# Consequences of Non-Registration of Charge

When a charge that requires registration under Section 77 is NOT registered, the following legal consequences follow:

## (a) Security Becomes Void — But Not from the Beginning

Non-registration makes the security void.
However, this voidness is NOT from the beginning (i.e., not ab initio).
The defect can be cured by subsequent registration of the charge.

## (b) Status During Liquidation

During liquidation of the company, a creditor holding an unregistered charge is treated as an unsecured creditor.
He loses his priority over the company's assets and ranks pari passu with other unsecured creditors.

## (c) Underlying Contract Remains Valid

Even though the security becomes void due to non-registration, the contract or obligation of the company to repay the money secured remains valid.
The lender can still sue the company for recovery of the debt — only the security (priority) is lost.

## Summary Table

Aspect	Effect of Non-Registration
Security	Void (but curable by later registration)
Creditor status in liquidation	Unsecured creditor
Underlying loan contract	Remains valid; debt is recoverable

Worked example

### Example 1

Example: P Ltd. borrows ₹20 lakhs from Q Bank, creating a charge on its factory premises. The charge is never registered with the ROC. Later, P Ltd. goes into liquidation. Effect: Q Bank cannot enforce its security as a secured creditor. It will rank as an unsecured creditor with the others. However, the loan contract itself is valid and Q Bank's claim for ₹20 lakhs is still admissible — just without priority.

⚠️ Common exam mistakes

Treating the security as void ab initio — it becomes void only on default, and can still be revived by subsequent registration within the permitted timeframes.
Believing that non-registration extinguishes the debt itself — only the security is lost; the contractual obligation to repay survives.
Assuming the unregistered charge-holder retains priority — in liquidation he ranks with unsecured creditors.

Reference: Section 77 (read with judicial interpretation) — The Companies Act, 2013

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →