Charge Creation Now Requires Immovable Property Description

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A Company raises funds by issue of shares, debentures, taking loans from banks and financial institution.
India Finance and Banking

A Company raises funds by issue of shares, debentures, taking loans from banks and financial institution.

When a bank provides loan to a company, it requires collateral to ensure the principal amount repayment and interest thereon. The amount is thus secured by creating interest or lien in favour of the bank on the property held by the company. The interest thus created is known as charge.

As per Section 2(16) of the Companies Act 2013 ―charge means an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage.

The following are the essential features of the charge which are as under:

  1. There should be two parties to the transaction, the creator of the charge and the charge holder.
  2. The subject-matter of charge, which may be current or future assets and other properties of the borrower.
  3. The intention of the borrower to offer one or more of its specific assets or properties as security for repayment of the borrowed money together with payment of interest at the agreed rate should be manifested by an agreement entered into by him in favour of the lender, written or otherwise.

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, situated in or outside India, to register the particulars of the charge signed by the company and the chargeholder along with the instruments, if any, creating such charge, with the Registrar within thirty days of its creation.

The Ministry of Corporate Affairs (hereinafter referred to as "MCA") vide its notification GSR 339(E) dated April 07, 20171 has issued the Companies (Registration of Charges) Amendment Rules, 2017, thereby amending the Companies (Registration of Charges) Rules, 2014.

Now companies creating charge on immovable property are required to give complete particulars of the property or assets charged including latitudinal and longitudinal details of such property. To incorporate the required changes, forms CHG-1 and CHG-9 have been revised.

Footnote

1 https://www.mca.gov.in/Ministry/pdf/companiesRegistrationofChargesAmendmentRules_08042017.pdf

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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