INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
• consultation periods before taking any enforcement actions in relation to the secu- rity; • a waterfall for distribution of enforcement proceeds; • a decision mechanism as to the waiver of events of default; • voting rights of different classes of lenders; • collective action and a common approach to security enforcement, and exceptions thereto; and • a mechanism for declaring an event of default, and manner of enforcement of secu- rity thereafter. In relation to ECB and acquisition financing, where the acquirer is an Overseas SPV or an FDI SPV, and the funding is obtained from for- eign lenders, the intercreditor agreements will generally be based on the APLMA or LMA forms. In liquidation of the borrower, an intercreditor agreement between lenders setting out equal ranking – which disrupts the order of priority set out under the IBC – is not required to be con- sidered by the liquidator. The SEBI has issued a circular that governs the process to be followed by debenture trustees of listed NCDs to enforce security and execute intercreditor agreements. 4.2 Bank/Bond Deals The approach remains the same as previously set out. If the security is to be shared between the lenders of the borrower and the bondhold - ers, similar intercreditor agreements must be established. 4.3 Role of Hedge Counterparties If the hedges obtained by the borrower are secured with the assets on which other lend- ers also have security, the hedge counterparties are also parties to the intercreditor agreements.
The rights of the hedge counterparty under the intercreditor agreements are synonymous with the ranking of its security. 5. Security 5.1 Types of Security Commonly Used Security on the assets of an Indian entity and shares of an Indian company is usually created in the following manner. Immovable Property Security over immovable property such as land and buildings is created in the form of a mortgage governed primarily by the Transfer of Property Act, 1882 (the “TOP Act” ). The com- mon forms of mortgage are an English mortgage (a registered mortgage) and an equitable mort- gage (a mortgage created by depositing the title deeds with the lender or security trustee). The TOP Act provides that a mortgage (other than an equitable mortgage) for repayment of money exceeding INR100 must be created by a registered instrument. The instrument creating the mortgage must be signed by the mortgagor and registered with the land registry where the mortgaged immovable property is situated. For an equitable mortgage, the authorised rep- resentative of the mortgagor deposits the title deeds in relation to the immovable property with the lender or security trustee intending to cre- ate a mortgage, and provides a declaration at the time of the deposit. The lender or security trustee records the deposit of title deeds by way of a memorandum of entry. In some states, an equitable mortgage needs to be registered or notified to the land registry.
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