Every private limited company borrowing requires a board resolution under Section 179(3)(d). Shareholder approval via special resolution is mandatory when total borrowings exceed paid-up capital plus free reserves plus securities premium. Secured loans must be registered with ROC within 30 days via Form CHG-1.
ROC Compliance for Loans in Private Limited Companies
Every time a private limited company borrows money — from a bank, a director, a related party, or another company — it enters a web of statutory obligations under the Companies Act 2013. The Registrar of Companies (ROC) requires specific disclosures, resolutions, and filings at each stage of the borrowing lifecycle: before the loan is taken (board and shareholder approvals), at the time the loan is secured (charge registration), annually during the loan tenure (DPT-3 return), and when the loan is repaid (charge satisfaction). Missing any of these steps exposes the company’s directors to personal liability, penalties in the range of Rs 1 lakh to Rs 10 crore, and in severe cases, imprisonment.
This guide covers all 5 statutory compliance streams for loans in private limited companies: Section 179 board authorisation, Section 180 shareholder approval, Section 185 director loan restrictions, Section 186 inter-corporate loan limits, Section 77 charge registration, and the annual DPT-3 filing. It also covers Form CHG-1, CHG-4, CHG-9, MGT-14, MBP-1, and the late-fee condonation procedure for delayed charge registration.
The authoritative reference is the Ministry of Corporate Affairs (MCA) portal. All forms are filed electronically at the MCA V3 e-filing portal.
What Are the Key ROC Compliance Requirements for Company Loans?
- Board resolution mandatory for every loan: Section 179(3)(d) requires a board resolution even when borrowings are within Section 180 limits.
- Section 180 special resolution: Required when total borrowings exceed paid-up share capital + free reserves + securities premium. Applies to ALL companies including private limited companies.
- Charge registration in 30 days: Any loan secured by company assets must be registered with the ROC in Form CHG-1 (or CHG-9 for debentures) within 30 days of charge creation.
- Section 186 caps inter-corporate loans: Loans/guarantees to other companies cannot exceed 60% of paid-up capital + free reserves + securities premium (or 100% of free reserves, whichever is higher) without a special resolution.
- DPT-3 is annual and mandatory: Every company must file Form DPT-3 by 30 June each year reporting all outstanding unsecured borrowings. Non-filing attracts a fine of up to Rs 10 crore.
- Director loans have special rules: Section 185 prohibits or conditions loans to directors; MBP-1 disclosure of director interest is required under Section 184.
Contents
- What Powers Does the Board Have to Borrow Under the Companies Act 2013?
- When Does a Private Limited Company Need Shareholder Approval for a Loan?
- How Must a Private Limited Company Register a Charge Under Section 77?
- What Are the Rules for Inter-Corporate Loans Under Section 186?
- What ROC Forms Are Required for Loan Compliance?
- What Penalties Apply for Non-Compliance With ROC Loan Filing Requirements?
- What Are the Most Common Questions About ROC Compliance for Loans?
What Powers Does the Board Have to Borrow Under the Companies Act 2013?
A private limited company is an artificial legal person with perpetual succession. Its borrowing power flows from its Memorandum of Association and is exercised by the Board of Directors as an incident of the board’s general management authority under Section 179 of the Companies Act 2013. Two provisions are key:
Why Is a Board Resolution Required for Every Borrowing Under Section 179(3)(d)?
Section 179(3) lists acts that the Board must exercise at a board meeting by a resolution passed at the meeting — not by circular resolution or email approval. Borrowing money is explicitly listed in Section 179(3)(d). This means:
- Every decision to borrow — whether from a bank, a director, a shareholder, or another company — must be authorised by a board resolution passed at a duly convened board meeting with a valid quorum (minimum 2 directors for a private company with fewer than 3 directors, or 1/3 of total directors whichever is higher for others).
- The resolution must record: the name of the lender, the amount of borrowing, the rate of interest, the tenure, the security being offered, and the authorised signatories for the loan documents.
- Circular resolutions (decisions passed without a meeting, passed in writing by directors) are not permitted for borrowing under Section 179(3).
- The board resolution must be recorded in the minutes book within 30 days of the board meeting.
What Counts as “Borrowing” for ROC Compliance Purposes?
