Consequence of Non-Registration of Charge
The charges for which registration is mandatory and their registration is not done, then
it has the following results
(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 kind of registration, then the lender mentioned therein comes in 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) Rights of the mortgagee or charge-holder of the latter If the first charge on any property is not registered and a second charge is generated and registered on the same property, then the holder of the second charge shall be the holder of the first charge. The expectation will be able to get the first right on that property. If the holder of the second charge receives the first charge
Even if there is information, there is no adverse effect on his rights. It may be mentioned here that the above results arise only when the charge is created by the parties. but if the charges
- (i) by order of the Court; Or
- (ii) If generated by the distributor, then the above results will not arise if it is not registered.