LMN Ltd. created a charge on one of its plant and machinery in favour of a financial institution. The company secretary was on leave when the charge…

According to Rule 10 (1) of the Companies (Registration of Charges), 2014, the company shall enter in the Register of charges, particulars of all the charges registered with the Registrar on any of its property, assets or undertakings 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. According to Rule 10 (2) , the entries in the Register shall be made forthwith after the creation, modification or satisfaction of charge, as the case may be. According to Rule 10 (3) , the entries in the Register (of charges) shall be authenticated by a director or the secretary of the company or any other person authorised by the Board for the purpose. In the question given, the entry made by the accounts officer in the register of charges is not legally valid as it must be authenticated by a director, the company secretary or any other person specifically authorised by the Board for this purpose. According to section 86 (1) of the Companies Act, 2013, if any company is in default in complying with any of the provisions related to charges created, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees. Alternative Answer – With the assumption that the charge was already registered with the ROC by the time dispute has arisen According to Rule 10 (1) of the Companies (Registration of Charges), 2014, the company shall enter in the Register of charges, particulars of all the charges registered with the Registrar on any of its property, assets or undertakings 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. According to Rule 10 (2) , the entries in the Register shall be made forthwith after the creation, modification or satisfaction of charge, as the case may be. According to Rule 10 (3) , the entries in the Register (of charges) shall be authenticated by a director or the secretary of the company or any other person authorised by the Board for the purpose. As per the provision of Section (2) of Section 77 of the Companies Act, 2013, read with Rule 6 of the Companies (Registration of Charges) Rules, 2014, where a charge is registered with the Registrar, he shall issue a certificate of registration of such charge in such form and in such manner as may be prescribed to the company and the certificate issued by the Registrar is conclusive proof that the charge is registered and valid. In the question given, the entry made by the accounts officer in the register of charges is not properly made as it must be authenticated by a director, the company secretary or any other person specifically authorised by the Board for this purpose. The internal irregularity (lack of Board authorization) does not affect the rights of the secured creditor (financial institution) who relied on the registration and the creditor's challenge can succeed only to the extent of procedural non-compliance, not to invalidate the charge or alter its statutory priority. According to section 86 (1) of the Companies Act, 2013, if any company is in default in complying with any of the provisions related to charges created, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.