INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
vide guarantees in relation to acquisition finance availed for acquiring its shares. 5.6 Other Restrictions Shareholders’ approval by way of special resolu- tion (75%) is required under the Companies Act for an Indian company to provide any guaran- tee or security if certain prescribed thresholds (in terms of paid-up capital and free reserves) are exceeded. However, this approval is not required if the guarantee or security is provided for a financing utilised by the company’s wholly owned subsidiary or joint venture. Further, as per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the “LODR Regulations” ), for an Indian listed com- pany to provide security for debt availed by it or any other person, subject to certain exceptions, the listed entity will require the prior approval of its shareholders by way of special resolution, with the votes cast by the public shareholders in favour of the resolution exceeding the votes cast by public shareholders against the resolution. Further, the public shareholders who vote should not in any way be interested in the transaction. This requirement will not be applicable in cases of sale, lease or other disposal of the whole or substantially the whole of the undertaking of a listed entity by virtue of a covenant covered under an agreement with a financial institution regulated by or registered with the RBI or with a debenture trustee registered with SEBI. As per the Companies Act, a company (lending company) cannot give loans, provide security or extend any guarantee to or on behalf of any oth- er company in which the directors of the lend- ing company are interested or control a certain percentage of voting rights, unless such a loan, guarantee or security falls within the exemptions
prescribed under the Companies Act. Certain relevant exceptions to this rule are: • loans made by a holding company to its wholly owned subsidiary company, or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company, if the loans are utilised by the wholly owned sub - sidiary for its principal business activities; • a guarantee given or security provided by a holding company in respect of loans made by any bank or financial institution to its subsidi- ary company, if the loans are utilised by the wholly owned subsidiary for its principal busi- ness activities; • if the lending company, in the ordinary course of its business, provides loans or guarantees or security for the due repayment of any loan and in respect of those loans, an interest is charged at a rate not less than as specified under the Companies Act; or • if the lending company obtains the approval of at least 75% of its shareholders for any guarantee or security provided, and the loans availed by the borrower are utilised by it for its principal business activities. 5.7 General Principles of Enforcement Generally, a lender may enforce its security on the occurrence of an event of default. The pro- cess to be followed to enforce the security is If the mortgage is an English mortgage, the mort- gagee has the power to sell the mortgaged prop- erty without the intervention of the court, subject to certain notification requirements. Where the mortgage is an equitable mortgage, the mort- gagor must apply to the court for a decree to sell the mortgaged property to recover the debt. briefly set out below. Immovable Property
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