The term “borrowing” is broad and includes: term loans from banks and NBFCs, cash credit facilities and overdrafts, commercial paper, debentures (convertible and non-convertible), inter-corporate deposits, loans from directors (if not treated as deposits), loans from shareholders (if not treated as deposits), working capital loans, loans from foreign lenders (ECB), and guarantees given by the company for third-party loans (which count as contingent borrowings under Section 186).
Loans from directors and relatives of directors are specifically excluded from the definition of “deposits” under Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposits) Rules 2014, provided the director furnishes a declaration in writing to the effect that the loan is not being given out of funds acquired by them by borrowing or accepting loans/deposits from others. If this condition is not met, the director’s loan is treated as a deposit and attracts the full deposit acceptance and repayment regime.
Are Private Limited Companies Exempt from Any ROC Loan Compliance Requirements?
The MCA issued a notification on 5 June 2015 under Section 462 of the Companies Act 2013 granting certain exemptions to private limited companies. These exemptions do NOT include an exemption from Section 180 (shareholder approval for exceeding borrowing limits) or from Section 185 (director loan restrictions). The exemptions relevant to loans are limited to: private companies are not required to pass a special resolution under Section 180 if they already have a provision in their Articles of Association authorising the board to borrow — but this is a procedural nuance and does not remove the need for shareholder approval when borrowing exceeds the Section 180 threshold. Consult a Company Secretary to confirm the current position for your specific company structure.
When Does a Private Limited Company Need Shareholder Approval for a Loan?
Shareholder approval (beyond board authority) is required in 3 distinct situations involving loans. Each has different legal consequences for non-compliance.
How Is the Section 180 Borrowing Threshold Calculated?
When the aggregate of all amounts for the time being remaining undischarged by a company (i.e., all current borrowings including the proposed new loan) exceeds the aggregate of the company’s paid-up share capital, free reserves, and securities premium account, the Board must obtain prior approval of the company’s shareholders by way of a special resolution (passed by 3/4th majority of votes cast) at a general meeting.
The special resolution must specify the maximum limit up to which the board is authorised to borrow (a rolling limit is permissible, e.g., “up to Rs 5 crore at any time”). Form MGT-14 must be filed with the ROC within 30 days of passing the resolution.
Situation 2: Section 185 — Loans to Directors
Section 185 as amended by the Companies (Amendment) Act 2017 governs loans by a company to its directors or persons connected to them. The amended Section 185 works as follows:
| Type of Loan | Permitted? | Conditions |
|---|---|---|
| Loan to any director of the company or its holding company | Prohibited (Section 185(1)) | Absolute prohibition unless covered by exceptions below |
| Loan to a firm in which a director or relative is a partner | Prohibited (Section 185(1)) | Same absolute prohibition |
| Loan to Managing Director / Whole-Time Director | Permitted (Section 185(1) Proviso) | Must be part of service conditions or approved by special resolution; advance must appear in financial statements |
| Loan to subsidiary company where the director is also a director | Permitted (Section 185(2)) | Requires special resolution; must not be used to purchase shares in holding company |
| Loan from a director to the company | Permitted | Director must file MBP-1 (Section 184); if treated as deposit, the director must give a written declaration that the amount is not borrowed by the director from others |
Section 185 Violation: Criminal Liability for Directors
Giving a loan in violation of Section 185(1) is not merely a regulatory offence — it attracts criminal prosecution. The company is liable for a fine of Rs 5 lakh to Rs 25 lakh. Every director or other person who is a party to the contravention is liable for imprisonment of up to 6 months, or a fine of Rs 5 lakh to Rs 25 lakh, or both. This provision is strictly enforced. A director who receives a loan in violation of Section 185 must refund it immediately; the ROC can direct repayment. Never advance a loan to a director without obtaining a qualified Company Secretary’s written opinion.
How Must a Private Limited Company Register a Charge Under Section 77?
A “charge” is a right of the lender over the company’s assets as security for a loan. When a private limited company takes a secured loan and pledges, hypothecates, or mortgages any of its assets as collateral, a charge is created over those assets. Section 77 of the Companies Act 2013 makes registration of every such charge with the ROC mandatory.
