Modifying Charges in Company Law: A Comprehensive Step-by-Step Guide

In the realm of corporate finance, securing loans and financial assistance is essential for a company’s growth and productivity. To ensure that financial institutions such as banks have security for the loans provided, companies create charges on their assets. According to Section 2(16) of the Companies Act, 2013, a charge refers to the creation of an interest or a right on a company’s property or assets as security against a loan. This also includes mortgages. This article delves into the intricacies of the modification of charge, covering the relevant provisions, procedures, and compliance requirements under the Companies Act, 2013.

What is Modification of Charges?

The modification ofcharge refers to changes in the terms, conditions, extent, or operation of any charge already registered with the Registrar of Companies (RoC). The provisions for the registration of charges apply mutatis mutandis to the modification of charges.

Time Limit for Registration of Modification of Charge

The modified charge must be registered with the RoC within 30 days of the modification. If the company fails to do so, it must apply for an extension using Form CHG-1, along with additional fees. The time extension varies depending on whether the modification occurred before or after the commencement of the Companies (Amendment) Act, 2019.

Procedure for Registration of Modification of Charge

Step 1: Convene Board Meeting

Conduct a board meeting to pass a resolution for modifying the terms and conditions of the charge and authorize a person to execute the necessary documents and file the application with the RoC.

Step 2: Execute Documents

Execute the documents for changing the loan terms and the instrument evidencing the modification of the charge with the bank or financial institution.

Step 3: Application for Registration

Submit the application for the registration of the modification of charge in Form CHG-1 (for charges other than debentures) or Form CHG-9 (for charges related to debentures) with the RoC within 30 days of the modification. Include the prescribed fees and required documents.

Step 4: Application for Condonation of Delay

If the modification is not registered within 30 days, apply for condonation of delay in Form CHG-1. The RoC, upon being satisfied, may allow the registration of the modification within the extended period upon payment of additional fees.

Step 5: Issue of Certificate

Upon registration of the modification, the RoC will issue a Certificate of Registration of Modification of Charge in Form CHG-3 to the company and the charge holder.

Particulars of Charges to be Filed

The following details must be submitted to the RoC for the registration of the modification of charge:

• Total amount secured by the charge.
• Date and details of the instrument creating the charge.
• Name and address of the charge holder.
• General description of the property charged.
• Date of resolution authorizing the creation of the charge.
• Terms and conditions of the loan.

Extension for Registration of Creation or Modification of Charge

The Companies Act, 2013, provides for extensions in case the charge is not registered within the initial 30-day period:

1. Charges created before the Companies (Amendment) Ordinance, 2019: An extension of up to 270 days after the initial 30 days.
2. Charges created on or after the Companies (Amendment) Ordinance, 2019: An extension of 60 days from the expiry of the initial 30 days. If the charge is still not registered, a further extension of 60 days may be granted upon payment of additional fees.

Failure to Register Charge by the Company

If a company fails to register the charge within the stipulated time, the charge holder can apply to the RoC for the registration. Upon receiving such an application, the RoC will notify the company, seeking reasons for the delay. The RoC must register the charge within 14 days of sending the notice. The charge holder is entitled to recover any fees paid for the application from the company.

Fees for Creation or Modification of Charges under Companies Act, 2013

The fees for filing forms related to the creation or modification of charges vary based on the company’s nominal share capital:

Documents Required

• Instrument of modification of charge.
• Digital Signature Certificate (DSC) of the charge holder and director.
• DSC of the company secretary (CS).
• PAN of the charge holder.

Frequently Asked Questions

Where should CHG-7 be maintained?

CHG-7 should be maintained by the company at its registered office and be open for inspection by members and creditors without any fee. It should also be maintained on the MCA website.

What is the effective date of the Companies (Amendment) Ordinance, 2019?

The Companies (Amendment) Ordinance, 2019, became effective on November 2, 2018. It was originally enacted in 2018 but was later repealed and substituted with the Companies (Amendment) Ordinance, 2019.

What are the essential requirements for creating a charge?

To create a charge, you need to fulfill a few essential requirements:

1. There must be two parties involved: the charge creator (borrower) and the charge holder (lender).
2. The borrower must intend to use their property as security for the loan.
3. The charge must be related to specific assets or properties.

What is the time limit for modifying a charge created before the Companies (Amendment) Ordinance, 2019?

For charges created before the Companies (Amendment) Ordinance, 2019, you have up to 300 days to file for modification. This includes an initial period of 30 days plus an additional 270 days.

Conclusion

Modifying a charge is a crucial aspect of corporate finance management. Ensuring compliance with the relevant provisions of the Companies Act, 2013, and timely registration with the RoC are vital steps in safeguarding the interests of both the company and the charge holder. InstaFiling can assist companies in navigating the complex procedures involved in the modification of charges, ensuring that all legal requirements are met efficiently and accurately. Our team of experts is well-versed in the intricacies of corporate law and can provide comprehensive support throughout the process.