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Charges Under Companies Act, 2013

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Charges under Companies Act, 2013
What is a Charge?
A charge is a right created by any person including a company referred to as “the borrower” on its assets and properties, present and future, in favor of a financial institution or a bank, referred to as “the lender”, which has agreed to extend financial assistance Section 2(16) of the companies act, 2013 defines charges so as to mean 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.
The following are the essential features of the charge which are as under:
1. There should be two parties to the transaction, the creator of the charge and the charge holder.
2. The subject-matter of charge, which may be current or future assets and other properties of the borrower.
3. The intention of the borrower to offer one or more of its specific assets or properties as security for repayment of the borrowed money together with payment of interest at the agreed rate should be manifested by an agreement entered into by him in favour of the lender, written or otherwise. A charge may be fixed or floating depending upon its nature.

Need for creating a charge on company’s assets:
Almost all the large and small companies depend upon share capital and borrowed capital for financing their projects. Borrowed capital may consist of funds raised by issuing debentures, which may be secured or unsecured, or by obtaining financial assistance from financial institution or banks.
The financial institutions/banks do not lend their moneys unless they are sure that their funds are safe and they would be repaid as per agreed repayment schedule along with payment of interest. In order to secure their loans they resort to creating right in the assets and properties of the borrowing companies, which is known as a charge on assets. This is done by executing...

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