Types of Charges on Company Assets
| Type of Security | Description | Common For |
|---|---|---|
| Hypothecation | Borrower retains possession of movable assets; lender has right over them if default occurs | Working capital loans against stock, debtors |
| Pledge | Borrower transfers possession of movable assets to lender as security | Loans against FDR, shares, gold |
| Mortgage | Transfer or charge on immovable property as security for a loan | Property-backed term loans |
| Assignment | Transfer of receivables or future cash flows to lender as security | Invoice discounting, receivables financing |
| Lien | Right to retain possession of another’s property until debt is repaid | Loans against bank deposits |
Filing Timeline and Late Fee Structure for Form CHG-1
The charge must be registered within 30 days of the date of creation. Where the filing is delayed, the Registrar of Companies may allow filing with late fees as follows:
| Delay Period (from creation date) | Additional Fee | How to File |
|---|---|---|
| 0–30 days | Normal fee only | Form CHG-1 directly with ROC |
| 31–60 days | 2 times normal fee | Form CHG-1 with ROC |
| 61–90 days | 4 times normal fee | Form CHG-1 with ROC |
| 91–180 days | 6 times normal fee | Form CHG-1 with ROC |
| 181–300 days | 10 times normal fee | Form CHG-1 with ROC |
| Beyond 300 days | 10 times normal fee + application fee | Form CHG-8 to Regional Director for condonation of delay |
Where the Regional Director rejects the condonation application, the company must approach the National Company Law Tribunal (NCLT) under Section 87 to allow registration of the charge. The normal government fee for CHG-1 is based on the amount of charge: Rs 300 for charges up to Rs 1 lakh, scaling up to Rs 30,000 for charges above Rs 500 lakh.
Who Signs Form CHG-1?
Form CHG-1 must be signed digitally by both:
- The Company: by a Director or Company Secretary or a person authorised by the board
- The Charge Holder (Lender): by an authorised officer of the bank, NBFC, or other lender
The ROC registers the charge and issues a Certificate of Registration of Charge in Form CHG-2, which contains the Charge ID. This Charge ID is the unique identifier of the charge in the ROC database and must be referenced in all subsequent filings related to that charge.
Satisfaction of Charge: Form CHG-4
When the loan is fully repaid and the lender releases the security, the charge must be satisfied (removed from the ROC register) by filing Form CHG-4 within 30 days of the date of satisfaction. Failure to file CHG-4 means the charge continues to appear in the ROC records, which can adversely affect the company’s credit profile and complicate future borrowings or due diligence by investors.
Why Charge Registration Matters in Liquidation and Insolvency
Under the Insolvency and Bankruptcy Code 2016 (IBC) and the Companies Act 2013 Section 77(3), an unregistered charge is void against the liquidator and any creditor of the company. This means: if a company is wound up and a lender’s charge was not registered with the ROC, that lender will be treated as an unsecured creditor and will rank behind all registered secured creditors and even behind unsecured operational creditors in the distribution of assets during liquidation. Registration of charge with the ROC is what gives a lender “secured creditor” status in insolvency proceedings. The charge holder (lender) has an independent right to ensure the charge is registered — lenders should verify CHG-2 registration independently after filing.
What Are the Rules for Inter-Corporate Loans Under Section 186?
Section 186 of the Companies Act 2013 regulates loans, guarantees, investments, and securities given by one company to another. It applies when a private limited company gives a loan to another company, person, or body corporate (not when it receives one). A company that gives an inter-corporate loan without complying with Section 186 exposes its directors to imprisonment of up to 2 years.
Section 186(2): Statutory Limit on Inter-Corporate Loans and Guarantees
A company shall not, directly or indirectly, give any loan to, or give any guarantee or security in connection with a loan to, any other company or body corporate or any person, and shall not acquire by way of subscription, purchase or otherwise the securities of any other company, if the aggregate of all such loans, guarantees, investments, and securities given or to be given to all persons or bodies corporate exceeds:
- 60% of the company’s paid-up share capital + free reserves + securities premium account, OR
- 100% of its free reserves + securities premium account, whichever is higher
Section 186(3): Board Resolution Required for Every Inter-Corporate Loan
Even when the inter-corporate loan is within the Section 186(2) limit, a board resolution passed at a duly convened board meeting (not by circular) is required before making any loan, giving any guarantee, or providing any security under Section 186. The board resolution must record the nature of the loan, the borrowing entity, the amount, the interest rate, and the purpose.
