REGISTRATION OF CHARGES

APPLICABILITY OF SECTION:

Applicable on both private and public company w.e.f 1st April, 2014 as per the MCA notification dated 26^th March, 2014.

Amendment 29th May, 2015 via notification no. G.S.R. 440(E)

Amendment 7^th April, 2017 via notification no. G.S.R. 339(E)

Amendment 6th July, 2018 via notification no. G.S.R. 614(E)

Amendment 18th December, 2018 G.S.R. 1218(E)

MEANING OF CHARGE:

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

REGISTRATION OF CHARGES:

(1)  BY THE COMPANY(CREATING CHARGE):

Every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, have to register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating such charge in Form No.CHG-1 (for other than Debentures) or Form No.CHG-9 (for debentures including rectification), on payment of such fees with the Registrar within thirty days of its creation:

Provided that the Registrar may, on an application by the company, allow such registration to be made within a period of three hundred days of such creation on payment of additional fees.

(2)  BY THE PERSON IN WHOSE FAVOUR CHARGE WAS CREATED:

If the Company failed to register the creation or modification of charge within a period of 30 days the Chargeholder (in favour of whom the charge is created/modified) may apply to the registrar for registration of charge in Form No.CHG-1 (for other than Debentures) or Form No.CHG-9 (for debentures including rectification.

The Registrar may, on such application, within a period of fourteen days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause why such charge should not be registered, allow such registration on payment of such fees, as may be prescribed

Where registration is effected on application of the person in whose favour the charge is created, that person shall be entitled to recover from the company the amount of any fees or additional fees paid by him to the Registrar for the purpose of registration of charge.

VERIFICATION OF INSTRUMENT:

A copy of every instrument evidencing any creation or modification of charge and required to be filed with the Registrar in pursuance of the provisions of the Act, shall be verified as follows-

(a) where the instrument or deed relates solely to the property situated outside India, the copy shall be verified by a certificate issued either under the seal of the company, or under the hand of any director or company secretary of the company or an authorised officer of the chargeholder or under the hand of some person other than the company who is interested in the mortgage or charge;

(b) Where the instrument or deed relates, whether wholly or partly, to the property situated in India, the copy shall be verified by a certificate issued under the hand of any director or company secretary of the company or an authorised officer of the charge holder.

REGISTRATION OF SATISFACTION OF CHARGERS:

(1)    BY THE COMPANY:

A company shall give intimation to the Registrar in the Form No. CHG-4, of the payment or satisfaction in full of any charge registered under this Chapter within a period of three hundred days from the date of such payment or satisfaction and the provisions of sub-section (1) of section 77 shall, as far as may be, apply to an intimation so given.

The Registrar shall, on receipt of intimation of satisfaction of charge cause a notice to be sent to the holder of the charge calling upon him to show cause within such time not exceeding fourteen days, as may be specified in such notice, as to why payment or satisfaction in full should not be recorded as intimated to the Registrar, and if no cause is shown, by such holder of the charge, the Registrar shall order that a memorandum of satisfaction shall be entered in the register of charges kept by him.

Provided that the notice referred as above shall not be required to be sent, in case the intimation to the Registrar in this regard is in the specified form and signed by the holder of charge.

(2)          IN ABSENCE OF INTIMATION BY THE COMPANY:

(1) The Registrar may, on evidence being given to his satisfaction with respect to any registered charge:

(a) That the debt for which the charge was given has been paid or satisfied in whole or in part; or

(b) That part of the property or undertaking charged has been released from the charge or has ceased to form part of the company’s property or undertaking,

Enter in the register of charges a memorandum of satisfaction in whole or in part, or of the fact

that part of the property or undertaking has been released from the charge or has ceased to form part of the company’s property or undertaking, as the case may be, notwithstanding the

fact that no intimation has been received by him from the company.

(2) The Registrar shall inform the affected parties within thirty days of making the entry in the register of charges kept under sub-section (1) of section 81.

CERTIFICATE OF REGISTRATION:

(1) Where a charge is registered with the Registrar under sub-section (1) of section 77 or section 78, he shall issue a certificate of registration of such charge in Form No.CHG-2

(2) Where the particulars of modification of charge is registered under section 79, the Registrar shall issue a certificate of modification of charge in Form No. CHG-3

(3) Where the Registrar enters a memorandum of satisfaction of charge he shall issue a certificate of registration of satisfaction of charge in Form No.CHG-5.

The certificate issued by the Registrar shall be conclusive evidence that the requirements of the Act and the rules made there under as to registration of creation or modification of charge, as the case may be, have been complied with.

CONDONATION OF DELAY:

(1)  AFTER 30 DAYS BUT BEFORE 300 DAYS OF CREATION OR MODIFICATION OF CHARGE:

The application to condone the delay shall be filed with the Registrar in Form No. CHG-10 supported by a declaration from the company signed by its secretary or director that such belated filing shall not adversely affect rights of any other intervening creditors of the company. Registrar on being satisfied can condone the delay and register the charge.

