Creation & Satisfaction of Charges on Bank Loans: Form CHG-1 & CHG-4 Filing Rules & CEDB Search Report

Commercial banking facilities—whether seasonal Cash Credit (CC) limits for rice mills in Kalahandi, term loans for steel rerolling plants in Urla and Bhanpuri (Raipur), or bank guarantees for PWD civil contractors across Durg and Sambalpur—depend on one critical legal prerequisite: the valid creation and registration of a charge on company assets.

When a private limited or public company borrows money against its assets, Section 77 of the Companies Act, 2013 mandates registering the encumbrance with the Registrar of Companies (ROC). Yet, in our daily corporate audit and advisory practice at Rabi Agrawal & Associates, we regularly observe business owners facing severe operational bottlenecks. Delayed filing of Form CHG-1 blocks bank fund drawdowns, while unfiled Form CHG-4 leaves years-old loans active on the MCA portal, stalling fresh credit enhancements or takeover NOCs.

This guide provides a comprehensive practitioner's roadmap to charge creation, modification, and satisfaction under the Companies Act, 2013, detailing filing timelines, ad-valorem penalty structures, CEDB (Central Electronic Registry) search reports, and practical due diligence strategies.

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1. What Is a "Charge" Under Section 2(16) of Companies Act, 2013?

Under Section 2(16) of the Companies Act, 2013, a charge is defined as an interest or lien created on the property or assets of a company or any of its undertakings as security for securing a debt or loan.

When a company mortgages its land, hypothecates its plant machinery, or assigns its trade receivables to a bank, the bank acquires a legal right over those assets.

Types of Charges Encountered in Industrial Credit

1. Fixed Charge: Attaches to specific, identifiable assets such as industrial land, factory buildings, boilers, or heavy machinery. The company cannot sell or transfer these assets without the lender's prior written consent.
2. Floating Charge: Covers dynamic, changing assets such as raw paddy inventory, finished TMT bars, or book debts. The company retains operational freedom to trade these assets in the ordinary course of business until the charge "crystallizes" (e.g., upon event of default).
3. Pari-Passu Charge: Shared equally among multiple consortium lenders in proportion to their sanctioned limits.
4. Exclusive Charge: Granted solely to a single lender over specific property or equipment.

+-----------------------------------------------------------------------------------+
|                            TYPES OF CORPORATE CHARGES                             |
+-----------------------------------------------------------------------------------+
| FIXED CHARGE                                | FLOATING CHARGE                     |
| - Specific, immovable/fixed assets          | - Fluctuating operational assets    |
| - Land, plant, heavy machinery              | - Raw materials, stock, receivables |
| - Sale requires Bank NOC                    | - Normal business sales permitted   |
+-----------------------------------------------------------------------------------+

The Legal Consequences of Non-Registration (Section 77(3))

Section 77(3) contains a strict mandate: Any charge created by a company that is not registered with the ROC within the prescribed statutory timelines shall be void against the liquidator and any creditor of the company.

[!IMPORTANT] Non-registration of a charge does not cancel the loan obligation—the company still owes the money. However, if the company enters insolvency or liquidation, the lender loses its secured creditor status and gets downgraded to an unsecured creditor, losing priority over assets. Consequently, banks will not disburse loan tranches until Form CHG-1 is filed and the ROC Certificate of Charge (Form CHG-2) is generated.

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2. Charge Creation & Modification: Section 77 and Form CHG-1 / CHG-9

Section 77 governs the statutory creation and modification of charges on all types of assets—whether tangible or intangible, situated within India or abroad.

Statutory Timelines & Extension Windows

The legal framework establishes strict sequential windows for filing Form CHG-1 (for general loans/hypothecation) or Form CHG-9 (for debentures):

+-----------------------------------------------------------------------------------+
|                      STATUTORY FILING TIMELINE UNDER SECTION 77                   |
+-----------------------------------------------------------------------------------+
| Day 00 - Day 30 : Normal Filing Period (Standard MCA Filing Fee)                  |
| Day 31 - Day 60 : First Extension Period (Ad-Valorem Additional Fees Apply)       |
| Day 61 Onwards  : Condonation of Delay Required via Regional Director (Form CHG-8) |
+-----------------------------------------------------------------------------------+

1. Initial Statutory Window (0 to 30 Days):

   • Form CHG-1 must be executed and filed online on the MCA V3 portal within 30 days from the date of creation or modification of the charge (i.e., date of sanction agreement, deed of hypothecation, or mortgage deed).
   • Only standard ROC filing fees apply.

