the Registrar under sub-section (1), he shall issue a certificate of registration of such charge in such form and in such manner as may be prescribed to the company and, as the case may be, to the person in whose favour the charge is created" (s.77(2)).

Section 77(3) supplies the consequence: "Notwithstanding anything contained in any other law for the time being in force, no charge created by a company shall be taken into account by the liquidator appointed under this Act or the Insolvency and Bankruptcy Code, 2016 (31 of 2016), as the case may be, or any other creditor unless it is duly registered under sub-section (1) and a certificate of registration of such charge is given by the Registrar under sub-section (2)." Both conditions matter: registration under sub-section (1), and the certificate under sub-section (2).

Section 77(4) preserves the money claim: "Nothing in sub-section (3) shall prejudice any contract or obligation for the repayment of the money secured by a charge." The obligation to repay under the contract is not affected by sub-section (3); what sub-section (3) denies is the charge being taken into account.

The lender's route: section 78

Section 78 applies "[w]here a company fails to register the charge within the period of thirty days referred to in sub-section (1) of section 77". "Without prejudice to its liability in respect of any offence under this Chapter, the person in whose favour the charge is created may apply to the Registrar for registration of the charge along with the instrument created for the charge, within such time and in such form and manner as may be prescribed."

The Registrar "may, on such application, within a period of fourteen days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause why such charge should not be registered, allow such registration on payment of such fees, as may be prescribed" (s.78). Where registration is made on the charge-holder's application, the proviso lets that person "recover from the company the amount of any fees or additional fees paid by him to the Registrar for the purpose of registration of charge" (s.78, proviso).

For a company, the practical reading is that a lender can initiate registration if the company has not done so, and the company is on notice for fourteen days to register it or show cause.

Acquisitions, modifications and deemed notice

Section 79 extends section 77: its provisions "relating to registration of charges shall, so far as may be, apply to— (a) a company acquiring any property subject to a charge within the meaning of that section; or (b) any modification in the terms or conditions or the extent or operation of any charge registered under that section" (s.79). So buying an asset that is already encumbered, or renegotiating the terms or extent of a registered charge, brings section 77 into play.

Section 80 deals with notice: "Where any charge on any property or assets of a company or any of its undertakings is registered under section 77, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration" (s.80).

Satisfaction: report the release within thirty days

When the loan is repaid, the filing runs the other way. Section 82(1) says: "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."

A proviso allows more time: "the Registrar 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" (s.82(1), proviso). Note that either the company or the charge holder may apply, and that the fee is again left to the rules.

Under s.82(2), once the Registrar receives the intimation, he must send a notice to the holder of the charge calling on him to show cause, within a period not exceeding fourteen days specified in the notice, why the payment or satisfaction should not be recorded as intimated.

Two registers

The Registrar keeps a register of charges for each company (s.81). The company must keep its own: "Every company shall keep at its registered office a register of charges in such form and in such manner as may be prescribed, which shall include there in all charges and floating charges affecting any property or assets of the company or any of its undertakings, indicating in each case such particulars as may be prescribed: Provided that a copy of the instrument creating the charge shall also be kept at the registered office of the company along with the register of charges" (s.85(1)).

Section 85(2) makes the company's register and the instruments "open for inspection during business hours— (a) by any member or creditor without any payment of fees; or (b) by any other person on payment of such fees as may be prescribed, subject to such reasonable restrictions as the company may, by its articles, impose."

Penalty for default

"If 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 lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees" (s.86(1)). The sums are stated as fixed amounts in the section.

Separately, "[i]f any person willfully 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" (s.86(2)). That is a reference to the Act's fraud provision, not to the penalty in sub-section (1).

The sequence for a borrowing company

Create the charge and note the date of creation.
Register the particulars, signed by the company and the charge-holder together with the instruments, within thirty days (s.77(1)).
Collect the Registrar's certificate (s.77(2)).
Record the charge in the company's register at the registered office, with a copy of the instrument (s.85(1)).
If the terms or extent of a registered charge change, or the company acquires property that is already charged, treat it as a fresh section 77 event (s.79).
When the loan is paid off, give the Registrar intimation of satisfaction within thirty days (s.82(1)).

What to do now

Next step: list every secured borrowing and check that each has a Registrar's certificate and an entry in the company's register of charges with the instrument copy (s.77(2), s.85(1)).
Deadline for a new charge: thirty days from creation (s.77(1)). Late registration needs an application to the Registrar and fees prescribed by the rules (s.77(1), provisos).
Deadline after repayment: thirty days from payment or satisfaction in full (s.82(1)); a Registrar's allowance of up to three hundred days is available on application (s.82(1), proviso).
Consequence of missing it: the charge is not taken into account by a liquidator or any other creditor until registered and certified (s.77(3)); a penalty of five lakh rupees on the company and fifty thousand rupees on each officer in default (s.86(1)).

Have a CA review your facts before you act or file.

FAQ

How long does a company have to register a charge?
"[W]ith the Registrar within thirty days of its creation" (s.77(1)). The Registrar may allow later registration on application and payment of prescribed fees (s.77(1), provisos).

Does security over foreign assets need registration in India?
The duty covers a charge "within or outside India" on property "situated in or outside India" (s.77(1)).

Can the lender register the charge if the company does not?
The person in whose favour the charge is created may apply to the Registrar; the Registrar decides "within a period of fourteen days after giving notice to the company", and the applicant may recover the fees from the company (s.78).

What happens to an unregistered charge in a liquidation?
It is not taken into account by the liquidator or any other creditor unless registered and certified (s.77(3)). The contract or obligation for repayment of the money is not prejudiced (s.77(4)).

What must happen when the loan is fully repaid?
The company must give the Registrar intimation of payment or satisfaction in full within thirty days (s.82(1)), extendable to three hundred days by the Registrar on application with additional fees (s.82(1), proviso).

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