What to do to stop managing director to get more loans
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
14 January 2011
1. Is it possible for managing Director of a company who is holding 50% share of a pvt ltd to get loans from bank without the knowledge or agreement of another partner who is also 50% share holder but not an active partner ?
2. How to stop the managing director from getting more loans from another banks which make company's liability increasing and can lead to bankruptcy ?
2. How to stop the managing director from getting more loans from another banks which make company's liability increasing and can lead to bankruptcy ?
15 January 2011
Managing Director can get loan in his name, but Managing Director cannot take loan in Company name without other director sanctioning it or all the director must sanction the loan if the manager or secretary is the authorised person for signing the loan documents.
15 January 2011
In the absence of a resolution in the Board Meeting, bankers are not supposed to sanction loan to the Pvt Ltd Co.
It will be better, for the another director as well as the company, to be active, and inform the bankers, not to exceed the limits already sanctioned.
It will be better, for the another director as well as the company, to be active, and inform the bankers, not to exceed the limits already sanctioned.
Querist : Anonymous
Querist :
Anonymous
(Querist)
15 January 2011
Thanks. Mr CS Taher and Mr. Paras Bafna. But the reality is that Managing Director already got many loans from different banks by forged signature or by some other ways.
Is there any way for another Director to stop bank operation. As land, machinery and material are under collateral. Should he send letter to the bank for stopping operation ? And if it is Yes then what should be the content of the letter
Is there any way for another Director to stop bank operation. As land, machinery and material are under collateral. Should he send letter to the bank for stopping operation ? And if it is Yes then what should be the content of the letter
03 August 2025
This is a tricky but serious situation where a Managing Director (MD) holding 50% shares is apparently taking loans without consent, possibly by forged signatures or misuse of authority. Here’s what you can do step-by-step:
1. Check the Company’s Articles and Board Resolutions
Usually, banks require a Board Resolution authorizing borrowing and signing of loan documents.
Verify if the MD had proper board approval or if he acted outside his authority.
2. Send a Formal Notice to the Banks
The other director (you or your client) should immediately write to all banks where loans exist or are being processed.
The letter should state that any loan or financial transactions without Board approval are unauthorized and invalid.
Request banks to cease further loan disbursements or transactions without explicit board approval.
Also mention that the company denies any forged signatures or unauthorized documents, and legal action will be taken if banks proceed.
Sample points to include in the letter:
State you are a director and shareholder (specify shareholding %).
Mention that only board-approved loans are valid.
Inform the bank that MD is not authorized to incur loans without board resolution.
Request to freeze further loan sanctioning and withdrawals.
Ask for confirmation of receipt and action taken.
3. Call an Emergency Board Meeting
As a director, convene a Board Meeting (even if MD is uncooperative) to:
Pass a resolution revoking any unauthorized borrowing powers.
Authorize specific signatories for loans.
Direct management to notify banks about unauthorized transactions.
4. Legal Action
If forged signatures or fraudulent acts are suspected, file a police complaint immediately.
Consult a company law or criminal lawyer to issue a legal notice to the MD.
You may also approach the Registrar of Companies (ROC) to report irregularities.
If necessary, approach the court for an injunction preventing the MD from further dealings.
5. Protect Company Assets
You mentioned assets are under collateral. Inform banks that:
The MD’s acts are unauthorized.
You dispute any further loan against company assets without board approval.
Banks are generally cautious once alerted.
Summary of Immediate Action for Other Director:
Draft and send notices to all banks involved.
Convene a board meeting to pass necessary resolutions.
File legal and police complaints if fraud/forgery is suspected.
Get legal advice for further protective measures.
1. Check the Company’s Articles and Board Resolutions
Usually, banks require a Board Resolution authorizing borrowing and signing of loan documents.
Verify if the MD had proper board approval or if he acted outside his authority.
2. Send a Formal Notice to the Banks
The other director (you or your client) should immediately write to all banks where loans exist or are being processed.
The letter should state that any loan or financial transactions without Board approval are unauthorized and invalid.
Request banks to cease further loan disbursements or transactions without explicit board approval.
Also mention that the company denies any forged signatures or unauthorized documents, and legal action will be taken if banks proceed.
Sample points to include in the letter:
State you are a director and shareholder (specify shareholding %).
Mention that only board-approved loans are valid.
Inform the bank that MD is not authorized to incur loans without board resolution.
Request to freeze further loan sanctioning and withdrawals.
Ask for confirmation of receipt and action taken.
3. Call an Emergency Board Meeting
As a director, convene a Board Meeting (even if MD is uncooperative) to:
Pass a resolution revoking any unauthorized borrowing powers.
Authorize specific signatories for loans.
Direct management to notify banks about unauthorized transactions.
4. Legal Action
If forged signatures or fraudulent acts are suspected, file a police complaint immediately.
Consult a company law or criminal lawyer to issue a legal notice to the MD.
You may also approach the Registrar of Companies (ROC) to report irregularities.
If necessary, approach the court for an injunction preventing the MD from further dealings.
5. Protect Company Assets
You mentioned assets are under collateral. Inform banks that:
The MD’s acts are unauthorized.
You dispute any further loan against company assets without board approval.
Banks are generally cautious once alerted.
Summary of Immediate Action for Other Director:
Draft and send notices to all banks involved.
Convene a board meeting to pass necessary resolutions.
File legal and police complaints if fraud/forgery is suspected.
Get legal advice for further protective measures.
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