Quiz: Registration of Charges — 30 questions

1. What is a charge created by a company on its property or assets?

A. A routine business expense recorded against company income

B. A repayment obligation owed without security

C. An interest or lien securing an obligation, including a mortgage

D. A transfer of ownership to the lender without conditions

Answer: (C)

Explanation

A charge is an interest or lien created on company property, assets, or undertakings as security, and it includes a mortgage. A debt is the repayment obligation itself, not the security supporting it.

2. A company grants security over its machinery to support a loan. What legal requirement applies to this charge?

A. It must be registered under Chapter VI of the Companies Act, 2013 and the applicable Rules

B. It is exempt from registration because machinery is a movable asset

C. It requires registration only if the lender later demands repayment

D. It is treated as an unsecured loan and requires no charge registration

Answer: (A)

Explanation

A charge created by a company over property, assets, or undertakings as security for a loan is compulsorily registrable under Chapter VI and the applicable Rules.

3. Which arrangement best illustrates a fixed charge?

A. Security over changing stock held for resale

B. Security over identified land owned by the company

C. Security over raw materials used in daily production

D. Security over future and present trade debtors

Answer: (B)

Explanation

A fixed charge covers a specific, identified, generally permanent asset such as land. Stock, debtors, and raw materials are typical subjects of a floating charge.

4. A company wants to sell machinery subject to a fixed charge. What must it generally obtain before completing the sale?

A. Approval from every ordinary trade creditor

B. A replacement floating charge over its stock

C. Consent from customers who use the machinery

D. Permission or consent from the charge-holder

Answer: (D)

Explanation

Although the company may use an asset under a fixed charge, it may generally sell that asset only with the permission or consent of the charge-holder.

5. Which feature distinguishes a floating charge from a fixed charge?

A. It prevents the company from using covered assets before enforcement

B. It applies exclusively to land and buildings owned by the company

C. It attaches to one permanently identified asset that cannot change

D. It covers fluctuating present and future assets that may be used in ordinary business

Answer: (D)

Explanation

A floating charge covers changing present and future assets or a class of assets, such as stock, raw materials, and debtors, which the company may use in ordinary business.

6. Which event can cause a floating charge to crystallize?

A. The company uses raw materials during normal production

B. The company purchases additional stock in the ordinary course of business

C. The company enters liquidation

D. The company receives payment from a trade debtor

Answer: (C)

Explanation

A floating charge may crystallize when the company enters liquidation, ceases business, breaches its terms, or the creditor enforces the security after a breach.

7. What is the effect of crystallization on assets covered by a floating charge?

A. They become available for unrestricted sale by the company

B. They are converted into unsecured assets until repayment is due

C. They cease to be subject to the lender’s security

D. They become fixed and available for realization by the lender

Answer: (D)

Explanation

After crystallization, the covered assets become fixed and available for realization by the lender, and the company can no longer sell or use them in its business operations.

8. A company creates a charge over an undertaking located outside India. What must the company do?

A. Register the particulars because the duty applies to covered assets outside India

B. No registration is required because the undertaking is outside India

C. Register the particulars only if the undertaking later moves to India

D. Register the particulars only when the charge secures debentures

Answer: (A)

Explanation

The registration duty applies to charges created over property, assets, or undertakings situated within or outside India. The location of the asset outside India does not remove the requirement.

9. Which filing best describes the basic procedure for registering a charge?

A. Submit the charge particulars to the secured creditor and pay the fee after approval

B. File only an unsigned copy of the instrument and wait for the Registrar to determine the fee

C. File the company’s annual return with the instrument and request registration without a fee

D. File the prescribed particulars and, where applicable, a duly signed copy of the creating instrument, then pay the prescribed fee

Answer: (D)

Explanation

The company must file the prescribed particulars with the Registrar, include a duly signed copy of the instrument when applicable, and pay the prescribed fee.

10. Within what period must a charge initially be registered from the date of its creation?

A. Within 60 days

B. Within 30 days

C. Within 300 days

D. Within 90 days

Answer: (B)

Explanation

The initial registration period is 30 days from creation of the charge. Longer periods may be available in specified circumstances, but they are extensions rather than the initial deadline.

11. A charge is created on 10 December 2018 and is not registered within the initial period. Under the applicable extended framework, what further periods may the Registrar allow?

