Charges, Deposits and Inter-corporate Loans
Charges, Deposits and Inter-corporate Loans
The exam tests creation and registration of security, acceptance of deposits, and limits on loans to other bodies.
Core rules
- A charge is a security interest in company assets. It must be registered with the ROC in CHG-1 within 30 days of creation; the Registrar may grant extension. An unregistered charge is void against the liquidator and creditors.
- Deposits: a company may accept deposits from members subject to limits and compliance; acceptance from the public is prohibited unless the company is eligible and follows prescribed conditions. Deposit repayment reserve and credit rating may apply.
- Section 186 regulates inter-corporate loans, guarantees and investments. The limit is 60% of paid-up capital plus free reserves plus securities premium, or 100% of free reserves plus securities premium, whichever is higher. Beyond the limit requires prior special resolution.
- Loans to directors are restricted under Section 185.
Worked example
A company has paid-up capital ₹1 crore, free reserves ₹50 lakh and securities premium ₹20 lakh. The Section 186 limit is the higher of 60% of ₹1.70 crore = ₹1.02 crore and 100% of ₹70 lakh = ₹70 lakh, so ₹1.02 crore. A loan of ₹1.5 crore needs prior special resolution.
Traps
Charge registration is not optional; delay can invalidate priority. Deposits from public are not freely permitted. Section 186 limit is not simply 60% of paid-up capital. Loans to directors attract separate restrictions.