INDIA Law and Practice Contributed by: Utsav Johri, Sucheta Bhattacharya and Nishal Makharia, JSA Advocates & Solicitors
6. Enforcement 6.1 Enforcement of Collateral by Non-Bank Secured Lenders The enforcement of security is governed by the terms and conditions of the security documents. Generally, a lender may enforce its security on the occurrence In the case of an English mortgage, the mortgagee has the authority to sell the mortgaged property with - out court intervention, subject to specific notification requirements. In the case of an equitable mortgage, the mortgagor must seek a court order to sell the mortgaged property in order to recover the debt. Debenture trustees of listed and secured NCDs can enforce a mortgage under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), offering a quicker method of security enforcement by way of private sale without the intervention of courts. of an event of default. Immovable Property Any proceedings taken against any mortgagor under the SARFAESI in relation to immovable properties could take two to four years. The enforcement of security through the courts may be more time con - suming. Recourse under the SARFAESI to enforce security on immovable property is not available to ECB lenders. Movable Property and Current Assets The rights and remedies of a hypothecatee are gov - erned by the deed of hypothecation with the hypoth - ecator (security provider), and are enforced either by appointing a receiver to sell the charged assets or by obtaining a court decree to sell the movable property. Debenture trustees for listed and secured NCDs can enforce hypothecation under the SARFAESI, provid - ing a quicker mode of security enforcement by way of private sale without the intervention of courts. Recourse under the SARFAESI to enforce security on movable property is not available to ECB lenders.
before creating any mortgage or charge in favour of the lender or security trustee. Please also see 7.2 Waterfall of Payments regarding the priorities granted in case of liquidation. Lenders sharing security can enter into intercredi - tor agreements to define the priority of the security amongst themselves. An intercreditor agreement gov - erns the following matters, amongst others: • the ranking of security and the order of priority amongst the creditors; • consultation periods before taking any enforce - ment actions in relation to the security; • a waterfall for the distribution of enforcement pro - ceeds; • a decision mechanism as to the waiver of events of default; • the voting rights of different classes of lenders; and • collective action and a common approach to secu - rity enforcement and exceptions thereto. 5.9 Cash Pooling and Hedging/Cash Management Obligations Cash pooling is not common in India, except for pro - ject financing transactions. Private credit providers are not typical lenders for project financing transactions, which are mostly funded by banks and public financial institutions. 5.10 Appointment of Collateral Agent In India, security can be held by any Indian entity, except when security is created for NCDs, in which case it is created in favour of a debenture trustee. Debenture trustees have to register with SEBI in order to act as debenture trustee in relation to secured NCDs. Furthermore, debenture trustees have to com - ply with SEBI regulations and provide certain regula - tory certifications to confirm that security is adequate and unencumbered. If the security is created in favour of a debenture trus - tee or a security trustee, it is not required to be re- taken in case of the assignment or transfer of debt.
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