Companies Act Section 78

Application for Registration of Charge Under the Companies Act: Section 78

Section 78 of the Companies Act provides an alternative route for registering a charge in cases where a company has failed to do so within the prescribed thirty-day period outlined in Section 77. 

This section empowers the chargeholder (the person or entity in whose favor the charge has been created) to take independent action to ensure that the charge is registered, thereby protecting their legal and financial interests. 

Section 78 thus serves as a remedial measure, ensuring that lapses on the part of the company do not compromise the enforceability of charges or the security of creditors’ interests.

Key Provisions of Section 78

1. Right of the Chargeholder to Apply for Registration:

In cases where a company has neglected or failed to register a charge within the specified thirty-day period under Section 77, Section 78 permits the chargeholder to apply directly to the Registrar of Companies for the charge’s registration. 

This right exists to protect the chargeholder’s interest in the property or assets subject to the charge, providing a clear pathway to safeguard their security even if the company has been remiss in its duty to register.

2. Non-Prejudice to Company’s Liability:

Importantly, the application for registration by the chargeholder does not absolve the company of any liabilities or penalties it may face under the Companies Act for failing to meet its registration obligations. 

This means that, while the chargeholder may apply to secure their interests, the company remains accountable for any compliance failures. Section 78, therefore, operates without prejudice to any offence or default on the part of the company, upholding accountability.

3. Application Requirements for the Chargeholder:

When submitting an application for registration, the chargeholder must provide the necessary documentation and instruments associated with the charge, in the prescribed form and manner. 

This includes supplying any formal documentation or agreements related to the charge that substantiate its creation and terms. This formalized application process ensures that the Registrar receives a complete and accurate record for review.

4. Registrar’s Review Period and Notice to Company:

Upon receiving the application from the chargeholder, the Registrar is obligated to review it within a fourteen-day period. 

During this time, the Registrar must notify the company about the application, giving it an opportunity to either register the charge itself or provide sufficient cause to explain why the charge should not be registered.

If the company does not act within this notice period by either registering the charge or providing a valid reason against the registration, the Registrar may proceed to register the charge based on the chargeholder’s application. 

This process ensures that the company has a final opportunity to fulfill its obligation before the Registrar takes action on the chargeholder’s behalf.

5. Payment of Prescribed Fees:

For the registration to proceed, the chargeholder is required to pay any applicable fees prescribed by law. This fee structure aligns with the cost requirements outlined in the Companies Act, ensuring that the registration process is completed with proper financial obligations met. 

The fees must be paid at the time of the chargeholder’s application, adding an official aspect to the process.

6. Reimbursement of Fees to Chargeholder:

Section 78 includes a provision allowing the chargeholder to recover any fees or additional costs they incurred in the process of registration from the company itself. 

This reimbursement right ensures that the financial responsibility for registration ultimately falls on the company, as it was their duty to register the charge in the first place. 

By allowing the chargeholder to claim back any fees paid, the law reinforces the principle that the primary responsibility for compliance lies with the company, while also protecting the chargeholder from bearing undue financial burdens.