INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Megha Arora, JSA
3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders FDI in Indian companies cannot be secured, and investors must bear the risks typical to equity investments. Accordingly, foreign investors investing under the FDI route are not permitted to have assured returns at the time of exit. However, investments made in NCDs can be secured, including where issued to permitted foreign investors. Security in such cases is typi - cally created in favour of a trustee. In ECBs, a pledge over shares of an Indian company in favour of a foreign lender requires compliance with the ECB guidelines and the approval of the AD Bank. The creation of a charge over assets situated in India in favour of a foreign lender will be subject to compliance with the Non-Debt Rules and Debt Regulations, and approval from the AD Bank. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Stamp duty is payable on documents, accord - ing to the applicable 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 (along with any applicable penal - ties) has been paid. Some documents need to be registered under the Registration Act, with payment of the applicable registration fees. Cer - tain documents, such as powers of attorney, are also required to be notarised and are subject to notarisation fees. 3.5 Legal Requirements Before an Entity Can Give Valid Security Certain corporate authorisations are required under the Companies Act, such as board reso - lutions and shareholder resolutions. Any charge is required to be filed with the ROC and, in the
• the purchase/long-term leasing of industrial land as part of a new project/modernisation or expansion of existing units; and • any activity under the “infrastructure sector” definition. All eligible borrowers are now permitted to raise up to USD750 million or equivalent per financial year under the automatic route. 3.2 Typical Security Created by Commercial Investors The following types of security are typically cre - ated or entered into by commercial real estate investors borrowing funds to acquire or develop real estate: • mortgages; • hypothecation or escrow of project receiva - bles and cash flows (subject to compliance with RERA); • a pledge of shares of the developer company, its parent and/or associate entities; and • the provision of corporate/personal guaran - tees, typically created in favour of a security/ debenture trustee acting for the lenders’ benefit. To create mortgages, a mortgage deed must be registered with the SRA. Where an equita - ble mortgage is created by the deposit of title deeds, recording of the deposit of deeds may need to be registered in certain states in India. The security interest created on such assets (tangible/intangible) must be registered with the Registrar of Companies (ROC) and the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), a central database for all security interests created and established to check and identify fraudulent activity in secured loans.
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