2. First Extension Window (31 to 60 Days):

   • If the company fails to file within 30 days, the ROC permits filing up to 60 days from the date of creation/modification.
   • Requires payment of Ad-Valorem Additional Fees calculated on the underlying loan quantum.

3. Beyond 60 Days (Condonation of Delay u/s 87):

   • Post-2019 amendments, the ROC cannot directly extend filings beyond 60 days.
   • The company must file a formal application for Condonation of Delay before the Regional Director (RD) under Section 87 using Form CHG-8.
   • After the RD passes an order approving condonation, the company files the RD order with the ROC in Form INC-28, allowing Form CHG-1 to be successfully submitted.

Key Attachments Required for Form CHG-1

• Board Resolution authorizing the borrowing and charge creation under Section 179(3)(c).
• Instrument creating/modifying the charge (Sanction Letter, Deed of Hypothecation, Supplemental Loan Agreement, or Indenture of Mortgage).
• Joint verification details containing Digital Signature Certificates (DSC) of both the company director and the bank's authorized signatory.

ROC Certificates Issued

• Form CHG-2: Certificate of Registration of Charge (issued upon valid processing of CHG-1).
• Form CHG-3: Certificate of Modification of Charge (issued when loan limits are enhanced, interest rates revised, or collateral terms updated).

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3. Charge Satisfaction: Section 82 and Form CHG-4

When a company fully repays its term loan or closes a working capital limit, the charge registered on the MCA portal must be formally cleared.

Timeline for Filing Form CHG-4

Under Section 82, the company must file Form CHG-4 to register the satisfaction of charge within 30 days from the date of full payment or discharge.

• Extended Window: If not filed within 30 days, Section 82(1) proviso allows filing within 300 days from the date of satisfaction, subject to additional MCA late fees.
• Beyond 300 Days: Requires Regional Director condonation of delay under Section 87 via Form CHG-8.

[ Full Loan Repayment / Bank NDC ] ---> [ File CHG-4 within 30 Days ] ---> [ MCA Issues Form CHG-5 ]
                                                    |
                                         (If Delayed up to 300 Days)
                                                    v
                                    [ Pay Ad-Valorem Late Fees on MCA ]
                                                    |
                                         (If Exceeding 300 Days)
                                                    v
                                   [ File Form CHG-8 with RD for Condonation ]

Ground Reality Bottleneck: The "Ghost Charge" Problem

In industrial zones like Urla, Bhanpuri, Durg, and Kalahandi, a common problem arises during bank takeovers or credit limit enhancements.

A company might clear a term loan taken from Bank A in 2018 and receive a physical No Dues Certificate (NDC). However, management neglects to file Form CHG-4 on the MCA portal. In 2026, when Bank B conducts due diligence to sanction a new working capital facility, Bank B's legal audit reveals that Bank A's charge is still Active on the MCA Index of Charges. Bank B halts disbursement until the old charge is cleared.

Clearing an old charge after several years often requires tracking down bank officials who have since transferred, retrieving archived NDC letters, or seeking RD condonation—causing months of unnecessary delays.

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4. Master Flowchart: Bank Loan Charge Creation & Satisfaction Workflow

Below is the end-to-end procedural workflow followed by corporate borrowers, practicing Chartered Accountants, and lending institutions:

+-----------------------------------------------------------------------------------+
|                BANK LOAN CHARGE CREATION & SATISFACTION WORKFLOW                  |
+-----------------------------------------------------------------------------------+
|                                                                                   |
|  [ Step 1: Credit Sanction & Document Execution ]                                  |
|  Company executes Deed of Hypothecation / Mortgage Deed with Lender               |
|                                         |                                         |
|                                         v                                         |
|  [ Step 2: MCA V3 Charge Draft & Verification ]                                   |
|  Draft Form CHG-1 (Creation) / CHG-9 (Debentures) within 30 days                 |
|  Attach Sanction Letter, Board Resolution & Hypothecation Instrument              |
|                                         |                                         |
|                                         v                                         |
|  [ Step 3: Digital Signing & ROC Processing ]                                     |
|  Signed by Director (DSC), Bank Signatory (Bank Portal Approval), & CA/CS         |
|                                         |                                         |
|                                         v                                         |
|  [ Step 4: ROC Certificate Issuance ]                                             |
|  MCA generates Form CHG-2 (Creation Certificate) or Form CHG-3 (Modification)     |
|                                         |                                         |
|                                         v                                         |
|  [ Step 5: Loan Repayment & NDC Collection ]                                      |
|  Borrower completes loan obligation; Bank issues No Dues Certificate (NDC)        |
|                                         |                                         |
|                                         v                                         |
|  [ Step 6: Charge Satisfaction Filing ]                                           |
|  File Form CHG-4 on MCA within 30 days attaching Bank NDC                        |
|                                         |                                         |
|                                         v                                         |
|  [ Step 7: Satisfaction Certificate & CEDB Clearance ]                            |
|  MCA issues Form CHG-5; MCA Index of Charges & CEDB Registry reflects "SATISFIED"  |
|                                                                                   |
+-----------------------------------------------------------------------------------+

