Juris Corp Note – 15.05.2014For discussion purposes onlyPrivileged and Confidential

NOTE ON

Companies Act, 2013- Sections pertaining to Lending Mandates

Section 77: Duty to register charges etc.

A company creating a charge, shall, register the particulars of the said charge with the ROC within 30 days of its creation.

This charge could be on:

1) On its property or assets or;

2) Any of its undertakings;

3) Whether tangible or otherwise.

Situated in or outside India.

Signed by both the Company and the charge-holder

Together with the instruments creating the charge.

Proviso 1, 2 and 3

Proviso 1- The ROC may allow a further 270 days, on payment of additional fees. This application shall be supported by a declaration from the company by its secretary or director that the same does not adversely affect the rights of any other creditors of the company (Form No. CHG-10).

Proviso 2- If not within 300 days, company shall seek extension from the Central Government under Section 87 of the Act.

Proviso 3- The liquidator or any other creditor shall not take into account any charge created unless registered with the Registrar.

Applicable Forms

Form No. CHG-1 for creation or modification of charge (for other than Debentures).

Form No. CHG-9 (for debentures including rectification).

Attachments with Form No. CHG-1

Rule 5

Juris Corp Note – 15.05.2014For discussion purposes onlyPrivileged and Confidential

1) Where the instrument or deed relates solely to property situate outside India, the copy (instrument evidencing the creation/modification) shall be verified by:

a) a certificate issued either under the seal of the company or;

b) under the hand of any director or company secretary of the company or;

c) an authorised officer of the charge holder or;

d) under the hand of some person other than the company who is interested in the mortgage or charge, stating that it is a true copy.

2) Where the instrument or deed relates, whether wholly or partly, to the property situate in India, the copy shall be verified by:

a) A certificate issued under the hand of any director or company secretary of the company or;

b) An authorised officer of the charge holder, stating that it is a true copy.

Creation of charge and Modification of charge

ROC shall issue a certificate of registration of such charge in Form No. CHG-2.

ROC shall issue a certificate of modification of charge in Form No. CHG-3.

The certificate issued by the Registrar shall be conclusive evidence that the requirements of Chapter VI of the Act and the rules have been complied with.

Note: The 2013 Act defines ‘charge’ as an interest or lien created on property/assets/undertakings of a company as security. In view of this definition, it appears that even pledges of movable property will have to be registered with the ROC under the 2013 Act (exempted under the 1956 Act).

Section 180: Restrictions on Powers of Board

Section 180 (1) (a)

Special Resolution; Security; and Applicable to Public and Private Companies.

Section 180 (1) (c)

Special Resolution; Borrowing; and Applicable to Public and Private Companies

Juris Corp Note – 15.05.2014For discussion purposes onlyPrivileged and Confidential

Note: MCA Circular- Ordinary resolution under Section 293 of the 1956 Act valid for a period of one year from the date of notification of this Section.

Section 185: Loan to Directors, etc

Holding company cannot advance any loan or give any guarantee or provide any security to its wholly owned subsidiary unless such a loan has ben availed by the subsidiary for its “principal business activities” ( Chapter XII, R.10)

Penalty for contravention- INR 5,00,000 up to a maximum of INR 25,00,000 (for the company) and either - INR 5,00,000 up to a maximum of INR 25,00,000 or imprisonment for a period of 6 months or both for any loan, guarantee or security availed by or provided to any director or to any person in whom the director may be interested.

Section 186: Loan and investment by company Companies can make investment through not more than two layers of investment

companies (exception- Company incorporated outside India). A holding company cannot advance any loan or give any guarantee or provide any

security to or on behalf of its subsidiary company or joint venture company in excess of 60 % of its paid up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account, whichever is more unless it passes a special resolution to that effect. Rule 11 of Chapter XII- A holding company need not pass a special resolution as stated so long as they disclose the details of any such loan, guarantee or security.

Rule 13 of Chapter XII- for any other body corporate, a company will have to pass a special resolution if the limit prescribed above is exceeded.

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