Secured Lending

Companies often avail loans or assume debt by providing some asset of the company as a security to the lender.

Under such a "secured" lending arrangement, if a company fails to honour the obligations against the loan/debt, the lender has the right to take possession of the asset which is provided by the company as security and dispose it off to recover the dues form the company.

Creation of Lien / Charge

When a company offers its assets as security to a lender, it is called "creation of lien" or "creation of charge" on such assets or "hypothecation", in common parlance. The Registrar of Companies is required to be reported about the hypothecation within 30 days of creation of lien by the company. If Company/charge holder fails to file the required forms within 30 days, then it can file within period of 60 days of such creation, on payment of such additional fees.

Further, the Registrar may, on an application from Company / Charge holder, allow such registration to be made within a further period of 60 days after payment of such advalorem fees. Registrar must be reported in form CHG -1 (for liens created through instruments other than debentures) and in form CHG-9 (for liens created through issuance of debentures).

The CHG-1 / CHG-9 forms must be accompanied by the instrument / document capturing the details of the charge creation. (Example, the loan agreement / mortgage deed, etc)

Relevant fee must also be paid while reporting the charge. The CHG-1 / CHG-9 forms must be digitally signed by both parties using the Digital Signature Certificate (DSC). If the company fails to file the charge form within 30 days, the charge holder may themselves file the charge form. Once the form is received, the registrar shall issue a certificate of registration in CHG-2. Registrar shall also assign a unique charge ID.

Release of Lien / Charge

A company or charge holder (lender) shall, within a period of 300 days from the date of the payment or satisfaction in full of any charge registered give intimation of the same to the Registrar in Form No.CHG-4 along with the fee.

Default in registration or satisfaction of lien / charge

In case of default by the Company in filing the forms, then it shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.