Creation of charge and subsequent registration of the same
Aman
(Querist) 10 February 2014
This query is : Resolved
My company has taken a loan from a bank; with another bank acting as a secured trustee for the said disbursed loan.
My query is whether a 'charge' was created as soon as the 'facility agreement' was executed and should the same be registered; even when there is an express provision in the facility agreement that 'a charge' would be created after the occurrence of 'event of default'(wherein I would then have to deposit the receipts obtained from my customers to a blocked bank account)? So is it justifiable to wait for the occurrence of 'event of default', if it may occur, to get the charge registered or should the bank register it straightaway?
Also, is there any judgment pertaining the aforesaid point which can further clarify my dilemma?
Prithvi Raj Sikka
(Expert) 10 February 2014
Yes as per company law the charge registered.
prithvi raj sikka advocate
lawjuris09@gmail.com
Anirudh
(Expert) 10 February 2014
The charge gets created the moment the loan is sanctioned. There is no separate requirement for registration. registration is required only when there is 'second charge'.
The bank need not wait for a default to arise to create a charge.
Aman
(Querist) 10 February 2014
Actually the basic purpose of my query was that around a year has passed from the time of sanctioning of the loan and the bank has still not registered the same.
When I inquired the reason for the same, they replied that 'time lapse' of 30 days (as provided in s. 125 of Companies Act) for the registration of charge, after its creation, would only start once an 'event of default' occurs, as the facility agreement expressly provides for the creation of charge only when an 'event of default' occurs and this would override the general presumption that 'a charge is created as soon as a loan is sanctioned'.
So is this stand of the bank actually correct or they are wrong entirely?
Also, would the fact that the secured trustee for the aforementioned loan is also a creditor to my company have any effect over the facility agreement?
Is there any judgment which has been passed addressing the above concernS of mine?
Aman
(Querist) 10 February 2014
Can anyone please provide an answer to my query...In direst need for a legal opinion for the same.
T. Kalaiselvan, Advocate
(Expert) 10 February 2014
Subject to the provisions of this Part, every charge created on or after the 1st day of April, 1914, by a company and
being a charge to which this section applies shall, so far as any security on the company's property or undertaking is
conferred thereby, be void against the liquidator and any creditor of the company, unless the prescribed particulars
of the charge, together with the instrument, if any, by which the charge is created or evidenced, or a copy thereof verified in the prescribed manner, are filed with the Registrar for registration in the manner required by this Act within thirty days after the date of its creation :1 Provided that the Registrar may allow the particulars and instrument or copy as aforesaid to be filed within thirty
days next following the expiry of the said period of thirty days on payment of such additional fee not exceeding ten times the amount of fee specified in Schedule X as the Registrar may determine, if the company satisfies the Registrar
that it had sufficient cause for not filing the part iculars and instrument or copy within that period.]
(2) Nothing in sub-section (1) shall prejudice any contract or obligation for the repayment of the money secured by the
charge.
(3) When a charge becomes void under this section, the money secured thereby shall immediately become payable.
(4) This section applies to the following charges :
(a) a charge for the purpose of securing any issue of debentures ;
(b) a charge on uncalled share capital of the company ;
(c) a charge on any immovable property, wherever situate, or any interest therein ;
The provisions of section 125 of company act has been reproduced above, from which it is clear that the charge created has to be registered within 30 days from its creation, rest of the thing, you can follow it up through them.
Aman
(Querist) 10 February 2014
Yeah I have gone through s. 125 but then the real dilemma which I am facing is that whether the 'charge was created' as soon as the loan was sanctioned or it would be created only after the occurrence of event of default as specifically provided in the facility agreement?
Rajendra K Goyal
(Expert) 12 February 2014
It should have been noted at the sanction of loan.
R.V.RAO
(Expert) 13 February 2014
bank saying registration of charge done on event of default is not sound banking practice.
as soon as a loan documentation is done ,the lending bank secures the borrowing by crating a charge.
if not the lender,(bank), even the borrower can create charge, by filing form no 8(filing form 13 is dispensed with).time allowed is 30 days but can be allowed by ROC UPTO 300 days .
please go through the new sec 77 of new cos' act 2013(sec 125 was of old co.act 1956)
the sec 77 (1)is reproduced below which is self explanatory.
PL. NOTE PARTICULARLY the section talks about..... "the co.creating a charge"...
means the onus of creating charge is on the borrower /company.The reason is simple as the co.is creating charge on its assets,it is co.duty to create charge.
the lender and borrower both sign on form no 8 to create charge.
"Sec 77. (1) 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, and
situated in or outside India, to register the particulars of the charge signed by the company
and the charge-holder together with the instruments, if any, creating such charge in such
form, on payment of such fees and in such manner as may be prescribed, with the Registrar
within thirty days of its creation:
Provided that the Registrar may, on an application by the company, allow such
registration to be made within a period of three hundred days of such creation on payment of
such additional fees as may be prescribed:
Provided further that if registration is not made within a period of three hundred days
of such creation, the company shall seek extension of time in accordance with section 87:
Provided also that any subsequent registration of a charge shall not prejudice any
right acquired in respect of any property before the charge is actually registered.
(2) Where a charge is registered with the Registrar under sub-section (1), he shall issue
a certificate of registration of such charge in such form and in such manner as may be prescribed
to the company and, as the case may be, to the person in whose favour the charge is created.
(3) Notwithstanding anything contained in any other law for the time being in force, no
charge created by a company shall be taken into account by the liquidator or any other
creditor unless it is duly registered under sub-section (1) and a certificate of registration of
such charge is given by the Registrar under sub-section (2)....."
if charge is not created with ROC ,then it is void against the lender.
REGISTRATION OF CHARGE IS ONLY AFTER CREATION OF CHARGE.IN SUPPORT OF REGN. OF CHARGE,ROC ISSUES CHARGE REGN. CERT.YOU MAY OBTAIN ONLINE.
WHEN A DEFAULT TAKES IN LOAN REPAYMENT,THE CHARGE CRYSTALLISES ON ASSETS OF BORROWER.
PL. COME BACK WITH ANY QUERIES.
SEC77 OF NEW CO ACT 2013 IS ENOUGH TO CONVINCE BANKER . NO NEED I FEEL FOR CASE LAW.
M V Gupta
(Expert) 15 February 2014
As the loan agreement provides that charge on the company's property would be created on the occurrence of event of default, no charge comes into existence until the date of default.Hence the company's obligation to register the charge would arise only on the occurrence of event of default.
R.V.RAO
(Expert) 16 February 2014
my reliance is on new co act 2013 section 77(1),reproduced above.
