INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
a foreign lender requires compliance with ECB guidelines and the approval of the authorised dealer bank. The creation of charge over assets situated in India in favour of a foreign lender will be subject to compliance with Non-Debt Rules and Debt Regulations, and approval from the authorised dealer bank. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Stamp duty is payable on documents, as per applicable central and state-specific statutes. Insufficiently stamped documents may be impounded and may not be admissible as evi - dence in Indian courts until the deficient stamp duty (with applicable penalties) has been paid. Some documents need to be registered under the Registration Act, with payment of the appli - cable registration 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 Registrar of Com - panies and, in case of non-compliance, such security interest would be held void against the liquidator and the other creditors of the com - pany in the event of winding-up of the compa - ny, although the obligation for the repayment of money secured by the charge would continue to subsist. RERA restricts the ability of companies and real estate developers to secure their borrowings. 3.6 Formalities When a Borrower Is in Default Where the borrower in default is solvent, a lender can seek to enforce its security pursuant to the Insolvency and Bankruptcy Code 2016 (IBC).
Separately, banks and financial institutions that have lent monies are entitled to enforce their security interest without the intervention of a court/tribunal, subject to strict compliance with the Securitisation and Reconstruction of Finan - cial Assets and Enforcement of Security Inter - est Act 2002 (SARFAESI). The SARFAESI defines borrowers to mean any person who inter alia has been granted financial assistance by any bank or financial institution or created any mortgage/ pledge as security for the financial assistance granted and includes a borrower of an asset reconstruction company consequent to the acquisition by it of any rights or interest of any lender in relation to such financial assistance. However, action under the IBC and SARFAESI cannot be taken simultaneously, since a morato - rium is declared upon the admission of an insol - vency application under the IBC. Many lenders are successfully using proceedings under the IBC to enforce their rights under the loan docu - mentation. No pandemic-related restrictions on lenders’ ability to enforce security remain in force at time of writing. 3.7 Subordinating Existing Debt to Newly Created Debt Generally, where priority of security is not con - tractually agreed between parties, security cre - ated earlier in time will rank in priority to security created subsequently. A first-ranking charge will have priority over a second-ranking charge at the time of security enforcement. However, existing secured debts can become subordinated to new debts when an intercreditor agreement setting out ranking of debt or a subordination agree - ment is signed.
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