UNIT 9

● Charge
● A charge is security, which has the effect of passing legal title to assets or property of
the company
● A charge is a process of creation security given for debenture or loans of the company
● The company can deal with the property subject to charge to that the charge holder may
be paid first whatever is due to him
● A charge is an instrument in writing creating a security and includes an equitable charge
or deposit of title deeds.
● According to section 2(16) “charge” has been defined as an interest or lien created on
the property or assets of a company of any of its undertakings or both as security and
includes a mortgage
● The law with respect to the registration of charges are dealt in Section 77 to 87 of the
Companies Act, 2013. The sections provided the law with respect to the registering of
the charges.
● The essential difference between charge and mortgage is that in the former case, there
is only passing of title, while interest in the property remains with the company; in the
latter case there is transfer of interest in property.
● Kinds of charges -
● Fixed charge and
● Floating
● Fixed charge or Specific charge : a fixed charge is a specific charge made to cover
assets which are ascertained and definite or capable of being ascertained and defined.
● Thus a fixed charge can be created both on the present and the future property of the
company
● Fixed charge is normally created on the fixed assets of the company viz., land, buildings,
plant and machinery, vehicles, etc. However nothing in the Act prohibits creation of fixed
charge on the current assets of the company
● Fixed charge created on the fixed assets is a kind of charge where the fixed assets do
not take part directly in the production process. They only aid production. Also fixed
assets constantly remain as fixed assets without change of its character.
● The fixed assets, which are subjected to fixed charge, remain in the possession of the
company but cannot be sold without the consent of the charge holder.
● A fixed charge is easily enforceable. It does not require any other legal approval and can
be enforced without aid of the court in accordance with the conditions creating the
charge.
● Floating Charge
● A floating charge is a peculiar kind of security available to companies as borrowers.
● A floating charge is a charge on the assets for the time being of a going concern. It
remains dormant and floats over the assets of the company until the company ceases to
be a going concern
● A floating charge is not attached to any definite property but covers property of a
fluctuating type. However, it covers both the present and future property.
● Floating charge is normally created on the current assets of the company like raw
materials, work-in-progress, finished goods, sundry debtors, bill receivable, prepaid
expenses and all other current assets.
● These current assets are of fluctuating type of direct take part in the production process.
● The characteristics of the assets, which are subject to floating charges, are that they
charge their character due to the production process. Raw material gets converted into
work-in-progress, work-in-progress into finished stock, finished stock, finished stock into
cash/sundry debtors/ bills receivable and then they can convert once again into raw
material.
● The advantage of floating charge is that the company may sell the property subject to
charge in the ordinary course of business without consent of the charge holder.
● A floating charge cannot be directly enforced. It has to be first converted into a fixed
charge before its enforcement. The process of conversion of the floating charge into
fixed charge for the purpose of enforcement is called crystallization of floating charge.

● Crystallisation of Floating Charge

● The process of conversion of a floating into fixed charge for the purpose of its
enforcement is called crystallization of floating charge.
● A floating charge crystallizers and the security becomes the security becomes fixed the
following cases:
- When the company goes into liquidation
- When the company caesars to carry on business
- When the creditors take steps to enforce the security
- On the happening of an event specified in the instrument creating the charge.

● Postponement of Floating Charge

● The creation of floating charge on a property leaves the company a right to create
another fixed charge, on the same property until the floating charge crystallizes
● In such a situation a fixed charge created after the floating charge will get priority and the
floating charge gets postponed.
● The floating charge is also postponed in favour of the following persons, if they act
before crystallization of security:
- A landlord who distraints for rent
- A creditor who obtains a garnishee order
- A judgement creditor who attaches the goods of the company and gets them
sold.
- The employees of the company and other preferential creditors in the event of
the winding up
- The supplier of the goods to the company under hire purchase agreement

● Registration of charges:
● Duty of the company to register charges: according to section 77, it shall be duty of
the company creating a charge on its property or assets of any of its undertakings
whether tangible or otherwise, to register the particulars of the charge with the
instruments, creating such charge in such form, on payment of such fees and in such
manner as may be prescribed, with the registrar within 30 days of creation.
● Registration by the Registrar: the registrar may, on the application by the company,
allow such registration to be made within a period of 300 days of such creation on
payment of such additional fees as may be prescribed.
● If registration is not made within a period of 300 days of such creation, the company
shall seek extension of time in accordance with section 87.
● Any subsequent registration of a charge shall not prejudice any right acquired in respect
of any property before the charge is actually registered.
● Issue of certificate of registration by registrar: where a charge is registered with the
registrar, a certificate of registration of such charge shall be issued in prescribed form to
the company of charge holder.
● Verification of instruments: every instrument evidencing any creation or modification
of charge and required to be filed with the Registrar in pursuance of section 77, 78 or 79
shall be verified as follows-
● (a) where the instrument or deed relates solely to the property situated outside india,
the copy shall be verified by a certificate issued either under the seal of the company, or
under the hand of any director or company secretary of the company, or authorised
officer of the charge holder or under the hand of some person other than the company
who is interested in the mortgage or charge;
● (b) where the instrument or deeds relates, whether wholly or partly, to the property
situated in India, the copy shall be verified by a certificate issued under the hand of any
director or company secretary of the company or an authorised officer of the charge
holder.

● Satisfaction of charges
● According to section 82, the company shall give intimation to the Registrar of the
payment or satisfaction in full of any charge within a period of 30 days from the date of
such payment along with the fee
● Where the satisfaction of the charge is not filed within 30 days from the date on which
such payment of satisfaction, the Registrar shall not register the same unless the delay
is condoned by the Central government
● On receipt of such intimation, the Registrar shall issue a notice to the holder of the
charge calling a show cause within such time not exceeding 14 days, as to payment or
satisfaction of in full should not be recorded as intimated to the Registrar
● If no cause is shown, by such holder of the charge, the registrar shall order that a
memorandum of satisfaction shall be entered in the registrar of charges maintained by
the registrar under section 81 and shall inform the company.
● Company’s Register of Charges
● Section 85 provides that every company shall keep at its registered office a registrar of
charges which shall include therein all charges and floating charges affecting any
 property or assets of the company or any of its undertakings and such particulars as
may be prescribed
● The entries in the registrar shall be authenticated by a director or the secretary of the
company or any other person authorized by the Board for the purpose
● The register of charges shall be preserved permanently for a period of 8 years from the
date of satisfaction of charge by the company. A copy of the instrument creating the
charge shall also be kept at the registered office of the company along with register of
charges
● Inspection of charges: the register of charges and instrument of charges shall be kept
open for inspection during business hours by members, creditors or any other person
subject to reasonable restriction by its articles.

● Deposits
● Acceptance of deposits by Banking Companies are regulated by Reserve Bank of India,
whereas the acceptance of deposits by non-banking non-financial companies are
regulated by the provisions of the companies act 2013 and Companies (Acceptance of
Deposits) Rules, 2014. It regulates aspects as to the ceiling of total deposits,
advertisement, exemptions etc.
● Section 73 to 76 regulate the invitation and acceptance of deposits. It prohibits
acceptance of deposits except from the members through ordinary resolution or
acceptance deposits by ‘eligible company’ being a public company, subject to conditions
specified in the rules.
● Section 2(31) ‘deposit’ includes any receipt of money by way of deposit or load or in any
other form by a company, by does not include such categories of amount as may be
prescribed in consultation with the Reserve Bank of India.
● What is not a deposit?
● ‘Deposit’ includes any receipt of money by way of deposit or loans in any other form, by
a company, but does not include-
- Any amount received from the Central Government or a State Government, or
any local government, or any a statutory body
- Any amount received from forgeign governments, foreign/international banks,
multilateral financial institutions, foreign export credit agencies, foreign
collaborations, foreign bodies corporate and foreign citizens, foreign authorities,
subject to the provisions of FEM Act 1999
- Any amount received as a loan or facility from any baking company or from the
State Bank of India or any of its subsidiary banks or from a banking institution
notified by the Central Government under the Banking Regulations act 1949.
- Any amount received as a loan or financial assistance from Public Financial
Institutions notified by the Central government in consultation with the RBI,
insurance companies, scheduled banks as defined in the RBI Act 1934.
- Any amount received against the issue of commercial paper or any other
instrument issued in accordance with the guidelines of the RBI
- Any amount received by a company form any other company
 - Any amount received from a person, who at the time of the receipt of the amount,
was a director of the company
- Any amount received from an employee not exceeding his annual salary, under a
contract of employment with the company in the nature of non-interest bearing
security deposit
- Any non-interest bearing amount received or held in trust
- Any amount brought in by the promoters of the company by way of unsecured
load in pursuance of the stipulation of any lending financial institutions or a bank
- Any amount accepted by a Nidhi Company in accordance with Section 406 of the
Act.

