assignment and charge

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Difference Between Assignment And Charge

INTRODUCTION

The charges are defined under the Companies Act and the government under the Section 77, [1] Section 78, Section 79, [2] Section 89 [3] and the rules 2014. The company has the right to borrow monies by providing the security to the assets and may create a lien on the properties. [4] The company also has the right to issue debentures so that the funds can be raised which can carry right interest in the assets are the properties of the company.

The security which is given to a person for securing the loans and debentures under the mortgage of assets is known as charge. A company has the right to borrow the security for its borrowing. [5] When they both existing and future property is agreed to be available as a security for the repayment of test then the creditors have the right to make it available as there is charge created. 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”. [6] In the case of Dublin City Distillery Co. v. Deherty , [7] It was stated that charge include any portable charger whether this can be created by an instrument in writing or by the deposit of the title deed. [8]

KINDS OF CHARGES

There are two types of charges-

1.     FIXED CHARGE

  Fixed charge is a type of charge which is created so that assets can be covered. It is a type of security which is there under the terms of certain specific property. [9] Fixed Charges is  a  charge fixed  or  specific  when  it  is  made  specifically  to cover assets which are ascertainable and definite at the time of creating the charge e.g., land, buildings,  heavy  machinery etc. [10]

2.     FLOATING CHARGE

A floating charge is a charge which is totally different to the companies as a type of security. This type of charge is not attached to any definite property. A floating charge includes a charge which is on the class of assets which is present and future in the ordinary course of business and this changing from time to time. [11] “The essence of a floating charge is that the security remains dormant until it is fixed or crystallised”. [12] Floating charge is the present security. Floating charge can affect all the assets of the company. Floating Charge, on  the  other  hand,  is  not  attached  to  any  definite property  but  covers  property  which  is  of  a  fluctuating  nature  such  as  stock  in  trade. [13]   It is an equitable charge on the assets for the time being of a going concern. [14] It attaches to the subject charged  in  the  varying  condition  in  which  it  happens  to  be  from  time  to  time.  It is of this sense 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 is created intervenes. [15]

FORM OF CHARGES

As stated above the charges under the Companies Act or defined under Section 77 [16] , Section 78 [17] and Section 79-

The charges are divided into three categories

• FORMS FOR FILING: CHG-1, CHG-4, CHG-6, CHG-8, CHG-9, CHG-10.
• CERTIFICATES ISSUED BY ROC: CHG-2, CHG-3, CHG-5.
• REGISTER TO BE MAINTAINED.

SATISFACTION OF CHARGE

Within 30 days of treatment satisfaction should be full of any charge which is registered and the company shall get intimation of the same in CHG-4 along with the fee then the ROC will issue of certificate of registration on the satisfaction of a charged under the form number CHG-5.

The principle of assignment is recognized under Indian law and is applied by Indian courts. It derives its origin from English law. The words assignment means the transfer of rights and obligations held by one party to another party. The system of assignment is favoured under the common law such as there is no expressed prohibition against assignment in a contract.

However in India with the absence of specific laws under the transfer of a contract intention of the party has to be taken into the account. In the case of Khared and Co. Ltd v Ramon and Co. Pvt. Ltd , [18]  it was stated that “as a rule, obligations under a contract cannot be assigned except with the consent of the promisee. Where such consent is obtained, it will be considered as a deemed novation, resulting in the substitution of liabilities and obligations to the assignee”. Assignment rights are usually limited pertaining to the licence of intellectual property rights and Technology.

[1] Section 77 of Companies Act, 2013 Duty to register charges, etc. 1.     It shall be the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, to register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating such charge in such form, on payment of such fees and in such manner as may be prescribed, with the Registrar within thirty days of its creation: Provided that the Registrar may, on an application by the company, allow such registration to be made within a period of three hundred days of such creation on payment of such additional fees as may be prescribed: Provided further that if registration is not made within a period of three hundred days of such creation, the company shall seek extension of time in accordance with section 87: Provided also that any subsequent registration of a charge(………)

[2] The provisions of section 77 relating to registration of charges shall, so far as may be, apply to—

(a) a company acquiring any property subject to a charge within the meaning of that section; or

(b) any modification in the terms or conditions or the extent or operation of any charge registered under that section.

