INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
Indian banks, certain notified financial insti- tutions and debenture trustees for listed and secured NCDs can enforce a mortgage under the Securitisation and Reconstruction of Finan- cial Assets and Enforcement of Security Inter- est Act, 2002 (SARFAESI), which provides for a quicker mode of enforcement of security. Movable Property The rights and remedies of a hypothecatee are entirely regulated by the deed of hypotheca- tion with the hypothecator (security-provider), and are enforced either by appointing a receiver and selling the charged assets or by obtaining a decree for the sale of the movable property. Indi- an banks, certain notified financial institutions and debenture trustees for listed and secured NCDs can enforce hypothecation under the SARFAESI, which provides for a quicker mode of enforcement of security. Pledge Over Shares A pledgee may enforce a pledge by giving rea- sonable notice of enforcement to the pledgor. The pledgee does not need to obtain a court order to sell the pledged shares. If the pledged shares are held in physical form, the pledgee must submit to the company whose shares are pledged the executed share transfer forms held by the pledgee. The company will then need to approve the transfer of shares in the name of the lender or third-party transferee at its board meet- ing. If the company refuses to approve the trans- fer of shares, the lender or third-party transferee will need to approach the competent courts and tribunals to challenge that refusal. If a company is admitted to the Corporate Insol- vency Resolution Procedure (CIRP) under the IBC, or if a pre-packaged insolvency resolution process commences against a company under the IBC, no security can be enforced, due to the
moratorium imposed under the IBC. Where the company is to be liquidated under the IBC, a secured creditor will have an option to realise its security and receive proceeds from the sale of the secured assets as a priority. Additionally, in the case of any shortfall in recovery, the secured creditors will rank junior to the unsecured credi- tors to the extent of the shortfall.
6. Guarantees 6.1 Types of Guarantees
Generally, a guarantee is obtained from the holding or group company of the acquirer or the target (where financial assistance rules are not attracted). If the guarantee is issued by a non- resident entity for an NCD, that guarantee will need to comply with the following key condi- tions: • any such guarantees can be issued by eligible non-resident entities (such as multilateral financial institutions, regional financial institu- tions and government-owned (either wholly or partially) financial institutions and direct or indirect equity holders); • the borrower should be eligible to raise ECB under the automatic route; • the NCD should have a minimum average maturity of three years, and no call or put options are permitted during that period; and • guarantee fees and other costs in respect of the guarantee cannot exceed 2% of the prin- cipal amount involved. Indian entities cannot provide guarantees for the obligations of their overseas parent company. An ECB can be guaranteed upon obtaining a no- objection certificate from an authorised dealer, as per the ECB Guidelines. If the guarantee is
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