(2)  AFTER 300 DAYS OF CREATION OR MODIFICATION  OF CHARGE AND AFTER 30 DAYS OF SATISFACTION OF CHARGE:

Where the instrument creating or modifying a charge is not filed within a period of three hundred days from the date of its creation (including acquisition of a property subject to a charge) or modification and where the satisfaction of the charge is not filed within thirty days from the date on which such payment of satisfaction, the Registrar shall not register the same unless the delay is condoned by the Central Government.

The application for condonation of delay shall be filed with the Central Government in Form No. CHG-8 along with the fee.

The order passed by the Central Government shall be required to be filed with the Registrar in Form No. INC. 28  along with the fee as per the conditions stipulated in the said order.

DATE OF NOTICE OF CHARGE:

Where any charge on any property or assets of a company or any of its undertakings is registered under section 77, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration.

COMPANY’S REGISTER OF CHARGES:

(1) Every company shall keep at its registered office a register of charges in Form No. CHG. 7 and enter therein particulars of all the charges registered with the Registrar on any of the property, assets or undertaking of the company and the particulars of any property acquired subject to a charge as well as particulars of any modification of a charge and satisfaction of charge.

(2) The entries in the register of charges maintained by the company shall be made forthwith after the creation, modification or satisfaction of charge, as the case may be.

(3) Entries in the register shall be authenticated by a director or the secretary of the company or any other person authorised by the Board for the purpose.

(4) The register of charges shall be preserved permanently and the instrument creating a charge or modification thereon shall be preserved for a period of eight years from the date of satisfaction of charge by the company.

PUNISHMENT FOR CONTRAVENTION:

If any company contravenes any provision of this Chapter, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to ten lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.

___________________________

All about ESOP for employees

Start-up culture is at its’ boom in India. Start-up attracts Venture Capital (VC) or Private Equity (PE). VC/PE investment sometimes requires hiring specialists. For Start-ups, it’s not easy to offer competitive pay to attract talent. Employee Share Option Scheme (ESOP) as part of salary package offered, comes in handy. At other times, ESOP is offered to retain talent and give a sense of ownership.

Flipkart deal has showered fortune on its employees holding shares under ESOP. Paytm and Citrus are other examples. But it’s the positive part of the story. Some startups shut down after receiving investment. Their ESOPs never get listed on any exchange or are bought back by any investor. ESOPs are not always about startups. Most of the big corporate like HDFC, ITC, Wipro, L&T etc. have awarded shares to recognize and reward employees.

Like many other things, ESOP story is two sided as well. This article talks about ESOP from employee side. In the following article, we will discuss ESOP from the view of employer i.e. company.

What is an ESOP: ESOP is usually known as Employee Stock Option Plan in legal terms it may be called by different names as:

·         Employee Stock Option Scheme

·         Employee Stock Purchase Scheme

·         Stock Appreciation Rights Scheme

·         General Employee Benefits Scheme

·         Retirement Benefit Scheme

By whatever name called, all the above schemes offers shares/securities of the Company for direct or indirect benefits of its employees. Here the important thing to be noted by an employee is that the ESOP needs not to be necessarily offered by the Company at whose payroll you are working. You may also receive ESOP from your holding company or from any other company of the same group.

In layman’s language an ESOP is an offer given to employee by his employer to buy shares of the Company at a predefined price and in a phased manner. 

ESOP as part of offered package (Remuneration negotiation): Always analyze risk associated with accepting an offer having ESOP. Startups are unlisted entity. So, ESOPs by startups will not have liquidity as is available in case of listed entities. Pay package is often structured such that shares under ESOP are granted at the end of first year (like retention bonus) and then you must wait for vesting period of shares to benefit from share grant. This means you are investing for long term.

Last but not the least, under ESOP, shares are not given to you for free. You must pay the predefined purchase price. If all does not go well with the organization, the predefined price may be a higher price than the face value and market value of those shares, resulting in loss of speculated gain. Though, we all know that higher the risk the higher the gain. ESOPs can be offered only to permanent employees.

My advice is to take calculated risk. Research ESOP grant timing, purchase price, eligibility and vesting period before accepting ESOPs as part of pay package.

Eligible employees: ESOP can be offered to below:

i.                    A permanent employee of the company who has been working in India or outside India

ii.                   A director of the company, whether a whole time director or not, but not to an independent director

iii.                 An employee of holding company

Options under ESOP can’t be granted to promoters or person belonging to promoter group.

Most enquired questions about ESOP is - Can the new employee receive options under ESOP? Well. Compensation Committee of a company has the power to decide who will receive options under ESOP. A company is free to decide criteria for granting ESOP. ESOP scheme may be structured in a manner that option can be granted to senior employees to reward their loyalty, to young talent to retain them and to new employees to attract talent.

Procedure of ESOP: The implementation on ESOP consists of three steps:

1.      Grant of option

2.      Vesting of option

3.      Exercise of option

Let’s take an example. Mr. A received 100 no. of options from his Company which will vest @25% each year from the end of first year of grant.

Here no. of grant is 100. Vesting each year at completion of one year of receiving of grant will be 25. Mr. A can exercise his right to buy shares/options so vested at the end of each year. Please note Mr. A can’t buy the shares/options before their vesting.

