Agreement of Charge Creation in the Registrar of Companies (2023)

Do you have an idea to thrive in your business? Are you planning to expand your business? You may feel your business leveling up after some point in time. However, you may need funds for expansion and buying assets. You may borrow funds from various banks or financial institutions for these fund requirements. On the other hand, banks or financial institutions charge your company as a security for their money. This process is known as charge creation, and you may have to register it with the ROC. You must file an agreement of charge creation in the registrar of companies.

Hopefully, you gained a vague idea about charge creation in the Register of Companies. Let’s dive deep into the agreement of charge creation in the register of companies in this article.

What Is the Creation of Charge as per the Companies Act?

First, let’s get an idea about the creation of charges as per the companies act. Section 2(16) of the Companies Act defines charge as interest or lien created on the property or assets of a company or any of its associated or subsidiary undertakings, or both, as security and includes a mortgage.

It means if your company or business is liable to any banks, they issue a charge on the property or assets of your company as security. Is there anyone nowadays who will give away loans without any guarantee? It looks surreal, right? The same works for your company too. 

Whenever you wish to avail of a loan for your business expansion, your company will be charged until you repay them. As you are liable for a charge, you must register those details with the register of companies without fail. Read further on how you can do it.

Which Form Is Used to Create a Charge with the Registrar of Companies?

Once charge creation is done for your liability, you must file it under the register of companies. ROC provides a few forms and processes that deal with the creation of a charge. Let’s have a detailed understanding of them.

You must file Form CHG-1 for charge creation with the Registrar of Companies (ROC). You have to file them within 30 days of the charge’s creation. Both you (the company) and the charge holder shall sign the form. 

Once you file such charge creation with the ROC via Form CHG-1, ROC issues a certificate of registration for the charge created in Form CHG-2. It serves as evidence that your company has complied duly with all the requirements of the Companies Act and the Rules made thereunder. 

As you see, forms CHG-1 and CHG-2 deal with charge creation for your company. So, now let’s know more about the process of charge creation.

What Is Required for Charge Creation in ROC?

Follow the below process for charge creation of your company in ROC.

When you decide to expand your company by acquiring funds from other sources, you must:

• Conduct a Board meeting with all the directors of your company and pass a special resolution on charge creation.
• You should file the extracts, with the ROC in Form MGT 14, within 30 days.
• Now, you must file Form CHG-1 with the ROC with the necessary details about your creation of charge.
• Attach documents like evidence of charge creation, modification of any charge, joint charge, property acquisition by the company, etc., with the form CHG-1.
• ROC verifies every document, and based on its reliability, they issue a certificate for your registration. This certificate comes under Form CHG-2.
• If you didn’t submit CHG-1 within 30 days of the creation of the charge, you can still submit it within 300 days with the addition of Form CHG-10 stating the valid reasons for the delay.
• Upon proving your valid reasons for the delay, ROC issues a certificate for your registration with the CHG-2 form.
• In case you need to modify your charges, you can file a CHG-3 form with the necessary modifications.

Follow these steps to file your creation of charge under ROC. You must reveal your company’s liabilities and financial status to ROC without fail. And Form CHG-1 deals with the creation of a charge for your company. But, is this a necessity to create a charge for your company? Well, we have an answer to this.

Is Charge Creation Mandatory for Your Company?

The short answer is Yes. It is mandatory to create a charge for your company once you acquire funds for your business expansion. 

According to Section 77(1) of the Companies Act, 2013 and Rule 3 of Companies (Registration of Charges) Rules, 2014: every company creating or modifying the charge, whether in India or outside, shall register the particulars of the charge signed by you (the company) and the charge holder within 30 days of the creation or modification of the charge.

It is your responsibility to disclose all the details about your company’s financial status to ROC in order to maintain credibility.

FAQ: Agreement of Charge Creation in the Registrar of Companies

What is the time limit for the creation of a charge?

The time limit for the creation of a charge is 30 days from the day of creation. According to the provisions of Section 77 of the Companies Act 2013, you have to file a charge with the registrar within 30 days of its creation. However, you can create a charge for 300 days with additional charges. The ROC issues a certificate for your charge creation in either case.

What is the due date of ROC charge creation?

The due date for ROC charge creation is within 30 days of the creation of your charge. If you delay over 30 days, the registrar may allow you to get it registered within 300 days with additional fees.

What if the charge is not registered with Roc?

If you didn’t register the charge created by your company in favour of the lender with the ROC in form CHG-1, the same shall not be taken into account by the liquidator or other creditor. And this arises only in cases where the company goes into bankruptcy. So, you must register your charge with ROC.

What is the penalty for a company not filing a charge?

If you fail to file a charge under ROC, you are liable for a penalty of Rs.1000 daily by default. However, it may not exceed Rs.1 Lakh. Thus, file a charge without fail to get relief from the penalty.

Bottomline

Hopefully, you have a better understanding of the Agreement of Charge Creation in the Registrar of Companies. If you plan to acquire funds for your company’s growth, you should create a charge for your liability with the lender. You must submit the same to the register of companies without fail to prove your credibility. 

If you are still confused about the creation of charges for your company, feel free to contact us. Instafiling provides you with flawless compliance services at an affordable cost. So, what are you waiting for? We are just a call away.

Recommended Articles

Removal of Name of the Company from Registrar of Companies (Step-By-Step Guide)

Registrar of Companies India (A Comprehensive Guide)