## What is a Charge?
Under Section 2(16) of the Companies Act, 2013, a '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.
### Essentials of a charge
- It is created on the property/assets of the company (movable, immovable or even goodwill).
- It is given as security for a loan/debt.
- It may be created in favour of any person (bank, FI, debenture-holder, etc.).
## Types of Charge
### 1. Fixed Charge
- Created on specific, identifiable and ascertained assets of the company.
- The company cannot deal with (sell/transfer) the asset without consent of the charge-holder.
- Example: Charge on Land & Building, specific machinery.
### 2. Floating Charge
- Created on a class of present and future assets which keeps changing in the ordinary course of business (e.g., stock-in-trade, book debts).
- The company is free to deal with the assets in the ordinary course until the charge crystallises.
- On crystallisation, a floating charge becomes a fixed charge on the assets then in existence.
- Example: Charge on stock of goods, debtors.
### Crystallisation of Floating Charge — occurs when:
1. The company goes into liquidation.
2. The company ceases to carry on business.
3. The charge-holder takes steps to enforce the security (e.g., appoints a receiver).
4. Any event specified in the charge document occurs (e.g., default in payment).
## Fixed vs Floating Charge — Comparative
| Basis | Fixed Charge | Floating Charge |
|---|---|---|
| Nature of assets | Specific, identified assets | Class of fluctuating assets |
| Right to deal with assets | Restricted | Allowed in ordinary course of business |
| Crystallisation | Not applicable | Becomes fixed on crystallisation |
| Examples | Land, Building, specific plant | Stock, book debts |