Creation And Registration Of Charges

I. INTRODUCTION

The security which is given to a person for securing the loans and debentures under the mortgage of assets is known as charge. A company has the right to borrow the security for its borrowing.[1] When they both existing and future property is agreed to be available as a security for the repayment of test then the creditors have the right to make it available as there is charge created. According to Section 2(16) of the Act, “charge means an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage”.[2] In the case of Dublin City Distillery Co. v. Deherty,[3] It was stated that charge include any portable charger weather this can be created by an instrument in writing or by the deposit of the title deed.[4]

II. KINDS OF CHARGES

 There are two types of charges-

1.      FIXED CHARGE

Fixed charge is a type of charge which is created so that assets can be covered. It is a type of security which is there under the terms of certain specific property.[5] Fixed Charges is  a  charge fixed  or  specific  when  it  is  made  specifically  to cover assets which are ascertainable and definite at the time of creating the charge e.g., land, buildings,  heavy  machinery etc.[6] A fixed charge is therefore against security of certain ascertainable specific property.[7] The company’s right to dispose of the property is temporarily suspended during the period it is charged or encumbered.  In the event of winding of a company, a debenture holder or creditor secured by a fixed or specific charge shall be placed in the highest class of creditors.[8]

2.     FLOATING CHARGE

A floating charge is a charge which is totally different to the companies as a type of security. This type of charge is not attached to any definite property. A floating charge includes a charge which is on the class of acids which is present and future in the ordinary course of business and this changing from time to time.[9] “The essence of a floating charge is that the security remains dormant until it is fixed or crystallised”.[10] Floating charge is the present security. Floating charge can affect all the assets of the company. Floating Charge, on  the  other  hand,  is  not  attached  to  any  definite property  but  covers  property  which  is  of  a  fluctuating  nature  such  as  stock  in  trade.[11]  It is an equitable charge on the assets for the time being of a going concern.[12] It attaches to the subject charged  in  the  varying  condition  in  which  it  happens  to  be  from  time  to  time.  It is of this sense of such a charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in whose favour the charge is created intervenes.[13]

III. JUDICIAL PRONOUNCEMENTS ABOUT DIFFERENT TYPES OF CHARGES

In the case of Roy & Bros. v. Ramnath Das[14] it was stated that there was a plant and machinery of a company which was attached to the earth and became the part of immovable property therefore under the Companies Act registration would not be necessary to make this charge valid and effective. A floating security definition was stated under Government Stock Investment Company Ltd. v. Manila Rly. Company Ltd.[15], “is an equitable charge on the assets for the time being of a going concern. It attaches to the subject charged in the varying condition in which it happens to be from time to time. It is the essence of such a charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in whose favour the charge is created intervenes”.[16] In the case of Maturi U. Rao v. Pendyala[17] it was stated that “When the floating charge crystallizes it becomes fixed and the assets comprised therein are subject to the same restrictions as the fixed charge”. In the case of Wheatly v. Silkstone & High Moor Coal Co. Ltd.[18] it was held that “Unless specifically precluded, the company can create fixed charge subsequent to floating charges over the same property”.

IV. DIFFERENCE BETWEEN A FIXED CHARGE AND FLOATING CHARGE

The difference between a fixed charge and floating charge is that a fixed charge is a form future securities provided to a lender/creditor in assets of the company whereas a floating charge is Floating security is not a future security; it is a present security which presently affects all the assets of  the  company  expressed  to  be  included  in  it and   it  is also   not  a  specific security.[19] In a recent decision, the Supreme Court of Ireland in the matter of J.D Brian Limited (In Liquidation) T/A East Coast Print and Publicity[20] has confirmed that a crystallization notice served prior to the commencement of a winding up can validly crystallize a floating charge and therefore obtain priority for that charge over preferential creditors’ claims during liquidation.

 

[1] Charges under companies act, 2013 , http://www.caclubindia.com/articles/charges-under-companies-act-2013-23073.asp (last visited Apr 9, 2017).

[2] Section 2(16) of Companies Act, 2013. 

[3] Dublin City Distillery Co. v. Deherty, 1914 AC 823.

[4] Id.

[5] Mr. M. Govindarajan, Provisions Relating to ‘Charges’ Under Companies Act, 2013 (2013), https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=5382 (last visited Apr 9, 2017).

[6] Admin, Creation of Charges under Companies Act, 2013 (2016), http://taxguru.in/company-law/creation-charges-companies-act-2013.html (last visited Apr 9, 2017).

[7] Supra note 4.

[8] Lord Macnaghten in Lilingworth& another v. Houldsworth& another, (1904) 73 Ch. 739.

[9] Creation of Charges under Companies Act, 2013, (2016), http://taxguru.in/company-law/creation-charges-companies-act-2013.html (last visited Apr 9, 2017).

[10] Supra note 6.

[11] “CHARGES” under The New Companies Act, 2013 (2015).

[12] Government Stock Investment Co. Ltd. V. Manila Rly. Co. Ltd., (1897) AC 81 Per Lord Macnaghten,

[13] Supra note 9.

[14] K. Roy and Bros. vs Ramanath Das and Ors. AIR 1945 Cal 37.

[15] Government Stock Investment Company Ltd. v. Manila Rly. Company Ltd, [1897] A.C. 81

[16] COMPANIES ACT, 2013 REGISTR REGISTRATION OF CHARGES CHARGES, , https://www.icsi.edu/portals/0/REGISTRATION%20OF%20CHARGES.pdf (last visited Apr 9, 2017).

[17] Maturi U. Rao v. Pendyala A.I.R. 1970 A.P. 225

[18] Wheatly v. Silkstone & High Moor Coal Co. Ltd., (1885) 54 L.J. Ch 78

[19] Evans v. Rival Granite Quarries Ltd, 1910 2kb 979.

[20] In the Matter of J.D. Brian Motors Limited (In Liquidation) T/A Belgard Motors and In the Matter of East Coast Car Parts Limited (In Liquidation) and In the Matter of the Companies Acts 1963 to 2009 (the Companies).

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