## Registration by Charge-Holder & Consequences of Non-Registration

### Section 78 – Charge-Holder's Right to Register

Where a company fails to register a charge within 30 days of its creation:

The charge-holder may apply to the ROC for registration.
ROC issues a notice to the company, granting 14 days to either register the charge or show cause why it should not be registered.
If no satisfactory response is received, ROC permits registration on the application of the charge-holder.
The charge-holder is entitled to recover from the company the fees paid to the Registrar.

### Consequence of Non-Registration

Where a charge is not registered with the ROC:

1. The charge becomes void against the liquidator and any other creditor of the company.

2. The charge-holder is treated as an unsecured creditor in liquidation – losing priority over assets.

3. The underlying debt remains payable – the company is still bound to repay the money, but the security is lost.

### Penalty for Contravention (Section 86)

Company: Fine of `5,00,000.
Every officer in default: Fine of `50,000.
If any person wilfully furnishes false information or suppresses material information → liable under Section 447 (fraud).

Worked example

### Example 1

Example 1: P Ltd. takes a loan of `1 crore from a bank and creates a charge on its land but never registers it. The company goes into liquidation. Outcome: The bank's charge is void against the liquidator. The bank ranks as an unsecured creditor, even though the loan amount of `1 crore is still legally payable.

### Example 2

Example 2: Q Ltd. fails to register a charge created in favour of Y Ltd. After 30 days, Y Ltd. applies to the ROC under Section 78. ROC gives Q Ltd. 14 days to respond. Q Ltd. does not reply – ROC registers the charge on Y Ltd.'s application, and Y Ltd. recovers the fee from Q Ltd.

⚠️ Common exam mistakes

Believing that non-registration extinguishes the debt – only the security is void; the debt is still payable.
Confusing the 14-day notice period in Section 78 with the 30-day registration limit in Section 77.
Overlooking the additional Section 447 liability when false information is furnished.

Bare-Act text Sections 77(3), 78 & 86 · The Companies Act, 2013 · click to expand

Section 77(3): Notwithstanding anything contained in any other law for the time being in force, no charge created by a company shall be taken into account by the liquidator appointed under this Act or the Insolvency and Bankruptcy Code, 2016, as the case may be, or any other creditor unless it is duly registered under sub-section (1) and a certificate of registration of such charge is given by the Registrar under sub-section (2).

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Registration by Charge-Holder (Section 78) and Consequences of Non-Registration

Worked example

⚠️ Common exam mistakes