Security Disclosure explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
"Secured against the assets of the company" satisfies nothing here — the requirement is loan by loan, and asset type by asset type.
The security disclosure requirement
Borrowings shall further be sub-classified as secured and unsecured. Nature of security shall be specified separately in each case.
The Guidance Note is explicit about what that rules out: a blanket disclosure of different securities covering all loans classified under the same head such as "All Term loans from banks" will not suffice. However, where one security is given for multiple loans, the same may be clubbed together for disclosure purposes with adequate details or cross referencing.
Disclosure about the nature of security should also cover the type of asset given as security, e.g. inventories, plant and machinery, land and building, etc.
And the reason is stated: this is because the extent to which loan is secured may vary with the nature of asset against which it is secured.
That is a statement about recovery in distress, not about book values. A charge over land and building is likely to realise close to its carrying amount; a charge over inventories or specialised plant may realise a fraction of it, and in the very circumstances where the security is needed.
So "secured" is not a binary quality. Two loans of the same size, both formally secured, can carry entirely different real protection, and the security disclosure exists so that a reader can tell them apart. The same reasoning explains the parallel requirement on the asset side, where loans given are split between security by tangible assets, by intangible assets, by guarantee, and unsecured.
Personal security disclosure
When promoters, other shareholders or any third party have given any personal security for any borrowing, such as shares or other assets held by them, disclosure should be made thereof, though such security does not result in the classification of such borrowing as secured.
Two propositions in one sentence, and both matter. The borrowing remains unsecured in the classification, because no asset of the company is charged. But the arrangement must still be disclosed, because it tells a reader something significant — that the lender required backing beyond the company's own credit, and that promoters have exposure of their own to the outcome.
Guarantees by directors or others
Where borrowings have been guaranteed by directors or others, the aggregate amount of such borrowings under each head shall be disclosed.
On the scope: the word "others" used in the phrase "directors or others" would mean any person or entity other than a director. Therefore, this is not restricted to mean only parties related to the directors.
That reading is deliberately wide. A corporate guarantee from an unrelated third party falls within the disclosure just as a personal guarantee from a director does.
Terms of repayment
Terms of repayment of term loans and other loans are also required to be stated. The phrase "other loans" is used in a general sense and should be interpreted to mean all categories listed under the heading "Borrowings" — so deferred payment liabilities, lease obligations and the rest are all within it.
Disclosure of terms of repayment should be made for each loan unless the repayment terms of individual loans within a category are similar, in which case these may be aggregated. The content required:
- The period of maturity with respect to the Balance Sheet date;
- The number and amount of instalments due;
- The applicable rate of interest;
- Other significant and relevant terms, if any.
Common mistakes
- Making the security disclosure at the level of the borrowing head rather than the individual loan.
- Stating that a loan is secured without naming the type of asset charged.
- Classifying a borrowing as secured because a promoter has pledged personal shares.
- Reading "others" in "directors or others" as limited to persons related to directors.