Some employee wonder if they can claim the difference in the share price (i.e. ESOP price – Market price) on exercise date. It can be done only if ESOP is managed by a trust, securities of the company are listed on stock exchange and ESOP scheme has such provision.

At the time of receiving ESOP always check whether your Company is listed or unlisted and options so received give you right to invest in shares of your company or your subsidiary/holding/ group company. Please remember that shares of unlisted public company or private company can’t be sold in stock market. In that case, the only liquidity left is when an investor of the company is ready to buy those shares or the company itself decides to buy-back its own shares.

Pricing of ESOP and Lock-in: As an employee you are not going to receive any free share under ESOP. Exercise price is the price at which you can buy the options vested in your name. Current regulation gives freedom to the company to determine the exercise price provided accounting regulation is taken care off. Thus, the company can give you shares at discounted price.

ESOP scheme may specify a lock-in period. Lock-in means after buying the shares under ESOP you cannot sale it till the lock-in period is over. This is usually one year from the date of exercise of option.

Taxation: Shares purchased under ESOP are taxed twice:

At the exercise of option: At the time of exercise of option the price difference between the Fair Market Price of said shares and the exercise price is treated as perquisites in the hands of employee and shall be taxed under the head income from salary. That tax will be deducted at source by the employer and will reflect in Form 16 of the employee.

At sale of shares: ESOP shares will be liable for short-term capital gain or long term capital gain as the case may be, at the time of sale. For calculation of tax the price difference between fair market price at the date of sale of shares and the fair market price at the date of purchase of these shares will be considered. As at the time of purchase the difference between exercise price and fair market price would have already been taxed as perquisites.

When you lose your right under ESOP: If you retire, resign or die, ESOP is governed by specific terms of scheme. Below is a general discussion of these circumstances

i.                    Termination: The options not vested on that date expire. Options already exercised by the employee, remain with the employee. A period is provided for exercise of options already vested.

ii.                   Resignation: The options not vested on that date expire. Options already exercised by the employee, remain with the employee. A period is provided for exercise of options already vested.

iii.                 Death or permanent disability: All the granted options will immediately become vested in the name of legal heir of the employee to whom the options were granted.

As an employee you shall also check the clause for treatment of bonus/right shares, if any, offered during the period of grant till the time of exercise of option. Effect of change in capital structure or corporate restructuring like mergers/amalgamations shall also be checked.

ESOP vs bonus: Indians prefer higher package or bonus than ESOP. ESOP only gives an option to invest in shares of the company at a pre-determined price. If ESOP is granted as a reward for your loyalty or to retain your without compromising the bonus or incentive structure, it is an added advantage

By Nikita  Singh

Nikita Singh & Co.

Company Secretaries

nikitasinghandco@gmail.com

Annual Filing 2017-18

Ministry of Corporate Affairs extended the last date of filing financial statement and annual return for financial year 2017-18 by the Companies without any additional fee till 31^st December, 2018 vide general circular no. 10/2018. After 31^st December, 2018 an additional fee of Rs. 100 per day will be levied.

Company registered under Companies Act, 2013/Companies Act, 1956 or any other previous law need to file their financial statements and annual return every year. The provisions related to annual filing are as follows:

e-Form	Section	Provisions	Time limit for filing	Extended date as per circular no. 10/2018
AOC-4	Section 129 and Section 137 read with Rule 12 of the Companies (Accounts) Rules, 2014	Every company needs to file its financial statements and mandatory attachments, via e-Form AOC-4 with the registrar of companies.	Within 30 days of date of AGM	31st December, 2018
AOC – 4 (CFS)	Section 129 and Section 137 read with  Rule 6 and  12 of the Companies (Management and Administration) Rules, 2014	Where a company has one or more subsidiaries, it shall, in addition to its’ own financial statements, also prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general meeting of the company along with the laying of its financial statement. A copy of consolidated financial statements shall be filed with the Registrar of Companies via e-form AOC – 4 (CFS)	Within 30 days of date of AGM	31st December, 2018
AOC-4 (XBRL)	Section 129 and Section 137 read with Rule 12 of the Companies (Accounts) Rules, 2014 read with Companies (Filing of documents and forms in Extensible Business Reporting Language) Rules, 2015	Every Company (meeting any one or more of below criteria) : 1.      Listed on a recognised stock exchange 2.      Having paid-up capital of Rs. 5 cr or more 3.      Having turnover of Rs. 100 cr or above 4.      Covered under Companies (Filing of documents and forms in Extensible Business Reporting Language) Rules, 2011 is required to mandatorily file it’s financial statement in Extensible Business Reporting Language (XBRL) format via e-form AOC-4 (XBRL)	Within 30 days of date of AGM	31st December, 2018
MGT-7	Section 92(1) read with Rule 11 of Companies (Management and Administration) Rules, 2014	Every company shall prepare and file it’s annual return to the registrar of companies via e- form MGT – 7. The annual return, filed by a listed company or a company having paid-up share capital of ten crore rupees or more or turnover of fifty crore rupees or more, shall be certified by a Company Secretary in practice and the certificate shall be in Form No. MGT - 8	Within 60 days of date of AGM	31st December, 2018

Be compliant to avoid additional fee.