Section 186(7): Minimum Interest Rate on Inter-Corporate Loans
The rate of interest charged on any inter-corporate loan must not be lower than the prevailing yield of one-year, three-year, five-year, or ten-year government security (closest in maturity to the term of the loan) as published by the Reserve Bank of India. Lending at below-market rates between group companies is a common audit finding. The auditor is required under CARO 2020 to specifically comment on whether inter-corporate loans comply with the minimum rate requirement.
Key Exemptions Under Section 186(11)
| Transaction | Exempt From | Condition |
|---|---|---|
| Loan by holding company to its wholly owned subsidiary | Section 186(2) limit and Section 186(3) board resolution requirement | The loan must be used by the subsidiary for its principal business activities |
| Guarantee or security by holding company for a loan to its subsidiary | Section 186(2) limit | Subsidiary must use the loan for principal business activities |
| Loans by banking companies, insurance companies, housing finance companies | Entire Section 186 | Such transactions are in the ordinary course of their business |
| Investments by investment companies | Section 186(2) limit | Company must be principally engaged in the business of investment |
What ROC Forms Are Required for Loan Compliance?
Registration of charge (for loans other than debentures). Filed within 30 days of charge creation. Signed by both company and lender. Late filing permitted with escalating fees up to 300 days.
Registration of charge created by issue of debentures (including series of debentures or debenture stock). Filed within 30 days. Same late fee structure as CHG-1.
Intimation of satisfaction of charge (full repayment of the secured loan). Filed within 30 days of the satisfaction date by either the company or the charge holder.
Application to the Regional Director for condonation of delay in filing CHG-1 beyond 300 days. Filed by the company along with the reasons for delay and an affidavit.
Filing of board or special resolutions with the ROC. Required for: Section 180 special resolution (borrowing beyond limit), Section 186 special resolution (inter-corporate loan beyond limit), and Section 185(2) special resolution (loan to subsidiary). Filed within 30 days of the resolution being passed.
Annual return of outstanding deposits and receipts of money not treated as deposits. Filed by 30 June each year for the balance as of 31 March. Mandatory for ALL companies. Includes director loans, inter-corporate deposits, and shareholder loans not treated as deposits.
Declaration of interest by director filed at the beginning of each financial year and whenever a new interest arises. A director who has given a loan to the company or who has an interest in a lender entity must file MBP-1 disclosing that interest before the company enters into the loan transaction.
Annual return of the company. While not a loan-specific form, it must accurately disclose all indebtedness and material transactions including inter-corporate loans and guarantees given during the year. MGT-7A applies to small companies and OPCs; MGT-7 to all other private limited companies.
Filing Deadlines Summary Table
| Form | Trigger Event | Filing Deadline | Filed With |
|---|---|---|---|
| CHG-1 / CHG-9 | Creation of charge on company assets | Within 30 days (extendable with late fees up to 300 days) | ROC (MCA V3) |
| CHG-4 | Full repayment and release of charge | Within 30 days of satisfaction | ROC (MCA V3) |
| CHG-8 | Delay beyond 300 days in CHG-1 filing | As soon as delay is discovered | Regional Director |
| MGT-14 | Passing of special resolution (Section 180 / 186) or board resolution (Section 179) | Within 30 days of resolution date | ROC (MCA V3) |
| DPT-3 | Annual — as at 31 March each year | By 30 June every year | ROC (MCA V3) |
| MBP-1 | Beginning of each financial year / new interest arising | At the first board meeting of the year / before the relevant transaction | Placed before the board meeting; retained by company |
| MGT-7 / MGT-7A | End of each financial year | Within 60 days of AGM (or 30 June + 60 days for small companies) | ROC (MCA V3) |
What Penalties Apply for Non-Compliance With ROC Loan Filing Requirements?
Section 77 — Failure to Register Charge (CHG-1)
Company: Fine of Rs 1 lakh to Rs 10 lakh. Every officer in default: Fine of Rs 25,000 to Rs 1 lakh. Key consequence: The unregistered charge is void against the liquidator and other creditors of the company in the event of winding up. The lender loses secured creditor status and becomes an unsecured creditor.
