section-79-companies-act-2013
section-79-companies-act-2013

Section 79 of the Companies Act, 2013

Section 79 of the Companies Act, 2013, plays a pivotal role in the registration of charges, especially when companies acquire property or make changes to existing charges. Section 79 clarifies that the requirements for registration of charges outlined in Section 77 are also applicable to specific situations involving property acquisition and modifications to existing charges. This means that, beyond the creation of new charges, other situations involving changes to a company’s assets or adjustments to charges are also subject to registration requirements.

Purpose of Section 79

  • The objective of Section 79 is to ensure that all significant events related to a company’s charges—whether new, acquired, or modified—are transparently recorded and registered.

  • It safeguards creditor interests by ensuring they have up-to-date information about the company’s liabilities and charges on its assets, fostering reliability in the company’s financial disclosures.

Statutory provision under Section 77 of the Companies Act 2013

Section 79 of the Companies Act, 2013 is directly related to Section 77, as it extends the principles and obligations established in Section 77 to additional circumstances. Section 77 provides the following:

Section 77 mandates that every company creating a charge on its property, assets, or undertakings—whether within or outside India—must register the particulars of the charge with the Registrar. This requirement applies to both tangible and intangible assets. The registration must be completed within 30 days of the charge’s creation, ensuring that the Registrar promptly records the charge. If the company fails to meet this 30-day deadline, it can apply for an extension, which allows registration within 300 days from the date of creation by paying an additional fee. Should the registration still remain incomplete after 300 days, the company is required to seek a further extension under Section 87.

Once a charge is successfully registered, the Registrar issues a certificate of registration to both the company and the charge-holder as formal confirmation. Importantly, if a company registers a new charge, this does not interfere with rights that may have already been acquired over the property prior to registration. Section 77 also specifies that during liquidation, unregistered charges are not recognized by the liquidator or any creditors—only registered charges are considered valid in such cases. However, an exception exists: despite the registration requirements, any contract or obligation related to repaying money secured by a charge remains enforceable, even if the charge itself is not registered.

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Detail Analysis of Section 79 of the Companies Act 2013

Section 79 of the Companies Act, 2013, which extends the applicability of Section 77 regarding the registration of charges to certain other situations:

79(a): Acquisition of Property with Existing Charges

  • When a company acquires property already subject to a charge, the provisions of Section 77 apply as if the company itself had created the charge.

  • This ensures that the existing charge on the acquired property is documented and registered in the company’s records, maintaining transparency for creditors, regulators, and other stakeholders.

  • For instance, if a company acquires a building that already has a mortgage, this charge must be registered with the Registrar, ensuring that the charge remains recognized under the acquiring company’s ownership.

79 (b): Modifications to Registered Charges

  • Section 79 mandates that any modification to the terms, conditions, extent, or operation of an already registered charge also falls under the requirements of Section 77.

Modifications that need registration can include:

  • Changes in the interest rate or terms of repayment on a loan secured by a charge.

  • Adjustments in the extent of the property or assets covered by the charge.

  • Changes in the priority or scope of the charge’s enforceability.

By ensuring modifications are registered, the law provides an updated and accurate reflection of the company’s liabilities and financial obligations.

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Illustration of Section 79 of the Companies Act, 2013

Imagine a company, XYZ Ltd., which has a registered charge on a piece of machinery. This charge was initially registered under Section 77 when XYZ Ltd. took a loan from ABC Bank, using the machinery as collateral. Later, XYZ Ltd. decides to modify the terms of the loan agreement with ABC Bank, extending the repayment period and increasing the loan amount.

Under Section 79(b) of the Companies Act, 2013, since the terms of an already registered charge are modified, XYZ Ltd. is required to update the charge details with the Registrar of Companies. This ensures the modified terms are transparent and legally recognized, protecting the interests of both the company and its creditors.

In another scenario, XYZ Ltd. acquires a new property that is subject to a pre-existing charge created by the previous owner. According to Section 79(a), XYZ Ltd. must register this acquired property’s charge with the Registrar. This registration ensures that any existing liabilities tied to the asset are documented, which is crucial for maintaining accurate records and creditor awareness.

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In Summary

Section 79 serves to extend the scope of Section 77 by ensuring that any charges on acquired properties or modifications to existing charges are registered, maintaining complete transparency of a company’s liabilities for all stakeholders.

Frequently Asked Questions on Section 79 of the Companies Act, 2013

  1. What is the purpose of Section 79 in the Companies Act, 2013?

Section 79 extends the duty to register charges as outlined in Section 77, ensuring any company acquiring a property subject to a charge, or modifying existing charge terms, complies with registration requirements. This keeps charge records up-to-date and accessible.

  1. When does Section 79 apply to a company’s charges?

Section 79 applies if a company acquires property already subject to a charge or modifies the terms, extent, or operation of a previously registered charge. This provision helps maintain transparency in company liabilities.

  1. How does Section 79 relate to charge modification?

Under Section 79, any significant modification to a registered charge, such as changing repayment terms or adding new assets as security, must be registered. This ensures that all stakeholders are aware of the latest obligations on company assets.

  1. What is the consequence of not complying with Section 79?

Failure to register charges or modifications can render the charge invalid against creditors and in liquidation proceedings, potentially leaving assets unprotected.

  1. Who is responsible for registering the charges under Section 79?

It is the duty of the company to register acquired or modified charges with the Registrar. This reinforces corporate accountability and secures creditor interests in company assets.

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