In India, corporate borrowing and asset-based financing are closely regulated to ensure transparency and protect creditors’ interests. The Ministry of Corporate Affairs (MCA) mandates companies to disclose all charges — that is, any form of security or lien created on their assets — to the Registrar of Companies (RoC).
This disclosure framework, governed by the Companies Act, 2013, relies primarily on two key e-forms:
- Form CHG-1 — for registration or modification of a charge, and
- Form CHG-4 — for reporting satisfaction (repayment) of a charge.
Failure to comply with these filings can lead to severe penalties, affect a company’s creditworthiness, and complicate future fund-raising or asset transfers.
File your Form CHG-1 and CHG-4 compliances seamlessly with Legal Parivar.
🏦 Form CHG-1: Registration of Creation or Modification of Charge
A “charge” represents an interest or lien created on a company’s property or assets (including fixed deposits or book debts) as security for a loan or any financial obligation. Registering a charge through CHG-1 ensures that lenders, investors, and the public are aware that an asset is already encumbered.
🔹 Purpose and Applicability
- Purpose: To record details of any newly created or modified charge on a company’s assets, whether located in India or abroad.
- When Used:
- Creation of a fresh charge (e.g., a new loan secured by company property).
- Modification of an existing charge (e.g., increase in loan amount, change in repayment terms, or substitution of security).
- Who Files:
- Usually the company.
- However, if the company fails to file within the stipulated time, the charge holder (bank or lender) may file independently.
- Mandatory Attachments:
- Instrument creating/modifying the charge (loan agreement, deed of hypothecation, sanction letter, etc.).
- Board resolution authorizing the creation of the charge.
- Proof of payment of stamp duty (where applicable).
⏰ Filing Timeline and Extensions
- Statutory Due Date: Within 30 days of charge creation or modification.
- Extended Period (with additional fees):
- Up to 60 more days with ad valorem additional fees based on the loan amount.
- In exceptional cases, another 30-day window may be granted upon application for condonation.
- Beyond 120 Days: Filing can only be made after obtaining condonation of delay from the Central Government or Regional Director using Form CHG-8.
📜 Post-Filing Outcome
- Upon approval, the RoC issues:
- Form CHG-2 — Certificate of Registration of Charge (for creation).
- Form CHG-3 — Certificate of Modification of Charge (for modification).
These certificates serve as conclusive proof that the charge has been duly registered under the Companies Act.
🎉 Form CHG-4: Intimation of Satisfaction of Charge
Once a company repays the entire loan or the secured obligation is fully satisfied, the next crucial step is to formally update the RoC by filing Form CHG-4. This ensures the removal of the encumbrance from the company’s public records, thereby freeing the asset from any charge.
🔹 Purpose and Applicability
- Purpose: To notify the RoC of the full repayment or satisfaction of any registered charge.
- Note: Partial repayments are not covered under CHG-4; they are treated as modifications and must be reported in CHG-1.
- Who Files:
- Either the company, or
- The charge holder (usually a bank or financial institution).
- Mandatory Attachments:
- No Dues Certificate or Letter of Satisfaction issued by the lender.
- Board Resolution authorizing satisfaction of the charge.
- Optional: Copy of payment proof or closure acknowledgment from the lender.
⏰ Filing Timeline and Extensions
- Due Date: Within 30 days from the date the loan is fully repaid.
- Extended Period: Can be filed up to 300 days from the date of satisfaction, with additional fees applicable.
- Beyond 300 Days: Requires condonation of delay from the Central Government/Regional Director via Form CHG-8.
🧾 Verification Process
Before recording satisfaction, the RoC issues a notice to the charge holder granting 14 days to raise objections.
If no objection is received, the RoC updates the register and issues a Certificate of Satisfaction of Charge (Form CHG-5) — confirming that the encumbrance has been removed from the company’s records.
⚠️ Consequences of Non-Compliance
1. Legal and Financial Penalties (Section 86, Companies Act, 2013):
- Both the company and every officer in default may face heavy fines.
- Penalties may extend to several lakhs depending on the nature and duration of the default.
2. Impact on Creditworthiness and Asset Dealings:
- Non-registration of a charge (CHG-1) within the prescribed time renders it void against the liquidator or other creditors, though the loan contract itself remains valid.
- Non-filing of CHG-4 means the charge remains “active” in public records — potentially blocking future borrowings, asset sales, or restructuring exercises.
3. Auditor and Lender Implications:
Auditors are required to verify charge filings during statutory audits. Lenders also check the MCA portal before sanctioning new loans — any pending or outdated charge records can immediately delay credit approvals.
✅ Best Compliance Practices for Companies
- Maintain a Charge Register (Form CHG-7): Mandatory for all companies to track every charge created, modified, or satisfied.
- Synchronize with Lenders: Ensure that both company and lender filings are coordinated to avoid duplication or rejection.
- File Early: Avoid last-minute filings; MCA systems often flag delays or mismatched document dates.
- Obtain Certificates Promptly: Always keep CHG-2/CHG-3/CHG-5 certificates on record — they are vital during due diligence or mergers.
- Regular Monitoring: Periodically verify your company’s “Charges” tab on the MCA portal to ensure records are current and accurate.
💡 In Summary
Forms CHG-1 and CHG-4 play a central role in corporate debt compliance under Indian company law.
- CHG-1 ensures transparency at the time of loan creation,
- CHG-4 ensures closure transparency upon repayment.
Adhering to these filings not only keeps your company legally compliant but also builds credibility with lenders, investors, and regulators. In the era of digital governance and financial scrutiny, timely and accurate MCA compliance is both a legal necessity and a mark of good corporate governance.
