INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
be created to secure the NCDs under the OI Guidelines. Domestic Acquisition Finance Acquisition finance by an Indian entity by way of NCDs or loans from NBFCs is domestic debt, and can be secured by the Indian assets of the acquirer and the Indian group companies of the acquirer. Subject to applicable foreign laws, pledge on shares of the Offshore SPV of the FOCC or its step-down subsidiary, and assets of Offshore SPV and its step-down subsidiaries, can also be created to secure the NCDs under the OI Guide- lines. However, the provision of such security is not permitted where the lender is a NBFC. 5.2 Form Requirements Generally, the following perfection requirements exist in relation to the security created on the assets of an Indian company: • any security on movable or immovable assets of a company or pledge on shares held by an Indian company must be registered with the registrar of companies (ROC) within 30 days of the creation of the charge; • any security by way of mortgage or hypoth- ecation is required to be registered with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India; • mortgages (except equitable mortgages) of immovable property have to be registered as per the Indian Registration Act, 1908, within four months of the execution of the mortgage deed with the concerned land registry – fur- ther, in certain states, equitable mortgages are also required to be registered or notified with the land registry concerned; and • for shares and other securities held in dema- terialised form, forms are required to be filed
with the depository participant to create a pledge or a non-disposal undertaking. 5.3 Registration Process See 5.2 Form Requirements for various security perfection and registration requirements. Further, any security created under the OI Guidelines will also need to be reported to the RBI through the authorised dealer bank in the form prescribed under the OI Guidelines. 5.4 Restrictions on Upstream Security Generally, upstream security can be provided by an Indian company for the indebtedness of its Indian holding company, subject to compli- ance with the provisions of the Companies Act. See the discussion in 5.6 Other Restrictions in relation to shareholder resolutions and com- mon directors that will need to be complied with to create any such security. The creation of upstream security by an Indian company for financing availed by an offshore holding com- pany is restricted under the FEMA. However, upstream security on the assets of the target (which is not a private company) may not be possible for a debt used to acquire the shares of the target. See the discussion in 5.5 Financial Assistance . 5.5 Financial Assistance As per the Companies Act, a public company (whether listed or not) is prohibited from provid- ing any direct or indirect financial assistance to any person for subscription to, or the purchase of, its shares or the shares of its holding com- pany. The term “financial assistance” is broad and includes assistance in the form of loans, guarantees and the provision of security. This restriction does not apply to a private company. In view of the foregoing, a target company that is a public company cannot create security or pro-
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