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5. Summary Table: Form CHG Types, Timelines, Attachments & Penalties

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6. CEDB Search Reports & Bank Due Diligence

When a business approaches a financial institution for working capital limits, term loans, or letter of credit (LC) facilities, the bank's legal team requires a CA Search Report covering the MCA Index of Charges and the Central Electronic Registry (CEDB) database.

What Is a Search Report?

A Search Report prepared by a Practicing Chartered Accountant verifies the company's financial commitments and existing encumbrances by auditing public records filed with the MCA V3 registry.

+-----------------------------------------------------------------------------------+
|                        KEY ELEMENTS OF A CA SEARCH REPORT                         |
+-----------------------------------------------------------------------------------+
| 1. Complete History of Open & Satisfied Charges since Incorporation              |
| 2. Verification of Charge Holders (Banks, NBFCs, Debenture Trustees)             |
| 3. Quantum of Secured Debt Registered vs Sanctioned Credit Limits                 |
| 4. Description of Secured Assets (Specific Plot Nos, Stock, Machinery Details)   |
| 5. Pari-Passu Inter-se Agreements among Consortium Banks                         |
| 6. Identification of Defunct or Un-satisfied "Ghost Charges"                    |
+-----------------------------------------------------------------------------------+

Due Diligence Scenarios in Regional Business Hubs

• Rice Mills in Kalahandi & Jayapatna: Seasonal paddy procurement requires cash credit facilities secured against raw paddy and rice stock. Banks require CA Search Reports to verify that stock pledged to them is not already encumbered under a prior floating charge to another lender.
• Steel Rerolling Mills in Urla & Bhanpuri (Raipur): Heavy capital expenditure on automated rolling stands and induction furnaces involves multi-bank financing. A CA Search Report confirms the exact pari-passu charge allocation between primary term loan lenders and working capital consortium banks.
• PWD Civil Contractors in Chhattisgarh & Odisha: Contractors pledging machinery, fixed deposits, and bill receivables for bank guarantees must ensure all older project-specific hypothecations are formally satisfied via Form CHG-4 to maintain a clear credit profile.

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7. Practical Guidance for Corporate Borrowers & Finance Directors

1. Synchronize Loan Agreements with Board Resolutions: Ensure the date of charge creation on Form CHG-1 matches the actual date of execution on the Hypothecation Deed or Mortgage Deed, not merely the loan sanction letter date.
2. Mandate CHG-4 Filing Upon Loan Closure: Make it a company policy to obtain the Bank NDC and file Form CHG-4 immediately after closing any bank facility. Do not leave satisfaction filings pending.
3. Monitor MCA V3 Bank Approval Portals: Under MCA V3, bank signatories approve charge forms through designated bank officer logins. Coordinate with your bank branch manager to ensure prompt digital approval within statutory timelines.
4. Conduct Annual Charge Audits: Include a thorough review of the MCA Index of Charges as part of your annual corporate governance and statutory audit prep.

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Strategic Corporate Advisory by Rabi Agrawal & Associates

Navigating MCA charge compliance, resolving delayed filings, and managing bank credit documentation require deep practical experience in corporate law and banking operations.

At Rabi Agrawal & Associates, our practicing Chartered Accountants provide specialized corporate secretarial and due diligence services across Chhattisgarh and Odisha, including:

• Drafting and filing Form CHG-1, CHG-4, and CHG-9 on the MCA V3 portal.
• Preparation of CA Search Reports for SBI, PNB, Bank of Baroda, HDFC, and ICICI loan approvals.
• Managing Condonation of Delay proceedings before the Regional Director (Form CHG-8).
• Structuring pari-passu charge documentation for industrial consortium funding.
• Complete due diligence for commercial borrowers, rice millers, steel manufacturers, and civil contractors.

Contact Our Corporate Law & Audit Practice:

• Raipur Office: Office No. 304, Business Tower, Urla Industrial Complex / Bhanpuri, Raipur, CG.
• Kalahandi Office: Main Road, Near Bank of Baroda, Bhawanipatna / Jayapatna, Kalahandi, Odisha.
• Email: contact@carabiagrawal.com | Phone: +91-94370-XXXXX
• Website: www.carabiagrawal.com