Introduction
Recently, in November 2024, in the case of Union of India v. Alliage Engineering Private Limited ("Alliage"), the High Court of Delhi addressed the issue of whether a company's digital signature is required when a charge holder registers a charge under Section 78 of the Companies Act, 2013 ("the Act"). Typically, Section 77 of the Act requires a company to register charges using Form CHG 1. However, when a company fails to fulfil this obligation, Section 78 of the Act, permits the charge holder to register the charge directly. The issue in such cases often arises when the charge holder is unable to register the charge since the electronic Form CHG 1 requires the company's digital signature, which is unavailable with charge holder.
Brief Facts
Alliage and another company had entered into a Manufacturing and Fabrication Agreement, which inter alia included provisions to create charges on certain company assets. These charges are required to be registered under the Act. Despite multiple requests by Alliage, the company failed to register the said charges. In view thereof, Alliage attempted to invoke Section 78 of the Act for registration of charges but faced hurdles due to the requirement of company's digital signatures on Form CHG-1.
Court's Order
The Single Judge Bench of the High Court of Delhi in its order has now allowed the charge holder to file Form CHG 1 by dispensing with the requirement of the company's digital signature to be borne on the said Form CHG 1 whilst registering a charge under Section 78 of the Act. The High Court of Delhi upheld this order, emphasizing that Section 78 of the Act is a remedial provision designed to protect the rights of the charge holder when a company defaults in registering a charge by not filing Form CHG 1. The High Court of Delhi further stated that "insisting on digital signatures in the Form CHG 1 from a company who is refusing to register the charge in such circumstance would unduly hinder the rights of charge holders to secure their interests when a company defaults on their statutory duty under Section 77 of the Act".
The High Court of Delhi concluded that the charge holder should not be impeded by the company's failure to cooperate, and upheld the decision of the Single Judge Bench of the High Court of Delhi to modify the Form CHG 1, ensuring that the charge holder could register the charge without the company's digital signature.
Conclusion
This is a welcome decision of the High Court of Delhi, safeguarding the interests of charge holders in cases when the company defaults in registering charges.
Originally published 3 February, 2025.
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