Board & Governance

Board Resolution — Borrowing / Loan

Before passing this resolution, check two things: whether the borrowing takes the Company past the threshold at which shareholder approval by special resolution is required, and whether that threshold provision applies to the Company at all. The exemption available to private companies is the point most often missed in both directions.

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Certified True Copy of a Board Resolution

Borrowing and creation of security

Item	Detail
Company	[COMPANY NAME], CIN [CIN]
Registered office	[ADDRESS]
Meeting	Meeting of the Board of Directors
Date, time and place	[DATE], [TIME], at [PLACE]
Directors present	[NAMES AND DIN]
Chairperson	[NAME]
Shareholder approval	[Not required — within the Board’s powers / Special resolution passed on ______ / To be obtained before drawdown]

The Chairperson placed before the Board the sanction letter dated [DATE] issued by [LENDER NAME] (the "Lender") and the draft facility documents, and explained the purpose of the borrowing, the security proposed, and the effect of the borrowing on the Company’s existing indebtedness. The Chairperson confirmed the position set out in Annexure A as to the aggregate indebtedness of the Company and the applicable approval threshold. After discussion, the Board passed the following resolution:

"RESOLVED THAT the Company do borrow from [LENDER NAME] a sum not exceeding ₹ [AMOUNT] (Rupees [IN WORDS] only) by way of [a term loan / a working capital facility / a cash credit facility / an overdraft facility / non-convertible debentures], on the terms and conditions set out in the sanction letter dated [DATE], a copy of which was placed before the Board and initialled by the Chairperson for the purpose of identification, and on such further terms as may be agreed by any of the persons authorised below.

RESOLVED FURTHER THAT the borrowing be applied towards [PURPOSE — e.g. working capital requirements of the Company / purchase of the equipment described in the sanction letter / refinancing of the facility from ______] and for no other purpose.

RESOLVED FURTHER THAT, as security for the borrowing and for all interest, costs, charges and other monies payable in respect of it, the Company do create in favour of the Lender:

(a)a first ranking charge by way of hypothecation over the whole of the movable assets of the Company, both present and future, including its plant and machinery, equipment, furniture, stock in trade, book debts, receivables, and intangible assets (delete or narrow to the specific assets charged);

(b)a [first / second] ranking mortgage over the immovable property described in Annexure B (delete if no immovable property is charged);

(c)a charge over the bank accounts of the Company maintained with [BANK], and a lien over the fixed deposits described in Annexure B; and

(d)such further security as may be required by the Lender and agreed by the persons authorised below,

in each case on such terms as may be contained in the security documents to be executed.

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Preview of the first page. Highlighted fields are the ones you fill in — they appear the same way in Word. Scroll the preview to read on; the full document runs to 6 pages.

Notes for use

These notes accompany the template and explain the drafting choices, the compliance points and the mistakes most often made with this document. They appear as a final page in the Word file, intended to be deleted before the document is executed.

Two different approvals, and they are frequently confused

The power to borrow is exercised by the Board. Separately, where the total borrowings of a company exceed the aggregate of its paid-up share capital, free reserves and securities premium, shareholder approval by special resolution is required before the excess is borrowed. Temporary loans obtained from the company’s bankers in the ordinary course of business are excluded from that computation. Annexure A is the working that establishes which side of the line the Company is on — do it before the meeting, not afterwards.

Check whether the threshold applies at all

The provision requiring shareholder approval does not apply uniformly to every company. Exemptions are available to certain classes of company, subject to conditions including that the company is not in default in filing its financial statements or annual returns. Do not assume the exemption applies simply because the Company is private — confirm the current position and the conditions, and record the basis in Annexure A so that a later reader can see the reasoning.

Register the charge, and register it on time

A charge must be registered with the Registrar within the prescribed period. Late registration is possible on payment of an additional fee within a further window, but the window is finite and the consequence of missing it is severe: an unregistered charge is void against a liquidator and against other creditors, so the lender becomes unsecured in exactly the situation the security was created for. Diarise the filing on the day the security document is executed.

The register of charges is a separate obligation

Registration with the Registrar and entry in the Company’s own register of charges are two different requirements. The Company’s register must be maintained at the registered office, kept permanently, and made available for inspection. Diligence will ask for it.

Satisfaction of charge is the one everyone forgets

When a facility is repaid, the satisfaction of the charge must be filed. Companies routinely repay a loan and leave the charge on the register for years, which then appears as an encumbrance in every subsequent diligence, delays every subsequent financing, and requires a no-objection letter from a lender whose relationship manager left long ago. Obtain the no-objection letter at the time of repayment and file immediately.

Negative covenants bind the next round

Facility documents routinely restrict further borrowing, the creation of further security, changes in shareholding, dividends, disposals and changes of control. Those covenants will be triggered by the next equity round. Read them before signing, and where a change of control provision exists, note it on the diligence checklist so that the consent is obtained rather than discovered.

Personal guarantees from founders

Lenders to early-stage and mid-market companies routinely ask for personal guarantees from promoters. That is a personal liability outside the corporate structure, it survives the founder leaving the Company, and it is not extinguished by a subsequent investment. Where a guarantee is given, record who gave it and negotiate a release trigger. Any shareholders’ agreement should oblige the Company to use best efforts to procure the release of a departing founder.

Initial the sanction letter

The resolution refers to a sanction letter identified by the Chairperson’s initials. This matters because sanction letters are revised repeatedly during negotiation. Without identification, there is no record of which version the Board actually approved.

Limit the authority to vary

Paragraph (iii) allows the authorised persons to agree amendments but not to increase the principal. Without that carve-out, a general authority to agree amendments permits an increase in the facility without the Board seeing it again. Keep the carve-out.

Related party lending

Where the lender is a director, a shareholder, or a person connected with one, the borrowing may also engage the restrictions on loans to and from directors and the related party transaction requirements. Treat a loan from a promoter as a related party transaction and document it accordingly, including the interest rate and the repayment terms.

Deposits

Money accepted from persons other than banks, financial institutions, directors and certain others may be a deposit, which brings a substantial compliance regime with it. Money received from a director must be accompanied by a declaration that it is not from borrowed funds. Check the characterisation before accepting the money, not after.

Current as of

Reflects Indian law current as of {{DATE OF USE}}. Thresholds, exemptions, forms and filing periods change — confirm the current position with a company secretary before the meeting and before the charge filing.

This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, company secretary, or chartered accountant as relevant) before you rely on it.