• Loan of INR5 lac to a friend with proprietorship

Hi, I am lending 5 Lac to a friend for a year. He has a proprietorship company. He will use this to expand his business. How can I secure my principal in this loan.

He is old person so he is issuing an insurance policy which he will assign in my name in order to recover loan in case of any accidental demise.

Still I will like to understand the case in which he denies to pay what rights do I have to recover the money.


Thank you.
Asked 4 months ago in Civil Law from Greater Mumbai, Maharashtra
Execute a promissory note with him so that you are a secured creditor. If you have a promissory note executed in your favour you will be able to file a summary suit for recovery of money with interest against him. Lend the money through cheque or bank transfer.
Ashish Davessar
Advocate, Jaipur
18884 Answers
475 Consultations
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Apart from this assigned insurance policy get a Promissory Note executed by him making him committed to repay within a  stipulated time.
Mention therein that he will issue few post dated cheques as well which can be presented after his failure to repay within the stipulated time frame.
Devajyoti Barman
Advocate, Kolkata
5926 Answers
63 Consultations
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1) you should never advance money to a friend

2) if he is unable to friend it would ruin your friendship if you take legal proceedings 

3) number of banks giving loans 

4) further if your friend needs money against insurance policy he can obtain loan from the insurance company against his policy 

5) if you still want to give loan obtain letter from friend that he will repay loan within X period . 

4) further it should mention interest amount payable on the loan . loan amount should be given by cheque only 

5) obtain post dated cheque for loan amount or promissory note

6) you will have to file summary suit if he fails to repay the loan 



Ajay Sethi
Advocate, Mumbai
24881 Answers
1340 Consultations
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You have to obtain promissory note and loan agreement from him.
You can ask him to give property documents as collateral security and you can register a sale agreement of the same with him, mentioning the loan amount as advance for the purchase.
The assignment of LIC policy in your favor may not fetch you desired result because it will be effective only on an event i.e., on maturity or death of the life assured before maturity, which is not predictable.
T Kalaiselvan
Advocate, Vellore
15373 Answers
142 Consultations
5.0 on 5.0

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