ROC Compliance For Loans In Private Limited Companies

Understanding ROC Compliance in Private Limited Companies

Private limited companies, being artificial legal entities with perpetual succession, operate through a Board of Directors entrusted with the authority to manage the company’s affairs.
The Ministry of Corporate Affairs (MCA) governs all companies in India under the Companies Act, 2013, ensuring transparency, regulatory compliance, and corporate accountability.

While the board exercises decision-making power through resolutions — passed in meetings or through circulation — the MCA oversees whether companies comply with statutory filing obligations, especially when it comes to borrowing funds.

ROC Compliance for Loans: Key Requirements

Borrowing is a fundamental right of the board; however, under the Companies Act, there are mandatory restrictions, filings, and approvals that companies must adhere to when availing loans.

Here’s a detailed breakdown:

1. Special Resolution of Shareholders (Section 180)

When a company’s borrowings, combined with outstanding loans, exceed the sum of paid-up share capital and free reserves, it must obtain shareholder approval through a special resolution.

  • Resolution Requirement: The special resolution must specify the authorized borrowing limit.

  • Consequence of Non-Compliance: Without a valid resolution, the borrowing arrangement can be rendered void.

Important:

  • Applicable to all companies — both private and public.

  • Must be filed with the ROC using Form MGT-14.

2. Creation and Registration of Charge (Section 77)

Whenever a company creates a charge (security) on its assets — within or outside India — it must:

  • File Form CHG-1 (for loans other than debentures) or Form CHG-9 (for debentures).

  • Timeline: Within 30 days of the charge creation date.

  • Process:

    • The form must be digitally signed by both the company and the charge holder.

    • Upon approval, the ROC issues a Certificate of Registration of Charge.

Why It Matters:
Without proper registration, the charge won’t be recognized during liquidation proceedings, meaning lenders may not have any claim against the company’s assets.

3. Filing of Board or Shareholders’ Resolutions – Form MGT-14

Depending on the quantum of borrowing:

  • Within Authorized Limits: A board resolution suffices.

  • Exceeding Limits: A special resolution is mandatory.

Compliance Tip:

  • Resolutions must be filed with the ROC using Form MGT-14 within 30 days of their passing.

  • Filing delays can attract additional fees and compliance risks.

Special Case:

  • For Specified IFSC Public and Private Companies, the filing window extends to 60 days.

4. Search Report (Optional but Recommended)

Although not a statutory ROC compliance requirement, banks and financial institutions often demand a Search Report — certified by a CA or CS — before approving corporate loans.

Purpose:

  • To verify the company’s ROC filings.

  • To ensure there are no unregistered charges or pending compliance issues.

Types of Loans and ROC Compliance Requirements

Type of Loan ROC Compliance
Unsecured Loans from Directors No requirement to file DPT-3 or MGT-14 (If Not treated as deposits)
Secured Loans (Hypothecation, Pledge, Mortgage) File Form CHG-1 for charge registration; file MGT-14 if borrowing exceeds limits
Guarantees Provided for Another Company’s Loan Registration requirements vary based on transaction specifics

Importance of Charge Registration

  • Protects Creditors: Registered charges have priority during liquidation.

  • Mandatory for Enforcement: Without registration, creditors may lose rights over secured assets.

  • Improves Credibility: Shows lenders that the company maintains transparent financial practices.

Consequences of Non-Compliance

Failing to meet ROC compliance for loans can lead to:

  • Heavy monetary penalties

  • Personal liability of directors

  • Difficulty in raising future funding

  • Legal complications during mergers, acquisitions, or liquidation

Conclusion: ROC Compliance is Essential for Smooth Borrowing

For any private limited company, borrowing responsibly means borrowing compliantly.
Before securing any loan, companies must:

✅ Obtain necessary board or shareholder approvals
✅ Register all charges promptly with the ROC
✅ File required resolutions using Form MGT-14
✅ Maintain updated records for lender verification

Staying ahead of ROC compliance for loans is not just about avoiding penalties — it’s about building a transparent, legally sound, and finance-ready business structure.

💡 Pro Tip:
Consult a professional CA or CS before executing major borrowing transactions to ensure error-free ROC compliance and safeguard the company’s financial future.