ROC Compliance For Loans In Private Limited Companies

Companies, being artificial entities with perpetual succession and a common seal, are governed by a board of directors who serve as the supreme governing body, empowered to exercise all authorized powers. The Ministry of Corporate Affairs (MCA) oversees the administration of the Companies Act, functioning as the central authority responsible for monitoring compliance and operations of companies. While the board exercises its powers through resolutions, either in meetings or through circulation, the MCA ensures adherence to regulatory requirements.

ROC Compliance for Loans:

Among the powers vested in the board is the authority to borrow money, a privilege that may also be delegated to specific committees or individuals within the company’s hierarchy. However, while the Companies Act confers significant borrowing powers upon the board, it also imposes certain restrictions and additional compliance obligations, which are outlined below:

  1. Special Resolution of Shareholders (Section 180): When the amount to be borrowed, combined with existing borrowings, surpasses the aggregate of the company’s paid-up capital and free reserves, a special resolution of the shareholders is mandated. This resolution must explicitly specify the overall borrowing limit; failure to do so renders the resolution void.[1]
  2. Creation of Charge (Section 77): Every company with charges on its properties, whether within or outside India, must register such charges with the Registrar within 30 days[3] of their creation. Registration involves filing Form CHG-1 (for non-debenture charges) or Form CHG-9 (for debentures), signed by both the company and the charge holder. Upon registration, the Registrar issues a certificate confirming the charge’s registration.[2]

Importance of Registration of Charge:

Charges must be registered to be considered by a liquidator, and no charge can be accounted for unless it has been duly registered, accompanied by a certificate of registration.

  1. Filing of Board/Shareholders Resolutions – Form MGT-14: For borrowings within the company’s limits, a board resolution authorizing the borrowing is necessary, stating that the borrowing falls within the company’s prescribed limits. In cases where borrowing exceeds these limits, a special resolution is required. As per Section 117(3), specified resolutions, including special resolutions, must be filed with the ROC using Form MGT-14 within 30 days [4] of their passing.
  2. Search Report: Although not strictly a ROC compliance requirement, many banks request a search report before granting loans. This report, certified by a professional, verifies the company’s ROC compliance status.

Types of Loans and Corresponding Compliances:

  • Unsecured Loans from Directors: Not considered deposits under the Companies Act, hence no requirement for filing DPT-3 or MGT-14.
  • Secured Loans (e.g., Hypothecation, Pledge, Mortgage on Company Assets): Require filing of CHG-1 and MGT-14 if a special resolution is made or if borrowing exceeds prescribed limits.
  • Guarantees Given on Another Company’s Loan: Depending on the nature of the guarantee, registration may or may not be necessary.

Conclusion:

  1. When acquiring loans, companies must obtain either a board resolution or a special resolution if the prescribed borrowing limit is exceeded.
  2. Special resolutions must be filed using Form MGT-14 within 30 days of their passing.
  3. Charges created must be registered with the Registrar using Form CHG-1 within 30 days of their creation.

Citations:

  1. Applicable to all companies, unlike corresponding Section 293, which applies only to public companies.
  2. Applicable to all companies.
  3. The filing deadline can be extended to 300 days by paying additional fees.
  4. For Specified IFSC Public and Private Companies, filing must be done within 60 days.