CREATION AND REGISTRATION OF CHARGES

BY SUSHMA GOWDA

INTRODUCTION

A charge is a security given for security loans or debentures by way of a mortgage on the assets of the company. As mentioned earlier, the power of the company to borrow includes the power to give security also.

A charge may be created either through the act of parties or by operation of law.

A charge may e created by operation of law does not require registration. But a charge created by act of parties requires registration.

The charge may be perpetuity , it gives right to receive payment out of a particular property.

A charge is good against subsequent transferees with notice.

A charge created by the act of parties requires registration and in case of operation of law does not require one.

In case of no charge, no personality liability is created. But where a charge is the result of a contract, there may be a personal remedy.  

TWO KINDS OF CHARGES.

There are two kinds of charges, fixed or specific charge and floating charge.

FIXED CHARGE

A fixed charge is called as fixed or Special when it is created to cover assets which are ascertained and definite or are capable of being ascertained and defined, at the time of creating the change e.g, Land, Building. Or plant and Machinery. A fixed charge, therefore, is a security in terms of certain specific property, and the company gives up its right to dispose off that property until the charge is satisfied.

FLOATING CHARGE

Floating charge, as a type security, is peculiar to companies as borrowers. A floating charge is not Attached to any definite property but covers properly of a fluctuating type e.g., Stock-in-trade and is thus necessary equitable. A floating charge is a charge on a class of assets present and future which in the ordinary course of business is changing from time to time and leaves the company free to deal with the property as it sees fit until the holders of charge take steps to enforce their security.

CRYSTALLISATION OF FLOATING CHARGES

A floating charges attaches to the company’s Property generally and remains dormant till it crystallize or become fixed. The Company has a right to carry on its business with the help of assets over which a floating charge has been crated till happening of some event which determines this right. A floating charge Crystallises and security becomes fixed in following cases.

1) Company when goes into Liquidation

2) when the Company ceases to carry on it business

3) when creditors or the debenture holders take steps to enforce their security e.g. by appointing receiver to take possession of the property charged;

4) On the Happening of the event specified in the deed

MORTGAGE

A mortgage is created by the act of the parties

A mortgage requires registration under the transfer of property act, 1882

A mortgage is for a fixed term.

A mortgage is a transfer of an interest in specific immovable property

A mortgage is good against subsequently transferees.