INDIA Law and Practice Contributed by: Divyanshu Pandey, Utsav Johri, Sucheta Bhattacharya and Nishal Makharia, JSA Advocates & Solicitors
Please see 7.6 Transactions Voidable Upon Insolvency regarding hardening periods. 5.6 Release of Typical Forms of Security Security is released either on complete repay - ment of the debt or by way of approvals or mutu - al agreement between the parties. To effectuate such release, the borrower (which is a company) is required to carry out the requisite regulatory formalities, which are typically as follows: • a release deed is executed to record the release of security; • Form CHG-4 is required to be filed with the ROC to record the release of security with the ROC; • where the security is over immovable prop - erty, the release deed may need to be regis - tered with the relevant land registry where the mortgage was registered; and • filing is required to be made with the deposi - tories for the release of any pledge created on shares or other dematerialised securities. 5.7 Rules Governing the Priority of Competing Security Interests and/or Claims Indian laws allow multiple lenders or groups of lenders to hold a charge on the same asset. The ranking and priority of the charge can be deter - mined between the lenders based on the com - mercial agreement between the parties. The subordination of debt is typically effected by an intercreditor agreement or a subordina - tion deed. Indian courts typically recognise intercreditor agreements providing for a differ - ent ranking of security or lien in a non-liquidation scenario. Under the Insolvency and Bankruptcy Code, 2016 (IBC), any contractual agreements between parties who have equal ranking and that disrupt the order of priority under the IBC
(b) the NCD should have a minimum average maturity of three years, and no call or put options are permitted during that period; and (c) guarantee fees and other costs in respect of the guarantee cannot exceed 2% of the principal amount involved. While guarantee fees are not mandatorily pay - able under Indian law, they are typically paid to comply with the requirement that the guarantee has been issued on an arm’s length basis. Guar - antees provided for the benefit of related parties are subject to GST. Please see 5.4 Restrictions on the Target regarding upstream guarantees for acquisition financings. 5.4 Restrictions on the Target Under the Companies Act, 2013, a public com - pany is prohibited from providing any direct or indirect financial assistance to any person for subscription to or the purchase of its own shares or the shares of its holding company. The term “financial assistance” is broad and includes assistance in the form of loans and guarantees, and the provision of security. This restriction does not apply to a private company. In view of the above, a target company that is a pub - lic company cannot create security nor provide guarantees in relation to an acquisition financing for the acquisition of its shares. 5.5 Other Restrictions Stamp duties and registration fees are required to be paid on the guarantees and security docu - ments at the time of or prior to execution. An insufficiently stamped document is not admissi - ble as evidence in a court of law. Stamp duty dif - fers from state to state and is determined based on the nature of the document.
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