SARFAESI and the Companies Act: Charges and Registration

When the borrower is a company, the lender's security sits under two registration regimes. The Companies Act requires the charge to be filed with the Registrar of Companies; SARFAESI requires the security interest to be filed with the Central Registry. The two filings have different consequences, and missing either can be costly. This note compares the two regimes and sets out the practical points where company law and SARFAESI meet.

1. Two Registration Regimes

RoC under s.77, CERSAI under SARFAESI

Figure 1: RoC under s.77, CERSAI under SARFAESI

Registration with the RoC, s.77. Every company creating a charge on its property must register its particulars with the Registrar of Companies within 30 days, with limited extensions on payment of fees.
Consequence of default, s.77(3). An unregistered charge is not taken into account by the liquidator or any other creditor, so it loses its force in a winding up.
Registration with CERSAI. Under SARFAESI, the security interest must be filed with the Central Registry within the prescribed period (Topics 42, 43)
Consequence of default, s.26D. An unregistered security interest cannot be enforced under Chapter III of SARFAESI (Topic 44)

2. Practical Points

Where company law and SARFAESI meet

Figure 2: Where company law and SARFAESI meet

Debt survives non-registration. Section 77 does not extinguish the debt or the contract; it affects the charge's standing against the liquidator and other creditors.
Two separate filings. For a company borrower, the lender needs both the RoC filing and the CERSAI filing; one does not substitute for the other.
Integration under s.26B. Chapter IVA allows registration systems to be integrated with the Central Registry, moving towards a single record of charges (Topic 43)
Liquidation and workmen. When a company borrower is wound up, workmen's dues rank alongside secured creditors, under the IBC waterfall and earlier under s.529A (Topics 62, 76)

⚠ Exam trap

Do not treat RoC and CERSAI registration as the same thing. Under s.77 of the Companies Act, a charge on a company's property must be registered with the Registrar within 30 days, and under s.77(3) an unregistered charge is not taken into account by the liquidator or other creditors, though the debt itself survives. Under SARFAESI, the security interest must separately be registered with the Central Registry, and s.26D bars enforcement of an unregistered interest. A lender to a company needs both.

3. Frequently Asked Questions

What is the effect of not registering a charge under Section 77 of the Companies Act?

Under Section 77(3) of the Companies Act 2013, a charge created by a company is not taken into account by the liquidator or any other creditor unless it has been duly registered with the Registrar of Companies and a certificate of registration given. The charge therefore loses its standing in a winding up and against competing creditors. Non-registration does not, however, extinguish the debt or the contractual obligation to repay it; the lender's claim survives, but without the protection of a registered charge.

Is registration with the RoC enough to enforce under SARFAESI?

No. SARFAESI has its own registration requirement. The security interest must be registered with the Central Registry, and Section 26D, in force from 24 January 2020, provides that no secured creditor may exercise its enforcement rights under Chapter III unless the security interest is so registered. For a company borrower, the lender must therefore register the charge with the Registrar of Companies under Section 77 and the security interest with the Central Registry, although Section 26B contemplates integration of the two systems.

4. Related Topics

Topic 44: Sections 26C and 26D. The SARFAESI consequence of non-registration.
Topic 62: SARFAESI and Company Liquidation. Workmen's dues in a winding up.