In the corporate financial ecosystem, businesses often require capital for growth and expansion. While raising such capital through loans and borrowings, companies usually offer security over their assets. This security interest is legally termed as a “charge.”
Meaning of Charge
A “charge” is a form of security interest created on a company’s assets or property (movable or immovable) to secure the repayment of a debt or performance of an obligation. It is defined under Section 2(16) of the Companies Act, 2013.
In simple words:
A charge is a right or interest which a lender or creditor has over the assets of a borrower (the company), for the purpose of security of repayment of a loan or borrowing.
Characteristics of Charge
- It can be fixed or floating.
- It can be created on tangible or intangible assets.
- It does not transfer ownership, only provides security.
- It is required to be registered with the Registrar of Companies (ROC) under Section 77.
Types of Charges
| Type | Description |
| Fixed Charge | Charge on a specific asset (e.g., land, machinery) that does not change over time. Company cannot dispose of the asset without lender’s permission. |
| Floating Charge | Charge on general assets (e.g., stock, debtors) that are constantly changing. It becomes fixed (crystallizes) on default or winding up. |
| Equitable Charge | Created through deposit of title deeds without formal document. |
| Legal Charge | Created via formal, legally enforceable documents and registration. |
Step-by-Step Process for Charge Registration
Step 1: Creation of Charge
- Company creates a charge in favor of a lender (bank, NBFC, etc.)
- Draft loan agreement / hypothecation / mortgage deed
Step 2: Board Approval
- Convene a Board Meeting
- Pass a resolution for creation of charge
- Authorize a director/company secretary to sign and file the necessary forms
Step 3: File Form CHG-1 / CHG-9
- File with ROC within 30 days from charge creation
- Attachments:
- Certified copy of instrument (loan agreement)
- Board Resolution
- Instrument of charge
- Sanction letter
Step 4: ROC Verification
- ROC verifies details
- If complete, ROC registers the charge and issues Certificate of Registration of Charge (Form CHG-2)
Step 5: Maintain Register of Charges
- Company must maintain Register of Charges at the registered office (Form CHG-7)
- Open for inspection by members and creditors
Penalty for Non-Registration
| Offender | Penalty |
| Company | ₹5 lakh |
| Every officer in default | ₹50,000 |
Key Points to Remember
- Compulsory registration with ROC to make the charge valid against third parties.
- Charge not registered is void against the liquidator or creditors.
- A register of charges is required to be kept at the company’s registered office.
- Even charges created outside India must be registered if it relates to property situated in India.
- Charge holders can themselves file the charge under Section 78 if the company fails to do so.