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Consequence of Non-Registration of Charge The charges which are mandatory to be registered and are not registered have the following consequences.

(1) Charges in vain – If it is mandatory to register a charge under the Act and it is not registered, then that charge becomes useless. This does not mean that the contract between the lender and the company has become void and the lender cannot recover the money from the company.

(2) Money to be payable immediately – If any charge is documented and it becomes void due to non-registration, then the money secured by him becomes payable immediately.

(3) Lender being unsecured – If there is a mistake in any type of registration, then the lender mentioned therein comes under the category of unsecured lenders.

(4) Liability of the company The liabilities of the debtor or the company remain unaffected by non-registration of unaffected charge. The company has to pay the amount. The reason behind this is that a company cannot take advantage of its own mistake.

(5) No lien on documents of ownership When the charge becomes void due to non-registration of charge, the lien of the lender on the ownership documents of the company’s property also ceases. The lien on the documents of ownership is in addition to the charge, not separately.

(6) The rights of the mortgagee or charge-holder of the latter if the first charge on any property

If registration is not done and second charge is generated on the same property and it is registered, then the holder of second charge will get first right on that property than the holder of first charge. Even if the holder of the second charge is aware of the first charge, his rights are not adversely affected.

It may be mentioned here that the above results arise only when the charge is created by the parties. Provided that if the charge is (i) by order of the Court; or (ii) has been generated by the distributor, the above results will not arise if it is not registered.

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