INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
by an eligible borrower has also been increased to the higher of: (i) USD1 billion; or (ii) total outstanding borrowings up to 300% of its net worth, under the automatic route. 3.2 Typical Security Created by Commercial Investors The types of security typically created or entered into by a commercial real estate investor that is borrowing funds to acquire or develop real estate include: • mortgages; • hypothecation/escrow of project receivables, cash flows (subject to compliance with RERA); • pledge of the developer company’s shares, its par - ent and/or associate entities; and • provision of corporate/personal guarantees, typically created in favour of a security/debenture trustee acting for the lenders’ benefit. To create mortgages, a mortgage deed must be reg - istered with the SRA. Where an equitable mortgage is created by the deposit of title deeds, recording of the deposit of deeds may need to be registered in certain states. The security interest created on such assets (tangible/intangible) must be registered with the Registrar of Companies and the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), a central database for all security interests established to check for fraudulent activity in secured loans. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders FDI in Indian companies cannot be secured and, accordingly, FDI investors are not permitted to have assured returns at the time of exit. However, investments in NCDs can be secured, including where issued to permitted foreign investors. Security in such cases is typically created in favour of a trustee. In ECBs, pledge over shares of an Indian company in favour of a foreign lender requires com - pliance with ECB guidelines and the approval of the authorised dealer bank. The creation of charge over assets situated in India in favour of a foreign lender will be subject to compliance with Non-Debt Rules and
Debt Regulations, and approval from the authorised dealer bank. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Stamp duty is payable on documents, as per appli - cable central and state-specific statutes. Insufficiently stamped documents may be impounded and may not be admissible as evidence in Indian courts until the deficient stamp duty (with applicable penalties) has been paid. Some documents need to be registered under the Registration Act, with payment of the appli - cable registration fees. 3.5 Legal Requirements Before an Entity Can Give Valid Security Certain corporate authorisations are required under the Companies Act, such as board resolutions and shareholder resolutions. Any charge must be filed with the Registrar of Companies and, in case of non-com - pliance, such security interest would be void against the liquidator and the other creditors of the compa - ny in the event of the winding-up of the company, although the obligation for the repayment of money secured by the charge would continue to subsist. RERA restricts the ability of companies and real estate developers to secure their borrowings. 3.6 Formalities When a Borrower Is in Default Where the borrower in default is solvent, a lender can seek to enforce its security pursuant to the Insolvency and Bankruptcy Code 2016 (IBC). Separately, banks and financial institutions that have lent monies are entitled to enforce their security inter - est without the intervention of a court/tribunal, sub - ject to strict compliance with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI). The SAR - FAESI defines borrowers to mean any person who, inter alia, has been granted financial assistance by any bank or financial institution or created any mortgage/ pledge as security for the financial assistance granted and includes a borrower of an asset reconstruction company consequent to the acquisition by it of any rights or interest of any lender in relation to such finan - cial assistance.
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