Section 180 — Borrowing Beyond Limit Without Special Resolution
Company: Fine of Rs 1 lakh to Rs 5 lakh (Section 450). Every officer in default: Fine of Rs 25,000 to Rs 1 lakh. Key consequence: The borrowing transaction itself may be rendered void by a court if challenged by a shareholder, since the board acted beyond its authority.
Section 185 — Loan Given to Director in Violation
Company: Fine of Rs 5 lakh to Rs 25 lakh. Every director or person who is a party to the contravention: Imprisonment up to 6 months, OR fine of Rs 5 lakh to Rs 25 lakh, OR both. Note: This is a criminal provision enforceable by the Registrar of Companies and courts.
Section 186 — Inter-Corporate Loan Beyond Limit
Company: Fine of Rs 25,000 to Rs 5 lakh. Every officer in default: Imprisonment up to 2 years, AND fine of Rs 25,000 to Rs 1 lakh.
DPT-3 Non-Filing — Section 76A (Deposits)
Company: Fine of Rs 1 crore to Rs 10 crore. Every officer in default: Imprisonment of 7 years AND fine of Rs 25 lakh to Rs 2 crore. Note: This is the most severe penalty in the loan compliance matrix. The MCA has been actively issuing prosecution notices for DPT-3 non-filers since 2021.
MGT-14 Non-Filing — Section 117
Company: Fine of Rs 1 lakh to Rs 25 lakh. Every officer in default: Fine of Rs 50,000 to Rs 5 lakh. Note: For small companies and OPCs, the penalty is 50% of the above amounts (maximum Rs 2 lakh for company; Rs 50,000 for officer).
Pre-Loan Compliance Checklist for Private Limited Companies
- ☑ Board resolution passed at a duly constituted board meeting (not circular) under Section 179(3)(d)
- ☑ Directors with interest in the loan have filed MBP-1 before the board meeting
- ☑ Section 180 threshold calculated; special resolution passed and MGT-14 filed if threshold exceeded
- ☑ For loans to directors — confirmed it is not prohibited under Section 185; managing/whole-time director loan in service conditions or covered by special resolution
- ☑ For inter-corporate loans — Section 186(2) limit checked; board resolution passed; special resolution and MGT-14 filed if limit exceeded; interest rate set at or above government security yield
- ☑ Loan agreement executed with all required terms
- ☑ Form CHG-1 (or CHG-9 for debentures) filed with ROC within 30 days if the loan is secured
- ☑ Certificate of Registration of Charge (CHG-2) received from ROC and kept on file
- ☑ DPT-3 filed by 30 June of the current financial year reflecting this borrowing
- ☑ Statutory register of charges (required under Section 85) updated with the new charge
What Are the Most Common Questions About ROC Compliance for Loans?
Does Section 180 of the Companies Act apply to private limited companies for borrowing beyond limits?
Yes. Section 180(1)(c) of the Companies Act 2013 applies to ALL companies, including private limited companies. When a private limited company’s total borrowings (including the proposed new loan) exceed the aggregate of its paid-up share capital, free reserves, and securities premium, a special resolution of shareholders is mandatory before the borrowing. The MCA notification dated 5 June 2015 which granted certain exemptions to private companies does NOT include an exemption from Section 180. The special resolution must be filed with the ROC in Form MGT-14 within 30 days.
What is Form DPT-3 and which private limited companies must file it?
Form DPT-3 is an annual return that every company (including all private limited companies) must file under Rule 16A of the Companies (Acceptance of Deposits) Rules 2014. It reports outstanding receipt of money or loans not treated as deposits. This includes unsecured loans from directors, shareholders, inter-corporate deposits, and any other exempt borrowings. DPT-3 must be filed by 30 June every year for the outstanding balance as of 31 March. Non-filing attracts a fine of Rs 1 crore to Rs 10 crore on the company and imprisonment up to 7 years along with fines on officers in default under Section 76A.
What is the time limit to register a charge with the ROC under Section 77?