[3] Declaration in respect of beneficial interest in any share.

• Where the name of a person is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares, such person shall make a declaration within such time and in such form as may be prescribed to the company specifying the name and other particulars of the person who holds the beneficial interest in such shares.
• Every person who holds or acquires a beneficial interest in share of a company shall make a declaration to the company specifying the nature of his interest, particulars of the person in whose name the shares stand(…..)

[4] Vishal Thakkar, “CHARGES” under The New Companies Act, 2013 (2015), https://www.linkedin.com/pulse/charges-under-new-companies-act-2013-vishal-thakkar (last visited Apr 19, 2017).

[5] Charges under companies act, 2013 , http://www.caclubindia.com/articles/charges-under-companies-act-2013-23073.asp (last visited Apr 9, 2017).

[6] Section 2(16) of Companies Act, 2013. 

[7] Dublin City Distillery Co. v. Deherty, 1914 AC 823.

[9] Mr. M. Govindarajan, Provisions Relating to ‘Charges’ Under Companies Act, 2013 (2013), https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=5382 (last visited Apr 9, 2017).

[10] Admin, Creation of Charges under Companies Act, 2013 (2016), http://taxguru.in/company-law/creation-charges-companies-act-2013.html (last visited Apr 9, 2017).

[11] Creation of Charges under Companies Act, 2013, (2016), http://taxguru.in/company-law/creation-charges-companies-act-2013.html (last visited Apr 9, 2017).

[12] Supra note 6.

[13] “CHARGES” under The New Companies Act, 2013 (2015).

[14] Government Stock Investment Co. Ltd. V. Manila Rly. Co. Ltd., (1897) AC 81 Per Lord Macnaghten,

[15] Supra note 9.

[16] Supra note 1.

[17] Supra note 11.

[18] Khared and Co. Ltd v Ramon and Co. Pvt. Ltd, 1962 AIR 1810, 1963 SCR (3) 183 .

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What is a notice of assignment?

An assignment takes place when one party is holding a right to property, claims, bills, lease, etc., of another party and wishes to pass it along (or sell it) to a third party. As complicated as that sounds, it really isn’t. Strangely enough, many assignments can be made under the law without immediately informing, or obtaining the permission, of the personal obligated to perform under the contract. An example of this is when your mortgage is sold to another mortgage company. The original mortgage company may not inform you for several weeks, and they certainly aren’t going to ask your permission to make the sale.

If a person obligated to perform has received notice of the assignment and still insists on paying the initial assignor, the person will still be obligated to pay the new assignee according to the agreement. If the obligated party has not yet been informed of the assignment and pays the original note holder (assignor), the assignor is obligated to turn those funds over to the new assignee. But, what are the remedies if this doesn’t take place? Actually, the new assignee may find themselves in a difficult position if the assignor simply takes off with their funds or payment. They are limited to taking action against the person they bought the note from (assignor) and cannot hold the obligator liable. Therefore, it is important to remember that if any note or obligation is assigned to another party, each party should be well aware of their responsibilities in the transaction and uphold them according to the laws of their state. Assignment forms should be well thought out and written in a manner which prevents the failure of one party against another.

Related posts:

• Does your Agreement Require an Assignment Legal Form?
• Why Every Landlord and Tenant Needs a Lease Agreement
• Why you need a Power of Attorney and How to Assign One

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Assignments: why you need to serve a notice of assignment

Catherine phillips.

PSL Principal Associate

It's the day of completion; security is taken, assignments are completed and funds move. Everyone breathes a sigh of relief. At this point, no-one wants to create unnecessary paperwork - not even the lawyers! Notices of assignment are, in some circumstances, optional. However, in other transactions they could be crucial to a lender's enforcement strategy. In the article below, we have given you the facts you need to consider when deciding whether or not you need to serve notice of assignment.

What issues are there with serving notice of assignment?

