INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
However, action under the IBC and SARFAESI can - not be taken simultaneously, since a moratorium is declared upon the admission of an insolvency appli - cation under the IBC. Many lenders are successfully using proceedings under the IBC to enforce their rights under the loan documentation. No pandemic-related restrictions on lenders’ ability to enforce security remain in force at the time of writing. 3.7 Subordinating Existing Debt to Newly Created Debt Generally, where priority of security is not contractu - ally agreed between parties, security created earlier in time will rank in priority to security created sub - sequently. A first-ranking charge will have priority over a second-ranking charge at the time of security enforcement. However, existing secured debts can become subordinated to new debts when an inter - creditor agreement setting out the ranking of debt or a subordination agreement is signed. Typically, shareholder/promoter loans are unsecured and subordinated. 3.8 Lenders’ Liability Under Environmental Laws Lenders will not ordinarily incur liability under Indian environmental laws simply by holding a security inter - est. If a lender takes over management and control of the borrower after the enforcement of security, such lender may incur liability as the person in possession of a polluting premises, or as the person responsible for the conduct of the borrower’s business. 3.9 Effects of a Borrower Becoming Insolvent The ideal outcome of an insolvency application under the IBC is a successful corporate insolvency resolu - tion process, failing which liquidation is commenced. There are also provisions for voluntary liquidation. Where a debtor goes into liquidation, the IBC pro - vides for the manner in which secured debt will be discharged. Workers’ (employees whose rights are protected under the Industrial Relations Code 2020) dues are prioritised over dues to lenders that have relinquished their security interest to the liquidation process. Similarly, wages and dues owing to employ - ees (other than workers) are ranked pari passu with
lenders that have relinquished their security to the liquidation estate. 3.10 Taxes on Loans As noted above, mortgage deeds need to be reg - istered with the SRA to be enforceable. All lending documents need to be adequately stamped as per the stamp duty rates applicable in the relevant state in India. Also as mentioned above, charges must be filed with the CERSAI subject to a nominal fee. Registration must be done within 30 days from the date of the transaction and is not required where (i) the creditor is not a bank, financial institution or asset reconstruc - tion company, etc (referred to as a “secured creditor” in the SARFAESI); or (ii) the security interest is in the nature of a lien on goods, pledges of movables, etc. Apart from the above, there are no existing, pending or proposed rules, regulations or requirements man - dating payment of any recording or similar taxes in connection with mortgage loans or mezzanine loans related to real estate. Land use, development, design, and construction in India are governed by a combination of legislation, planning policies and regulatory controls administered by national, state, and local authorities. Key national legislations include the RERA, which regulates real estate projects and protects consumers, and the Environment (Protection) Act, 1986, which governs environmental approvals for development activities. Land use planning and zoning are primarily regulated under state Town and Country Planning Acts or Urban Development Acts, pursuant to which regional plans, master plans, and development plans are prepared. These statutory plans designate land for residential, commercial, industrial, and public uses and regulate the intensity and pattern of development. At the local level, municipal building by-laws prescribe standards for building design and construction, including floor area ratio (FAR/FSI), building height, setbacks, den - 4. Planning and Zoning 4.1 Planning and Zoning Framework
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