INDIA Law and Practice Contributed by: Utsav Johri, Sucheta Bhattacharya and Nishal Makharia, JSA Advocates & Solicitors
The following additional requirements may apply to the creation and perfection of security. • Registration and filing fees: these vary according to the type of security and are payable at the time of registration. Some Indian states have a fixed registration fee, while others have a percentage- based fee. This varies based on the location of the property. • Regulatory approvals: creating a charge over certain types of assets (land, buildings, machin - ery, plant, shares, securities and fixed deposits in banks), to the extent to which those assets do not form part of the stock-in-trade of the taxpayer’s business, may also need permission from the income tax authorities under the IT Act and the Central Goods and Services Tax Act, 2017 (CGST Act), and under the GST Act for the relevant state. Other formalities include the following. • Immovable property: typically, title searches and searches on the portal of the registrar of com - panies are conducted in relation to immovable property to ensure that the mortgagor is the legal owner and entitled to mortgage the property, and to check whether any prior charge or mortgage exists over the property. • Movable property such as bank accounts and contracts: where bank accounts or contracts are hypothecated, notices should be issued to the banks or the counterparties to the contracts, informing them of the charge created. • Shares or other securities: where the shares are in dematerialised form, certain forms have to be filed with the depository participant to mark a pledge over these shares in the shareholder’s beneficial account. 5.2 Floating Charges and/or Similar Security Interests Under Indian law, a floating charge can be created on movable properties. A floating charge cannot be cre - ated on all the assets of the borrower – eg, immovable properties. Security over different assets is created through separate instruments, as discussed in 5.1 Assets and Forms of Security .
Lenders generally favour fixed charges over floating charges because fixed charges provide greater con - trol and priority in case of default, restricting the bor - rower’s ability to freely use or dispose of the charged assets. 5.3 Downstream, Upstream and Cross- Stream Guarantees It is possible to provide downstream, upstream and cross-stream guarantees for private credit transac - tions in India. However, such guarantees need to com - ply with certain conditions and approval requirements, as follows. • Companies Act requirements: any guarantee will need to comply with Sections 185 and 186 of the Companies Act, 2013. Section 185 regulates guar - antees issued on behalf of any person in whom the directors of the company issuing guarantee are interested. Section 186 requires special approval from the shareholders of the company if the aggre - gate of the loans given, security provided and the investment made by the company exceeds the threshold provided thereunder. • Compliance with SEBI regulations: any guarantee given by a listed company or high-value debt listed company for the benefit of a related party should be in accordance with the applicable laws for related party transactions in accordance with the SEBI (Listing Obligations and Disclosure Require - ments) Regulations, 2015. • Guarantee by a non-resident: a guarantee issued by a non-resident entity will need to comply with the conditions of the Foreign Exchange Manage - ment (Guarantees) Regulations, 2026, which liberalise the previous regime governing guaran - tees and structured obligations, as specified in 3.6 Recent Legal and Commercial Developments . While guarantee fees are not mandatorily payable under Indian law, they are typically paid in order to comply with the requirement that the guarantee has been issued on an arm’s length basis. Guarantees provided for the benefit of related parties are sub - ject to GST, as specified in 4.2 Other Taxes, Duties, Charges or Tax Considerations .
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