## Charge – Concept and Types

### What is a Charge?

A charge is the registration of a security created on the assets of a company in favour of a lender to secure repayment of a loan. Section 2(16) of the Companies Act, 2013 defines charge as 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.

### Two Kinds of Charge

Feature	Fixed (Specific) Charge	Floating Charge
Asset covered	Specific, identifiable asset (e.g., land, building, machinery)	Fluctuating class of assets (e.g., stock-in-trade, debtors)
Dealing with asset	Company cannot deal with the charged asset without consent of the charge-holder	Company can deal with assets in the ordinary course of business
Crystallisation	Already attached	Crystallises into a fixed charge on default, winding up, or cessation of business

### Why does the difference matter?

A fixed charge offers stronger security because the asset is identifiable and cannot be transferred without permission.
A floating charge offers commercial flexibility – inventory and receivables keep turning over without needing fresh permission for each transaction.

Worked example

### Example 1

Example 1: XYZ Ltd. takes a term loan from a bank and creates a charge over its factory building. Since the factory is a specific identifiable asset and the company cannot sell it without bank's consent, this is a fixed (specific) charge.

### Example 2

Example 2: XYZ Ltd. takes a cash credit facility against its stock of raw material and finished goods. As the stock keeps changing daily in the ordinary course of business, this is a floating charge that will crystallise on default.

⚠️ Common exam mistakes

Confusing 'charge' with 'mortgage' – mortgage is one form of charge; charge is the wider concept.
Assuming a floating charge prevents the company from selling stock – it does not, so long as the company deals in the ordinary course of business.
Forgetting that a floating charge can crystallise (convert into a fixed charge) on events like default or winding up.

Bare-Act text Section 2(16) · The Companies Act, 2013 · click to expand

Section 2(16): '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.

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Meaning and Types of Charge (Section 2(16))

Worked example

⚠️ Common exam mistakes