Companies Act Section 77

Duty to Register Charges Under the Companies Act: Section 77

Section 77 of the Companies Act details the obligations of companies to register charges created over their assets, which may include any kind of charge, either tangible or intangible, within India or abroad. 

Registering these charges is a crucial step in ensuring transparency, securing creditor rights, and safeguarding the legal interests of stakeholders. 

Section 77 sets out clear guidelines on the process, timelines, and consequences of registration, making it a fundamental aspect of corporate compliance.

Key Provisions of Section 77

1. Obligation to Register Charges:

Every company is mandated to register any charge it creates on its property, assets, or undertakings, regardless of the location or type of asset (whether tangible or intangible). This includes registering both the particulars of the charge and any related instruments that establish it.

The registration must be completed within thirty days from the creation of the charge. The prescribed particulars must be signed by both the company and the chargeholder. This registration, completed with the Registrar of Companies, requires a specified form, manner, and payment of necessary fees.

2. Extended Registration Periods for Delayed Cases:

For companies unable to meet the initial thirty-day registration window, the Registrar has the authority to grant an extended period for registration under certain circumstances:

Charges Created Before the Companies (Amendment) Act, 2019: Companies with charges created before this amendment may apply for registration within a period of three hundred days from the creation of the charge.

Charges Created After the Companies (Amendment) Act, 2019: Companies with charges created after the amendment’s commencement are allowed sixty days from the charge’s creation for registration. Additional fees as prescribed must be paid for this extended period.

3. Further Extensions for Registration:

If a company fails to register the charge within these extended timeframes, further accommodations are provided:

Charges Created Before the Amendment: A final window of six months from the amendment date is provided for registration, allowing companies to complete registration with the payment of additional fees. These fees may vary based on the class of company.

Charges Created After the Amendment: The Registrar may provide an additional sixty-day window for registration if the company applies and pays ad valorem fees, which are based on the value of the charge.

4. Protection of Prior Rights:

If a charge is registered after a delay, it does not invalidate or affect any legal rights or claims on the property acquired before the charge’s registration. 

This ensures that any interests previously vested in the property remain unaffected and that third parties are protected from unforeseen consequences of a later-registered charge.

5. Exceptions to Registration Requirement:

Certain charges may be exempt from registration under Section 77. These exceptions are determined through consultation with the Reserve Bank of India and are prescribed by the appropriate authority. 

This flexibility allows the law to accommodate specific types of charges or instruments that may not require the same level of scrutiny.

6. Issuance of Registration Certificate:

Once a charge has been registered, the Registrar is obligated to issue a certificate of registration for that charge. 

This certificate is provided to both the company and, if applicable, the chargeholder. The issuance of this certificate serves as official proof of registration and helps maintain legal records for all parties involved. 

The form and manner in which this certificate is issued are prescribed by regulations to maintain consistency across different cases.

7. Recognition of Charges in Insolvency and Liquidation:

Section 77 provides that any charge created by a company will not be recognized by a liquidator or any creditor unless it has been duly registered with the Registrar and a certificate of registration has been issued. 

In the event of insolvency, this requirement ensures that only registered charges are taken into account during liquidation proceedings, giving priority to creditors with registered claims. This provision aligns with the Insolvency and Bankruptcy Code, 2016, which also upholds the need for formal charge registration.

8. Preservation of Contractual Obligations:

Subsection (3) clarifies that non-registration of a charge does not invalidate any existing contractual obligations related to the repayment of the secured amount. 

The underlying agreements between the company and the lender or creditor remain enforceable regardless of the charge’s registration status. This ensures that the company’s duty to fulfill its financial commitments remains intact, protecting the interests of the lender.