Section 77 of the Companies Act, 2013 mandates that every company must register the details of any charge (interest, lien, or mortgage) created on its property or assets with the Registrar of Companies (ROC) within 30 days of creation. Failure to register invalidates the charge against any liquidator or creditor during winding-up proceedings. If the 30-day window is missed, extensions up to a total of 120 days can be granted under specific conditions involving additional and ad-valorem fees. Severe financial penalties apply for non-compliance.
Corporate borrowing frequently involves offering company assets as collateral to banks or financial institutions. To maintain transparency and protect the interests of current and future creditors, the Companies Act, 2013 enforces strict rules regarding the public registration of these security interests, legally termed "charges."
What is a Charge Under Section 2(16)?
Registration of charges under the Companies Act has a broad legal scope. Before examining the duty to register, it is critical to understand what constitutes a charge.
Under Section 2(16) of the Companies Act, 2013, a "charge" is defined as an interest or lien created on the property or assets of a company or any of its undertakings, or both, as security. This definition explicitly includes a mortgage.
Charges are further governed by the Companies (Registration of Charges) Rules, 2014, which are included in Chapter VI of the Act (Sections 77 to 87).
Types of Charges: Fixed vs Floating
Charges generally fall into two legal categories based on how they attach to the company's assets:
This is a charge attached to specific, identifiable assets (like land, a specific building, or specific machinery) at the time the charge is created. The company cannot sell or dispose of these assets without the creditor's explicit permission.
This charge is not attached to a fixed asset but rather hovers over a fluctuating class of assets, such as stock-in-trade or raw materials. The company can buy and sell these assets in the ordinary course of business until the charge "crystallizes" (becomes fixed) due to a default.
The Duty to Register Under Section 77
Section 77 of the Companies Act, 2013 imposes a primary duty on the company creating the charge. The company must record all sorts of charges with the Registrar of Companies (ROC) within 30 days of their inception.
This statutory mandate applies universally. It makes no difference whether the charge is:
- Created within or outside India.
- On its property, assets, or any of its undertakings.
- Whether the assets are tangible or otherwise.
- Situated in or outside India.
Registration Beyond 30 Days (Extensions)
If a company fails to register the charge within the initial 30 days, the law provides a grace period, which was heavily modified by the Companies (Amendment) Ordinance, 2019.
For charges created on or after November 2, 2018:
- First Extension (Up to 60 Days): The Registrar may, upon the company's application, allow registration within an additional 30 days (total 60 days from creation), subject to the payment of additional prescribed fees.
- Second Extension (Beyond 60 Days): The Registrar may, on further application, allow registration within a further 60 days (total 120 days), subject to the payment of ad-valorem fees as prescribed.
Creditor Rights Under Section 78
What happens if the company neglects its duty to register the charge?
Under Section 78, if the company fails to register the charge for whatever reason, the person in whose favor the charge is established (the lender/creditor) is legally entitled to file for the registration.
- 14-Day Warning: The person filing the charge must provide the company with a 14-day notice warning them of the intent to register.
- Cost Recovery: The creditor has the legal right to sue the firm and recover the registration money and fees paid to the ROC.
Consequences & Fines for Non-Registration
Failing to register a charge carries severe legal and financial repercussions.
Statutory Fines
Keeping the above context in mind, if Section 77 of the Companies Act, 2013, is violated, the penalties are strict:
| Target Party | Monetary Fine / Imprisonment Range |
|---|---|
| Company Entity | Not less than Rs. 1 Lakh and may extend up to Rs. 10 Lakhs. |
| Officer in Default | Not less than Rs. 25,000 and may extend up to Rs. 1 Lakh, OR imprisonment for up to 6 months, OR both. |
Maintenance of the Register of Charges
Corporate transparency requires proper record-keeping both at the ROC and at the company's premises.
- ROC Register: For each company, the registrar must keep a register of charges that is open to examination by anybody who pays the required costs.
- Company Register (Form CHG-7): The company must keep a register of charges in form CHG-7 with the instrument establishing the charge at its registered office.
- Public Inspection: Members and creditors can see the register of charge and a copy of the instrument at the company’s registered office without any fees during business hours. The register is also available for inspection by anyone else who pays the required costs.
Need Assistance Filing Form CHG-1 or CHG-9?
Ensure your corporate borrowings and asset mortgages are legally registered with the ROC to avoid severe financial penalties. TargoLegal's Company Secretaries can handle your charge registrations seamlessly.
Frequently Asked Questions
What does Section 77 of the Companies Act, 2013 stipulate?
Section 77 mandates that a company must register all types of charges (interest or lien created on its property or assets) with the Registrar of Companies (ROC) within 30 days of their creation.
What is the penalty for violating Section 77?
For non-compliance with Section 77, the company can be fined between Rs. 1 Lakh and Rs. 10 Lakhs. Every officer in default is liable for a fine between Rs. 25,000 and Rs. 1 Lakh, or imprisonment for up to 6 months, or both.
Can a charge be registered after the 30-day statutory deadline?
Yes. Following the Companies (Amendment) Ordinance, 2019, charges created on or after the amendment can be registered within an additional 30 days (total 60 days) upon payment of additional fees. Further extensions up to another 60 days may be permitted with ad-valorem fees.
What happens if a charge is not registered with the ROC?
If a charge is not registered, the liquidator or any other creditor will not recognize it during winding-up proceedings. The charge holder loses their priority status as a secured creditor.
Who has the right to file the charge if the company fails to do so?
Under Section 78, if the company fails to register the charge within the initial 30 days, the person in whose favor the charge is created (the creditor/lender) may apply to the ROC for registration after giving a 14-day notice to the company.
Research Sources
- Ministry of Corporate Affairs (MCA) - Companies Act, 2013, Sections 2(16), 77, and 78.
- MCA E-Book - Companies (Registration of Charges) Rules, 2014.