● Depositor [rule 2(1)(d)]

● ‘Depositor’ means
● Any member of the company who has made a deposit with the company in accordance
with section 73 of the Act, or
● Any person who has made a deposit with a public com in accordance with section 76 of
the Act
● Eligible company [Rule 2(1)(e)]
● ‘Eligible company’ means a public company as referred to in section 76, having a net
worth of not less than Rs.100 crore or a turnover or not less than Rs.500 crore and
which has obtained the prior consent of the company in general meeting by means of a
special resolution and filed the said resolution with the Registrar of Companies and
where applicable, with the RBI before making any invitation to the Public for acceptance
of deposits.
● Prohibition on acceptance of deposits from public
● Section 73(1) states that, no company shall invite, accept renew deposits under this Act
from the public except in a manner provided under chapter V
● Exceptions
● Section 73(1) prohibition, does not apply to
● A banking company and
● Non-banking financial company as defined in the RBI Act 1934 and
● To such other company as the Central government may, after consultation with the RBI,
specify in this behalf
● Conditions for acceptance of deposits from members
● Section 73(2) states that a company may, subject to
● The passing of a resolution in general meeting nad
● Subject to such rules as may be prescribed in consultation with the RBI
● Issuance of a circular to its members including a statement showing the financial
position of the company, the credit rating obtained, the total number of depositors.
● Filing a copy of the circular along with such statement with the registrar within 30 days
before the date of issue of the circular
● Depositing such sum which shall not be less than 15% of the amount of its deposits
maturing during a financial year and the financial year next following, and kept in a
 scheduled bank in a separate bank account to be called as deposit repayment reserve
account
● Providing deposit insurance in such manner and to such extent as may be prescribed
● Certifying that the company has not committed any default in the repayment of deposits
accepted either before or after the commencement of this Act or payment of interest on
such deposits
● Section 73(4) states that when a company fails to repay the deposit or part thereof or
any interest thereon, the depositor concerned may apply to the Tribunal for an order
directing the company to pay the sum due or for any loss or damage incurred by him as
a result of such non-payment and for such other orders as the Tribunal may deem fit.
● Creation of Security [Rule 6]
● Every eligible company inviting secured deposits shall provide for security by way of a
charge on its assets of the company for the due repayment of the amount.
● The company shall ensure that the total value of the security either by way of deposit
insurance or by way of charge or by both on company’s assets shall not be less than the
amount of deposits accepted and the interest payable thereon
● The security for deposits shall be created in favour of a trustee for the depositors on:
● (a) specific movable property of the company, or
● (b) specific immovable property of the company wherever situated, or any interest
therein
● Appointment of deposit trustee (Rule 7)
● Consent of deposit trustees with respect to their appointment
● Execution of deposit trust deed before issuing advertisement
● Certain persons not to be appointed as deposit trustees
● Removal of deposit trustees
● Meeting of depositors through deposit trustee
● Nomination for deposits
● Furnishing of deposit receipts to depositors
● Maintenance of liquid assets and creation of deposit repayment reserve account
● Registers of deposits
● Premature repayment of deposits
● Return of deposits to be filed with the registrar
● Penal rate of interest
● Power on central government to decide certain questions
● Damages of fraud

● Theories of corporate personality

● Fiction theory
● Bracket theory
● Realistic theory
● Concession theory
● Purpose theory
● According to fiction theory, a legal person is an imaginary entity that is formed by law
or in other words enforceable by law. It has rights and duties. It just likes a human being
who has a soul but it's not a real human being. It has no will, no mind nothing. It cannot
decide on its own. It can work according to the law only. Its personality is different from
the members of the company
● Bracket theory was also known as the symbolist theory. This theory is first propounded
by Rudolph. According to this theory, it is said that the only human beings have rights
and interests, the corporation is only a legal device to solve complex jural relations and
nothing else
● The realistic theory was founded by german jurist Johannes. According to this
corporation is a living human being just like a normal human being and it is not created
by the state also. The corporation is associated with members of the company.
Corporations have the power to make their own decision and it has its own will. All the
members of the group are ready to fulfill the desire of the corporation
● Concession theory is propounded by Svigny and Dicey. According to this, it is the State
and Government who recognize the legal person then only any corporation will come
into existence. A state can form and destroy any company or any group of associations.
It can also withdraw the status of any company . it is based on the principle that the state
is sovereign.
● Purpose theory is propounded by german jurist Brinz and Baker. According to this,
human beings have rights and duties. The corporation is a subject less property than
anything else. Corporations can only form due to the purpose and needs of the human
being.

● IMPORTANT
● Features of company
● Types of company
● MOA & AOA - alteration -limitations
● Promoter - position - liability - preliminary contracts
● Doctrines - ultra vires, indoor management, constructive notice
● Prospectus - types, transfer and transmission, reduction and alteration
● Debentures - types - trust - DRR
● Charges - types - registration