Under Section 77, a company must register every charge created on its assets with the ROC by filing Form CHG-1 within 30 days of charge creation. Where registration is delayed, late fees apply: 2 times normal fee for delays up to 60 days; 4 times for 60–90 days; 6 times for 90–180 days; and 10 times for 180–300 days. Beyond 300 days, the company must apply to the Regional Director in Form CHG-8 for condonation of delay. The critical consequence of non-registration: the unregistered charge is void against the liquidator and other creditors in insolvency proceedings, stripping the lender of secured creditor status.
What are the Section 186 limits on inter-corporate loans?
Under Section 186(2), a company cannot make inter-corporate loans, investments, or give guarantees exceeding: (a) 60% of its paid-up share capital + free reserves + securities premium, OR (b) 100% of its free reserves + securities premium, whichever is higher. Loans or guarantees beyond this limit require a prior special resolution. Additionally, the interest rate on any inter-corporate loan must not be lower than the prevailing yield of the nearest government security maturity under Section 186(7). Violation results in a fine of Rs 25,000 to Rs 5 lakh on the company and imprisonment up to 2 years along with a fine on the officer in default.
Can a private limited company take an unsecured loan from one of its directors?
Yes. A director can give an unsecured loan to the company. This is the reverse of Section 185 (which restricts loans FROM the company TO directors). When a director gives a loan to the company, the director must file Form MBP-1 disclosing the interest before the board approves the loan (Section 184). The director must also furnish a written declaration to the company that the amount being lent is not derived from funds borrowed by the director from other sources. If the declaration is given and the loan is exempt from the definition of deposits under Rule 2(1)(c)(viii) of the Deposits Rules, it is treated as an exempt borrowing (not a deposit) and must be reported in the annual DPT-3 return by 30 June.
What is the Search Report and why do banks require it before sanctioning loans to companies?
A Search Report (also called a ROC Search Report) is a due diligence document prepared by a Chartered Accountant or Company Secretary by examining the company’s filings on the MCA portal. It reports: the company’s incorporation details, its current status (active/struck off), the list of directors and their DINs, all charges registered and outstanding against the company’s assets (from the Register of Charges at the ROC), and whether all annual filings are up to date. Banks and financial institutions require this report before sanctioning new loans to verify that there are no prior undisclosed charges on the assets being offered as security, and to confirm the company is compliant and in good standing with the ROC. A Search Report is not a statutory ROC filing but is a standard commercial due diligence requirement.
ROC compliance for loans is a multi-step, continuous obligation. Non-compliance is not just about fines — an unregistered charge can cost a lender its security in insolvency, and an undetected DPT-3 default can result in criminal prosecution for all directors. Build a loan compliance calendar: board resolutions before every borrowing, CHG-1 within 30 days of every secured loan, DPT-3 by 30 June every year, and CHG-4 within 30 days of every repayment.
Need help with ROC annual filings, charge registration, or a company compliance audit? Contact the Tradeviser team for a consultation tailored to your company’s borrowing structure.
Frequently Asked Questions
Does every loan taken by a private limited company require a board resolution?
Yes. Section 179(3)(d) requires every borrowing decision to be authorised by a board resolution passed at a duly convened board meeting with valid quorum. Circular resolutions are not permitted for borrowing.
When do shareholders need to approve a loan in a private limited company?
Shareholders must approve by special resolution when total borrowings exceed the aggregate of paid-up share capital, free reserves, and securities premium account under Section 180(1)(c). Form MGT-14 must be filed with the ROC.
What is the deadline for registering a charge with ROC?
Any loan secured by company assets must be registered with the ROC in Form CHG-1 (or CHG-9 for debentures) within 30 days of charge creation under Section 77.
What penalties apply for non-compliance with ROC loan filing requirements?
Directors face personal liability and penalties ranging from Rs 1 lakh to Rs 10 crore. In severe cases, imprisonment is possible. Non-filing of Form DPT-3 attracts a fine of up to Rs 10 crore.
What is Form DPT-3 and when must it be filed?
Form DPT-3 is an annual mandatory return reporting all outstanding unsecured borrowings. Every company must file it by 30 June each year.
Reshma Jain (born Chennai, 1995) is a Qualified Chartered Accountant by profession and has a Bachelor’s degree of Commerce. Has practical knowledge of tax, company law, and auditing. Believes in a simple approach to creative writing and learning.