What does a loan agreement record?
A loan agreement records the sum lent, the interest, how and when it is repaid, and any security the borrower gives. It is a contract between the lender and the borrower. It is not, by itself, a form filed with the Registrar, and an unsecured loan is not a charge on the company’s property.
What does the agreement have to say?
Section 10 of the Contract Act makes an agreement a contract when it is made by the free consent of parties who are competent to contract, for a lawful consideration and with a lawful object. The loan agreement uses that frame for a particular debt. It names the lender and the borrower, states the principal, the rate of interest, the instalments or the date of repayment, and what happens on a default. If there is security, it identifies the asset and the nature of the security. If there is a guarantor, it identifies that person and the extent of the guarantee.
What every contract needs, apart from the figures of this loan, is on the contract page. A sheet that leaves the sum, the rate, or the repayment blank is not a record of the loan. This page does not supply a format to fill in.
When does a company file a borrowing?
The board of a company may borrow under section 179(3). That resolution is a board resolution. A public company files the board resolutions section 179(3) names, in Form MGT-14. A private company is exempt from filing those board resolutions. Section 180, which requires a special resolution when borrowings exceed the aggregate of paid-up share capital, free reserves, and securities premium, does not apply to a private company. A public company that crosses that limit passes the special resolution and files it. Which resolutions go into MGT-14 is on the MGT-14 page.
A charge on the company’s property or undertaking is a different act. Section 77 requires the charge to be registered. An unsecured loan creates no charge, so there is no charge to register. The agreement and the charge form are not the same document. How the board meeting itself is held is on the board-meetings page.
What does stamp duty decide?
Stamp duty on the agreement is a state charge. The rate depends on the state and on whether the instrument is a simple agreement or a mortgage or another secured instrument. This page does not quote a rate. An instrument that is not duly stamped is not a form the Registrar accepts or rejects under the Companies Act. Under the stamp law it is not admitted in evidence until the duty and the penalty the stamp law requires have been paid. Stamping does not, by itself, register a charge, and registration of a charge does not decide the stamp.
Frequently asked questions
Four questions cover a contract, a charge, a private company’s borrowing, and a blank format.
Is an unsigned email a loan agreement?
Only if it is a contract. The parties must be competent, the consent free, and the consideration and the object lawful. A note that does not settle the sum, the interest, and the repayment is not that contract.
Does every company loan need a charge form?
No. A charge is a security on the company’s property. An unsecured loan does not create a charge, so there is nothing to register under section 77.
Does a private company need a special resolution to borrow?
No. Section 180, including the borrowing limit that needs a special resolution, does not apply to a private company. The board may still have to pass its own resolution under section 179.
Does this page give a blank format?
No. The agreement is drafted for the loan in question. A blank sheet does not record the sum, the rate, or the security.
Sources
A loan agreement is a contract under section 10 of the Indian Contract Act, 1872. A charge created by a company is section 77 of the Companies Act, 2013. The board’s power to borrow is section 179(3).