A. Up to 30 days with no additional fees, followed by six months with prescribed ad valorem fees

B. Up to 300 days with additional fees, followed by six months from 2 November 2018

C. Up to 60 days with additional fees, followed by a further 60 days with prescribed ad valorem fees

D. Up to six months from creation, followed by an additional 300 days with no prescribed fees

Answer: (C)

Explanation

For charges created on or after 2 November 2018, the Registrar may allow registration within 60 days with additional fees and then within a further 60 days on payment of prescribed ad valorem fees.

12. What does a certificate issued by the Registrar establish regarding a charge?

A. That the secured debt has been fully repaid by the company

B. That the registration or modification requirements under Chapter VI and the Rules have been complied with

C. That the charge will remain valid without any further legal requirements

D. That the secured creditor has surrendered its security interest

Answer: (B)

Explanation

The Registrar’s certificate is conclusive evidence that the applicable requirements for registration or modification have been complied with. It does not itself establish repayment of the secured debt.

13. Which form is used for the fresh registration of a charge, as distinct from registering its modification?

A. Form CHG-1

B. Form CHG-3

C. Form CHG-9

D. Form CHG-2

Answer: (D)

Explanation

Form CHG-2 is issued for fresh registration of a charge, whereas Form CHG-3 is used for registration of a modification. CHG-1 and CHG-9 concern filing particulars for different types of charges.

14. From what point is a person acquiring property deemed to have notice of a registered charge affecting it?

A. From the date the charge is created

B. From the date the company defaults on its obligation

C. From the date the charge is registered

D. From the date the acquirer personally inspects the register

Answer: (C)

Explanation

Deemed notice begins when the charge is registered. It does not depend on the acquirer having actual personal knowledge or inspecting the register.

15. Why can a later acquirer generally not claim loss caused by failing to investigate a registered charge?

A. The acquirer automatically assumes the secured debt

B. The charge is treated as a private contractual matter

C. The charge becomes enforceable only after court approval

D. The charge is presumed known through constructive notice

Answer: (D)

Explanation

Registered charges are public documents, so constructive notice legally presumes that later acquirers could have discovered them. Actual inspection is not required.

16. What is the effect of an unregistered charge in a liquidation involving other creditors?

A. It takes priority over all unsecured claims

B. It is void against the liquidator and creditors, leaving the holder unsecured

C. It automatically converts into an equitable charge over the company’s assets

D. It is taken into account only if the company admits it

Answer: (B)

Explanation

An unregistered charge is not recognized against the liquidator or other creditors, so the charge-holder is reduced to the position of an unsecured creditor.

17. What happens to the underlying repayment obligation when a charge is not registered?

A. The company is released from repayment unless fraud is proved

B. The repayment obligation survives, but the security may be lost

C. The debt becomes payable only after the charge is registered

D. The debt is cancelled together with the security

Answer: (B)

Explanation

Non-registration does not affect the contractual obligation to repay the secured money. However, the security may be ineffective, requiring the debt to be enforced through the courts.

18. A charge is registered after another party has already acquired rights over the same property. What consequence may follow?

A. The charge receives priority because registration cures all earlier defects

B. The earlier rights become unsecured against the company

C. The later registration automatically defeats the earlier rights

D. The charge-holder may lose priority against the earlier-acquired rights

Answer: (D)

Explanation

A charge-holder loses priority against rights acquired before the charge was actually registered, even if registration later occurs within an extended period.

19. After a company fails to register a charge within 30 days, what may the charge-holder do?

A. Apply to the liquidator to treat the charge as automatically registered

B. Register the charge directly without notifying the company

C. Apply to the Registrar with the charge instrument

D. Cancel the company’s obligation to repay the secured money

Answer: (C)

Explanation

After the company’s failure to register within 30 days, the charge-holder may apply to the Registrar and submit the charge instrument. The Registrar then gives notice to the company and may register the charge within 14 days if no objection is received.

20. When must the Registrar refuse an application by a charge-holder to register a charge?

A. When no objection is received within 14 days

B. When the company receives notice of the application

C. When the company registers the charge or shows sufficient cause against registration

D. When the charge-holder submits the charge instrument after 30 days

Answer: (C)

Explanation

The Registrar must not permit registration by the charge-holder if the company registers the charge itself or demonstrates sufficient cause why it should not be registered.

