Registers, share movements and registering a charge with the Registrar

Section 88(1) is the list. Every company shall keep and maintain a register of members, indicating separately for each class of equity and preference shares the shares held by each member residing in or outside India, a register of debenture holders, and a register of any other security holders, in such form and in such manner as may be prescribed. Section 88(2) requires every such register to include an index of the names included in it. Section 88(3) deems the register and index of beneficial owners maintained by a depository to be the corresponding register and index for the purposes of the Act, which is why a dematerialised holding company does not keep a second paper register for its own investors. Section 88(4) allows a company authorised by its articles to keep a foreign register for members, debenture holders, other security holders or beneficial owners residing outside India.

The price of not keeping the registers is stated in section 88(5). A company that does not maintain a register of members or of debenture holders or other security holders, or fails to maintain them in accordance with sub-section (1) or sub-section (2), is liable to a penalty of three lakh rupees, and every officer of the company who is in default is liable to a penalty of fifty thousand rupees.

Two registers sit alongside. Section 85(1) requires every company to keep at its registered office a register of charges in the prescribed form and manner, including all charges and floating charges affecting any property or assets of the company or any of its undertakings, and to keep a copy of the instrument creating the charge at the registered office along with the register. Section 90 requires a register of the interest declared by individuals who hold beneficial interests of not less than twenty-five per cent. in the shares of the company, or the right to exercise or the actual exercising of significant influence or control, together with changes in that interest. The register under section 90(2) is open to inspection by any member on payment of the prescribed fees, and section 90(4) requires the company to file a return of significant beneficial owners and changes therein with the Registrar.

Section 56(1) is the rule the register implements. A company shall not register a transfer of securities, or the interest of a member in a company having no share capital, other than a transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer, in the prescribed form, duly stamped, dated and executed by or on behalf of the transferor and the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution, along with the certificate relating to the securities or, where no certificate exists, the letter of allotment. Where the instrument has been lost or has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the board may think fit. Section 56(3) adds a condition for partly paid shares: where the application is made by the transferor alone, the company shall give notice to the transferee, and the transfer is not to be registered unless the transferee raises no objection within two weeks from the receipt of the notice.

Section 56(4) fixes the certificate timetable. A company must deliver the certificates of all securities allotted, transferred or transmitted within a period of two months from the date of incorporation for subscribers to the memorandum, within a period of two months from the date of allotment for the shares, and within a period of one month from the date of receipt by the company of the instrument of transfer in the other cases.

A private company that refuses to register a transfer or a transmission has a duty to say so. Section 58(1) requires it to send notice of the refusal to the transferor and the transferee, or to the person intimating the transmission, within thirty days from the date on which the instrument of transfer or the intimation was delivered to the company, giving reasons for the refusal. Section 58(2) provides that the securities or other interest of any member in a public company shall be freely transferable, and saves a contract or arrangement between two or more persons in respect of transfer of securities as enforceable as a contract. Section 58(3) allows the transferee to appeal to the Tribunal against the refusal within thirty days from the date of receipt of the notice, or, where no notice has been sent, within sixty days from the date the instrument of transfer or the intimation was delivered to the company. Section 59 opens the rectification route, allowing the person aggrieved, or any member of the company, or the company itself to appeal to the Tribunal where a name is entered or omitted without sufficient cause or where there is default or unnecessary delay in entering it, and the Tribunal may direct that the transfer or transmission be registered within a period of ten days of the receipt of the order, or direct rectification of the records and the payment of damages.

Section 77(1) states the duty. It is the duty of 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, to register the particulars of the charge, signed by the company and the charge holder, together with the instruments, if any, creating the charge, in the prescribed form and manner, on payment of the prescribed fees, with the Registrar within thirty days of its creation. The proviso to sub-section (1) gives the Registrar a power to condone, on an application by the company, registration within three hundred days of creation for charges created before the commencement of the Companies (Amendment) Act, 2019, and within a period of sixty days for charges created on or after that commencement, on payment of additional fees. A second proviso allows a further period of sixty days on application in the second class of case, on payment of ad valorem fees, and the earlier proviso allows registration within six months from the commencement of the 2019 amendment in the first class of case.

