ROC Compliance in Case Of Loans

Companies are artificial person having perpetual succession and common seal; in which board of director play the role of supreme governing organs entitled to exercise all such powers which the company is authorized to exercise.At the other place MCA, Ministry of corporate affairs is primarily concerned with administration of Companies Act. It is mother body of all companies which keeps track of the compliances and functioning of companies.Where board carries out all its powers through board resolution either in meeting or through circulation, MCA checks its compliances and functioning.

One of powers which board exercises in its meetings is to borrow money. Yes, Board has the power to borrow; this power can be even delegated to committee of directors, Managaing Direrctor, Manager, Principal Officer of company, principal officer of branch office.Though act has given enormous power to board it has also not failed to place restriction on the same, these restrictions and that extra compliance to be taken care while borrowing money is been discussed herewith –

Special Resolution of Shareholders (Section 180)[1]

If amount to be borrowed together with amount already borrowed exceeds aggregate of paid up capital and free reserves then special resolution of a company is required. The special resolution shall specify the overall borrowing limit otherwise such resolution stands void.

 Creation of Charge (Section 77)[2]

It is duty of every company having charge on its properties whether in or outside India to register such charge with the Registrar within 30 days[3] of its creation. The same shall be filed in Form CHG-1 (other than debentures) or Form No.CHG-9 (for debentures including rectification) and signed by the company and the charge holder.
Where such charge is registered, Registrar shall issue a certificate of registration of charge.

Importance of charge

No charge shall be taken into account by liquidator unless and until it is been registered and a certificate of registration is obtained.

Filing of board/ Shareholders resolution – MGT-14

Where borrowing is within the limits, a board resolution authorizing the borrowing is required. The said resolution should state that the fact that the borrowing is within limits of company.

Where borrowing exceeds the limit as discussed above, special resolution will be required.

S.117(3) requires certain specified resolution to be filed with ROC in form MGT-14, one of such specified resolution is all the special resolution made. Thus, MGT-14 should be filed within 30 days of passing such special resolution.[4]

Search Report

Though not necessarily ROC compliance, it is a check on ROC compliance, many banks demand search report before sanctioning of loan.It is report certified by a professional regarding the facts of ROC compliance of the company.

Types of loan and its compliances

Unsecured loan from directors	It is not treated as deposit as per companies act, no requirement for filing DPT-3 or MGT-14.
Secured loans (Hypothecation, Pledge, mortgage on company assets)	Filing of CHG-1 and MGT-14( if special resolution made)
Exceeding borrowing limit	Special resolution required to be made and filed in MGT-14
Guarantee given on one company’s property over other company’s loan (example – A ltd providing guarantee to bank for B ltd’s loan from bank	A ltd assets are given as security, therefore A ltd has to create charge
Guarantee by one company for other company	Such guarantee doesn’t create any charge, so not required to register (S.T Patil vs ROC)

Conclusion
1. If your company is acquiring loan you need a board resolution / Special resolution if exceeding the prescribed limit.
2. MGT-14 to be filed for special resolution within 30 days of passing of resolution.
3. CHG-1 to be filed with registrar within 30 days of creation of charge.

[1] Applicable to all companies as compared to corresponding section 293 applicable only to public companies
[2] Applicable to all companies
[3] Can be made within a period of 300 days by paying additional fees
[4]  In case of Specified IFSC Public and Private Company – filing should be done within 60 days.