Charge Creation, Modification & Satisfaction

What is a charge?

When a company borrows against its assets — mortgaging property, hypothecating stock or vehicles, or pledging shares — the lender's security over those assets is a charge. The Companies Act, 2013 requires every charge to be registered with the ROC, so anyone dealing with the company can see what's already secured.

Registration isn't a one-time job. When the loan's terms change, the charge is modified, and when the loan is repaid, its satisfaction has to be recorded too.

The key terms

A few forms and rules cover the life of a charge:

Charge

Security a company gives a lender over its assets — a mortgage on property, hypothecation of stock, receivables, or vehicles, or a pledge of shares.

CHG-1

The form for registering a new charge, or a modification of an existing one, with the ROC. It's signed by both the company and the charge holder.

30-day deadline

A charge must be registered within 30 days of its creation. The ROC can allow a further 30 days on additional fees, and a further 60 days on ad valorem fees.

CHG-4

The form for recording that a charge has been satisfied — the loan repaid in full — filed within 30 days of satisfaction.

Certificate of registration

The ROC issues a certificate for each charge registered, which is conclusive evidence that the registration requirements were met.

Index of charges

Every registered charge appears on the company's public record on the MCA portal, where lenders and investors can see it.

Condonation

Once every extended window has passed, a charge can only be registered with the Regional Director's approval, through Form CHG-8.

Why registration matters

Charge filings affect both the lender's security and the company's ability to borrow again:

Unregistered security is void

An unregistered charge isn't taken into account by a liquidator or other creditors. The loan remains, but the lender's security over the assets doesn't hold against them.

Lenders insist on it

Banks and NBFCs won't disburse, or will stop disbursing, until the charge is registered. Many file jointly with the company to make sure it happens.

Deadlines are strict

After 30 days the cost rises, and once all the extended windows have passed, registration needs a condonation application to the Regional Director.

Open charges block new loans

A charge still showing on the MCA record after the loan is repaid can hold up a new loan, since the next lender sees the assets as already pledged.

Open charges block closure

A company can't be struck off while it has unsatisfied charges on record. Recording satisfaction is part of closing properly.

Due diligence

Investors and acquirers review the index of charges to understand what's secured. Stale or unexplained charges raise questions.

Penalties

Failing to register a charge or record its satisfaction can lead to penalties on the company and its officers in default.

Who is this for?

• Companies taking a secured term loan, working capital facility, or overdraft
• Companies financing vehicles or equipment through hypothecation
• Promoters pledging shares, or companies mortgaging property, to secure borrowings
• Companies whose loan terms, amount, or security have changed
• Companies that have repaid a loan and need the charge satisfied on record
• Companies with a charge that was never registered, or registered late

Vehicle loans are the charge most often missed. A car or commercial vehicle bought on a loan and hypothecated to the lender is a charge on the company's assets, and needs registering like any other.

The life of a charge

Here's how each stage compares:

What we'll need from you

Loan and security documents

The sanction letter, loan agreement, and the mortgage, hypothecation, or pledge documents that create the charge.

Charge details

The amount secured, the assets charged, the charge holder's details, and the date the charge was created.

Charge holder's DSC

The lender's authorised signatory signs CHG-1 digitally. We coordinate this with the bank or NBFC.

Board resolution

The resolution approving the borrowing and the creation of security, and within any borrowing limits.

For satisfaction

The lender's no-dues or no-objection letter confirming full repayment, and any release deed for a registered mortgage.

Company's DSC

A valid DSC for the director signing on behalf of the company.

The ROC fee for charge forms depends on the company's authorised capital, and rises if the filing is late. Stamp duty on the security documents themselves is separate, and depends on the state.

Registering a charge

From loan signing to certificate, registration usually runs like this:

1. 1

   Collect the documents

   We gather the sanction letter, loan agreement, and security documents as soon as they're signed, to keep inside the 30-day window.

2. 2

   Check borrowing powers

   We confirm the borrowing and security are within the board's powers, and that any shareholder approval needed has been obtained.

3. 3

   Prepare CHG-1

   The form is prepared with the charge details, amount, assets, and charge holder, and the instrument creating the charge is attached.

4. 4

   Sign with the lender

   The company's director and the lender's authorised signatory both sign CHG-1 with their DSCs.

5. 5

   File within 30 days

   CHG-1 is filed with the ROC, with the normal fee if it's within 30 days, or additional fees within the extended windows.

6. 6

   Update the register

   Once the ROC issues the certificate, the charge is entered in the company's register of charges (CHG-7).

Satisfaction and records

Registering the charge is half the job. These keep the record accurate for the rest of its life:

Record satisfaction promptly

When a loan is repaid, file CHG-4 within 30 days, with the lender's no-dues letter. Don't assume the bank will do it.

Lender filing

If the company doesn't register a charge, the charge holder can register it themselves and recover the fees from the company.

ROC recording satisfaction

The ROC can also record satisfaction on evidence that the debt has been paid, even if the company hasn't filed CHG-4.

Register of charges

The company keeps a register of charges (CHG-7) at its registered office, open to members and creditors for inspection.

Property records

For registered mortgages, a release deed may need to be registered with the Sub-Registrar when the loan is repaid, and title deeds returned.

CERSAI

Banks also register their security interest with CERSAI, the central registry. Make sure it's released there too when the loan ends.

Benefits and responsibilities