Registration has two steps and both matter. Under section 77(2), where the charge is registered the Registrar issues a certificate of registration to the company and, as the case may be, to the person in whose favour the charge is created. Section 77(3) then excludes an unregistered charge from the accounts of the insolvency: 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 the Act or the Insolvency and Bankruptcy Code, 2016, or by any other creditor, unless it is duly registered under sub-section (1) and a certificate of registration has been given under sub-section (2). Section 77(4) preserves the underlying contract: nothing in sub-section (3) prejudices any contract or obligation for the repayment of the money secured by the charge.

Two riders are worth knowing. A subsequent registration does not prejudice any right acquired in respect of any property before the charge is actually registered. And the section does not apply to such charges as may be prescribed in consultation with the Reserve Bank of India, which is where a lender who is unsure whether a particular instrument is a charge within the section should look first.

Section 78 is the lender's route. Where a company fails to register the charge within the period specified in section 77, and without prejudice to its liability in respect of any offence under the chapter, the person in whose favour the charge is created may apply to the Registrar for registration of the charge along with the instrument created for the charge, in the prescribed time and form and manner. 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 the charge should not be registered, allow the registration on payment of the prescribed fees.

The cost then moves back to the company. Where registration is effected on the application of the person in whose favour the charge is created, that person is entitled to recover from the company the amount of any fees or additional fees paid to the Registrar for the purpose of registration. The application is therefore a remedy with a price, and the price is the company's.

Two points of timing follow. The lender cannot wait for the company. The Registrar's power under section 78 is available where the company has failed to register within the period specified in section 77, so the application follows the default rather than anticipating it. And the lender should file the instrument with the application, because the section requires the instrument created for the charge to go with it.

A charge is not a fixed instrument. Section 79 extends the provisions of section 77 relating to registration of charges, so far as may be, to a company acquiring property subject to a charge within the meaning of that section, and to any modification in the terms or conditions or the extent or operation of a charge registered under it. A lender taking a second charge over an already charged asset, and a borrower amending the facility, both run into section 79. Section 80 then fixes the date of notice: where a charge is registered under section 77, any person acquiring the property, assets, undertakings or part of them, or any share or interest in them, is deemed to have notice of the charge from the date of registration.

Repayment is a separate step, and it is the step a lender is slowest to chase. Section 82(1) requires a company to give intimation to the Registrar in the prescribed form of the payment or satisfaction in full of any charge registered under the chapter, within a period of thirty days from the date of the payment or satisfaction. A proviso allows the Registrar, on an application by the company or the charge holder, to allow such intimation to be made within a period of three hundred days of the payment or satisfaction on payment of additional fees. Section 82(2) then sets out the procedure: the Registrar causes a notice to be sent to the holder of the charge calling upon it to show cause within such time not exceeding fourteen days as may be specified in the notice, and if no cause is shown, the Registrar orders that a memorandum of satisfaction be entered in the register of charges and informs the company. A proviso saves the notice where the intimation is in the specified form and signed by the holder of the charge.

The company is not the only route. Section 83(1) allows the Registrar, on evidence being given to his satisfaction that the debt for which the charge was given has been paid or satisfied in whole or in part, or 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, to enter in the register of charges a memorandum of satisfaction in whole or in part, or of the release, notwithstanding that no intimation has been received from the company. Section 83(2) requires the Registrar to inform the affected parties within thirty days of making the entry. Section 87 lets the Central Government rectify the register where the omission to intimate payment or satisfaction, or the omission or misstatement of particulars in a filing, was accidental or due to inadvertence or some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders.

Section 86 sets the price of default in the chapter on charges. If a company is in default in complying with any of the provisions of the chapter, the company is liable to a penalty of five lakh rupees and every officer of the company who is in default is liable to a penalty of fifty thousand rupees. The second limb of section 86(2) is the one that catches people out. If any person willfully furnishes any false or incorrect information, or knowingly suppresses any material information required to be registered in accordance with section 77, that person is liable for action under section 447. Section 447 is the punishment for fraud, and it is a different order of consequence altogether from a penalty.

