Charges

CHARGES
OVERVIEW
Definition
Types of charges
Crystallisation of charge
Registration of charges - condo nation of delay
Modification of charges
Satisfaction of charges
DEFINITION
A charge is a security given for securing loans

or debentures by way of a mortgage on the
assets of the company. A company, like a
natural person, can offer security for its
borrowings. Normally, the debentures and
other borrowings of the company are secured
by a charge on the assets of the company.
According to Section 2(16) of the Act,
“charge” means an interest or lien created on
the property or assets of a company or any of
its undertakings or both as security and
includes a mortgage.
Charge also includes a lien and an equitable

charge whether created by an instrument in
writing or by the deposit of title deed (Dublin
City Distillery Co. v. Deherty, 1914 AC 823).
TYPES OF CHARGE
Fixed Charge
Floating Charge
FIXED CHARGE
A charge is called fixed or specific when it is

created to cover assets which are ascertained and
definite or are capable of being ascertained and
defined, at the time of creating the charge e.g.,
land, building, or plant and machinery.
A fixed charge, therefore, is a security in terms

of certain specific property, and the company
gives up its right to dispose off that property
until the charge is satisfied.
FLOATING CHARGE
A floating charge, as a type of security, is peculiar to
companies as borrowers.
A floating charge is not attached to any definite property

but covers property of a fluctuating type e.g., stock-in-trade
and is thus necessarily equitable.
A floating charge is a charge on a class of assets present

and future which in the ordinary course of business is
changing from time to time and leaves the company free
to deal with the property as it sees fit until the holders of
charge take steps to enforce their security
Official Liquidator v. Sri Krishna Deo, (1959) 29
Com Cases 476: AIR 1959 All 247 and Roy & Bros.
v. Ramnath Das, (1945) 15 Com Cases 69, 75 (Cal)]
The plant and machinery of a company embedded

in the earth or permanently fastened to things
attached to the earth became a part of the
company’s immovable property and therefore apart
from the registration under the Companies Act,
registration under the Indian Registration Act
would also be necessary to make the charge valid
and effective.
Cosslett (Contractors) Ltd., Re, (1996) 1 BCLC
407 (Ch D)
A construction company’s washing machine

which was in use at the site was declared under
the terms of the contract to be the employer’s
property during the period of construction. This
was held to have created a fixed charge and not a
floating charge on the machine because the
machine was only one fixed item and was not
likely to change.
A “floating security”, observed Lord Macnaghten
in Government Stock Investment Company Ltd.
v. Manila Rly. Company Ltd., (1897) A.C. 81, “is an
equitable charge on the assets for the time being
of a going concern. It attaches to the subject
charged in the varying condition in which it
happens to be from time to time. It is the essence
of such a charge that it remains dormant until the
undertaking charged ceases to be a going concern,
or until the person in whose favour the charge
Illingworth & Another v. Holdsworth & Another,
(ibid).
A floating charge is ambulatory and shifting in its

nature hovering over and so to speak floating with
the property which it is intended to affect until
some event occurs or act is done which causes it
to settle and fasten on the subject of the charge
within its reach and grasp.
Maturi U. Rao v. Pendyala A.I.R. 1970 A.P. 225
When the floating charge crystallizes it becomes

fixed and the assets comprised therein are subject
to the same restrictions as the fixed charge.
Wheatly v. Silkstone & High Moor Coal Co. Ltd.,

(1885) 54 L.J. Ch 78.
Unless specifically precluded, the company can

create fixed charge subsequent to floating charges
over the same property.
In Smith v. Bridgend County Borougn Council (2002)
1 BCLC 77 (HC), the agreement was held to
constitute a floating charge, in so far as it allowed the
employer, in various situations of default by the
contractor, to sell the contractor’s plant and
equipment and apply the proceeds in discharge of its
obligations. A right to sell an asset belonging to a
debtor and appropriate the proceeds to payment of
the debt could not be anything other than a charge.
It was a floating charge because the property in
question was a fluctuating body of assets which could
be consumed or removed from the site in the
ordinary course of the contractor’s business
CRYSTALLISATION OF FLOATING CHARGE
A floating charge attaches to the company’s

property generally and remains dormant till it
crystallizes or becomes fixed. The company
has a right to carry on its business with the
help of assets over which a floating charge has
been created till the happening of some event
which determines this right. A floating charge
crystallises and the security becomes fixed in
the following cases:
a) when the company goes into liquidation
(b) when the company ceases to carry on its

business;
(c) when the creditors or the debenture

holders take steps to enforce their security e.g.
by appointing receiver to take possession of the
property charged;
(d) on the happening of the event specified in

the deed.
EFFECT OF CRYSTALLISATION OF A
FLOATING CHARGE
On crystallization, the floating charge converts

itself into a fixed charge on the property of
the company. It has priority over any
subsequent equitable charge and other
unsecured creditors. But preferential creditors
who have priority for payment over secured
creditors in the winding-up get priority over the
claims of the debenture holders having floating
charge.

Charges

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CHARGES

Registration of charges - condo nation of delay

A charge is a security given for securing loans

Charge also includes a lien and an equitable

A charge is called fixed or specific when it is

A fixed charge, therefore, is a security in terms

A floating charge is not attached to any definite property

A floating charge is a charge on a class of assets present

The plant and machinery of a company embedded

A construction company’s washing machine

A floating charge is ambulatory and shifting in its

When the floating charge crystallizes it becomes

Wheatly v. Silkstone & High Moor Coal Co. Ltd.,

Unless specifically precluded, the company can

A floating charge attaches to the company’s

(b) when the company ceases to carry on its

(c) when the creditors or the debenture

(d) on the happening of the event specified in

On crystallization, the floating charge converts

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