21. When does registration treatment apply to a company that acquires property already subject to a charge?

A. When the company repays the secured debt in full

B. When the company acquires the property subject to the existing charge

C. When the company acquires any unsecured property

D. When the company creates an unrelated unsecured transaction

Answer: (B)

Explanation

Registration provisions apply when a company acquires property that is already subject to a charge. This is treated as registration-related treatment of an existing security, not as an entirely new unsecured transaction.

22. Which change is treated as a modification of an existing registered charge?

A. Recording the company’s registered office address

B. Replacing the charge with an entirely unrelated unsecured debt

C. Paying the secured debt and releasing the charge in full

D. Changing the interest rate, other than the bank rate, under the facility

Answer: (D)

Explanation

Modification includes changes such as altering the interest rate other than the bank rate, repayment schedule, facility limits, pari passu arrangements, or part of the charged property. Full payment and release concern satisfaction rather than modification.

23. What constitutes the Registrar’s register of charges for companies?

A. The annual financial statements filed by the company

B. The company’s internal register kept at its registered office

C. The original charge instruments held by each secured creditor

D. The charge particulars maintained on the Ministry of Corporate Affairs portal

Answer: (D)

Explanation

The Registrar keeps a register of charges for every company, and the charge particulars maintained on the Ministry of Corporate Affairs portal are deemed to constitute that register.

24. Where must a company keep its Register of Charges in Form CHG-7?

A. At the Registrar’s principal office

B. At the company’s registered office

C. At the Ministry of Corporate Affairs archive

D. At the secured creditor’s registered office

Answer: (B)

Explanation

Every company must maintain its Register of Charges in Form CHG-7 at its registered office. The register includes charges, floating charges, acquired charged property, modifications, and satisfactions.

25. Who may inspect a company’s register of charges and charge instruments without paying a fee during business hours?

A. Any person requesting inspection

B. Members and creditors

C. Only the company’s directors

D. Only officers of the Registrar

Answer: (B)

Explanation

Members and creditors may inspect the register and charge instruments during business hours without fees. Other persons may inspect them after paying the prescribed fees.

26. Within what period must a company normally inform the Registrar of the full payment or satisfaction of a registered charge?

A. Within 60 days

B. Within 300 days without additional fees

C. Within 14 days

D. Within 30 days

Answer: (D)

Explanation

The company must file Form CHG-4 within 30 days of full payment or satisfaction of the registered charge. An extension up to 300 days may be available on payment of additional fees.

27. What does the Registrar generally do after receiving an intimation of satisfaction of a charge?

A. Rejects the intimation unless the company files a rectification application

B. Waits 300 days before contacting the charge-holder

C. Immediately creates a new charge in the company’s name

D. Gives the charge-holder up to 14 days to show cause before recording satisfaction

Answer: (D)

Explanation

After receiving the intimation, the Registrar gives the charge-holder up to 14 days to show cause. If no cause is shown, the Registrar records satisfaction and issues Form CHG-5 when satisfaction in full is entered.

28. When may the Registrar record satisfaction or release of a charge without receiving company intimation?

A. When satisfactory evidence shows that the debt was paid or the charged property was released or ceased to belong to the company

B. When the charge-holder refuses to provide any evidence of payment

C. When the company changes the interest rate under the existing charge

D. When the company requests cancellation of any unsecured transaction

Answer: (A)

Explanation

Under section 83, the Registrar may act without company intimation if satisfactory evidence establishes that the debt was paid or that the charged property was released or no longer belonged to the company.

29. What penalty applies to a company that defaults in complying with Chapter VI?

A. One lakh rupees

B. Ten lakh rupees

C. Five lakh rupees

D. Fifty thousand rupees

Answer: (C)

Explanation

The company is liable to a penalty of five lakh rupees for default in complying with Chapter VI. The fifty-thousand-rupee penalty applies to each defaulting officer.

30. What legal consequence may follow when a person wilfully provides false information or knowingly suppresses material information required under section 77?

A. The standard Chapter VI penalty for filing delay

B. Automatic cancellation of the company’s registration

C. A warning without further legal consequences

D. Action under section 447 concerning fraud

Answer: (D)

Explanation

Wilfully furnishing false or incorrect information or knowingly suppressing required material information attracts action under section 447 concerning fraud. This is distinct from an ordinary filing delay, which attracts the Chapter VI penalty.