The registers have their own penalties. Section 88(5) puts a penalty of three lakh rupees on a company that fails to maintain the register of members, debenture holders or other security holders, and a penalty of fifty thousand rupees on every officer in default. Section 91(1) allows a company to close the register of members, or the register of debenture holders, or the register of other security holders, for periods not exceeding in the aggregate forty-five days in each year and not exceeding thirty days at any one time, on previous notice of at least seven days given in the prescribed manner. Section 91(2) attaches a penalty of five thousand rupees for every day, subject to a maximum of one lakh rupees during which the register is kept closed, where the register is closed without the notice, or after shorter notice, or for a continuous or aggregate period beyond the limits.

The pattern across the chapter is that the penalty follows the company and the officer in default, while the consequence that actually matters follows the security. A charge that is not registered is not merely an offence; under section 77(3) it is not taken into account by the liquidator or by any other creditor, and the money secured by it is recovered from the borrower without the charge.

The register of members records the result of an allotment, and the capital entries that lead to it are governed by the share capital sections. Section 61(1) allows a limited company having a share capital, if so authorised by its articles, to alter its memorandum in general meeting to increase its authorised share capital, to consolidate and divide its share capital into shares of a larger amount, to convert fully paid-up shares into stock and reconvert them, to sub-divide shares, and to cancel shares that have not been taken or agreed to be taken by any person. The proviso to clause (b) is the one that surprises people: no consolidation and division which results in changes in the voting percentage of shareholders takes effect unless the Tribunal approves it on an application made in the prescribed manner.

Section 62(1) governs the further issue. Where a company proposes to increase its subscribed capital by the issue of further shares, the shares are offered to the holders of equity shares in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares, by a letter of offer limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, is deemed to have been declined. Section 68 deals with the opposite movement, permitting a company to purchase its own shares or other specified securities out of its free reserves, the securities premium account or the proceeds of an issue, subject to the authorisation the section requires.

The return of allotment itself is not a section of the 2013 Act. It is a filing under the rules made under the Act, and the corpus the practice runs on carries the Act but not that form, so this guide names the sections that create and record the entry, which are sections 61, 62 and 88, and describes what the filing contains rather than quoting a form number. The same applies to the debenture side: section 71 permits a company to issue debentures with an option to convert them into shares, wholly or partly, at the time of redemption, but only on a special resolution passed at a general meeting, prohibits any debenture carrying voting rights, requires secured debentures to be issued on prescribed terms, and requires the creation of a debenture redemption reserve account out of the profits available for payment of dividend, the amount credited to which may not be used except for the redemption of debentures.

The registers are only worth what is in them, and a diligence exercise is a reconciliation rather than a read. The first pull is the register of charges kept at the registered office under section 85(1), with the copy of the instrument creating each charge kept alongside it. The second is the register of members and its index under section 88, which carries the allotments, the transfers and the transmission entries. The third is the register of significant beneficial owners under section 90, and the fourth is the register of contracts or arrangements in which directors are interested.

The reconciliation is between the company's register and the Registrar's record, and the two are kept by different hands. A charge appears in the company's register of charges and, separately, in the Registrar's register of charges, and a charge that is in one and not the other is the precise fact pattern that section 77(3) turns on. The same applies to the memorandum of satisfaction: it is entered in the Registrar's register on an intimation under section 82 or on the Registrar's own entry under section 83, and until it is entered the search result still shows a charge.

A mismatch is not only a compliance problem. Where a charge is not registered, the lender's position in a liquidation is different from what the charge documents suggest, and the borrower has a defence that section 78 may have cured at the lender's cost. Where the register of members does not match the capital records, a shareholder's holding is open to challenge, and the remedy is an appeal to the Tribunal under section 59. The prices in a transaction are adjusted for these gaps, not for the tidiness of the papers.