Assignments are useful tools for adding flexibility to banking transactions. They enable the transfer of one party's rights under a contract to a new party (for example, the right to receive an income stream or a debt) and allow security to be taken over intangible assets which might be unsuitable targets for a fixed charge. A lender's security net will often include assignments over contracts (such as insurance or material contracts), intellectual property rights, investments or receivables.

An assignment can be a legal assignment or an equitable assignment. If a legal assignment is required, the assignment must comply with a set of formalities set out in s136 of the Law of Property Act 1925, which include the requirement to give notice to the contract counterparty.

The main difference between legal and equitable assignments (other than the formalities required to create them) is that with a legal assignment, the assignee can usually bring an action against the contract counterparty in its own name following assignment. However, with an equitable assignment, the assignee will usually be required to join in proceedings with the assignor (unless the assignee has been granted specific powers to circumvent that). That may be problematic if the assignor is no longer available or interested in participating.

Why should we serve a notice of assignment?

The legal status of the assignment may affect the credit scoring that can be given to a particular class of assets. It may also affect a lender's ability to effect part of its exit strategy if that strategy requires the lender to be able to deal directly with the contract counterparty.

The case of General Nutrition Investment Company (GNIC) v Holland and Barrett International Ltd and another (H&B) provides an example of an equitable assignee being unable to deal directly with a contract counterparty as a result of a failure to provide a notice of assignment.

The case concerned the assignment of a trade mark licence to GNIC . The other party to the licence agreement was H&B. H&B had not received notice of the assignment. GNIC tried to terminate the licence agreement for breach by serving a notice of termination. H&B disputed the termination. By this point in time the original licensor had been dissolved and so was unable to assist.

At a hearing of preliminary issues, the High Court held that the notices of termination served by GNIC , as an equitable assignee, were invalid, because no notice of the assignment had been given to the licensee. Although only a High Court decision, this follows a Court of Appeal decision in the Warner Bros Records Inc v Rollgreen Ltd case, which was decided in the context of the attempt to exercise an option.

In both cases, an equitable assignee attempted to exercise a contractual right that would change the contractual relationship between the parties (i.e. by terminating the contractual relationship or exercising an option to extend the term of a licence). The judge in GNIC felt that "in each case, the counterparty (the recipient of the relevant notice) is entitled to see that the potential change in his contractual position is brought about by a person who is entitled, and whom he can see to be entitled, to bring about that change".

In a security context, this could hamper the ability of a lender to maximise the value of the secured assets but yet is a constraint that, in most transactions, could be easily avoided.

Why not serve notice?

Sometimes it's just not necessary or desirable. For example:

• If security is being taken over a large number of low value receivables or contracts, the time and cost involved in giving notice may be disproportionate to the additional value gained by obtaining a legal rather than an equitable assignment.
• If enforcement action were required, the equitable assignee typically has the option to join in the assignor to any proceedings (if it could not be waived by the court) and provision could be made in the assignment deed for the assignor to assist in such situations. Powers of attorney are also typically granted so that a lender can bring an action in the assignor's name.
• Enforcement is often not considered to be a significant issue given that the vast majority of assignees will never need to bring claims against the contract counterparty.

Care should however, be taken in all circumstances where the underlying contract contains a ban on assignment, as the contract counterparty would not have to recognise an assignment that is made in contravention of that ban. Furthermore, that contravention in itself may trigger termination and/or other rights in the assigned contract, that could affect the value of any underlying security.

What about acknowledgements of notices?

A simple acknowledgement of service of notice is simply evidence of the notice having been received. However, these documents often contain commitments or assurances by the contract counterparty which increase their value to the assignee.

Best practice for serving notice of assignment

Each transaction is different and the weighting given to each element of the security package will depend upon the nature of the debt and the borrower's business. The service of a notice of assignment may be a necessity or an optional extra. In each case, the question of whether to serve notice is best considered with your advisers at the start of a transaction to allow time for the lender's priorities to be highlighted to the borrowers and captured within the documents.

For further advice on serving notice of assignment please contact Kirsty Barnes or Catherine Phillips  from our Banking & Finance team.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.

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