INDIA Law and Practice Contributed by: Divyanshu Pandey, Utsav Johri, Sucheta Bhattacharya and Nishal Makharia, JSA Advocates & Solicitors
must be disregarded by the liquidator in the liq - uidation of a company. 5.8 Priming Liens and/or Claims Under the Indian IT Act, if any proceedings are pending against the security provider (above a de minimums threshold), they may be held to be void to the extent of any claims of the income tax authorities arising out of those proceedings, other than for certain specified exceptions. Furthermore, as per the provisions of the CGST Act, if a company creates a charge over its assets after amounts under the CGST Act are due from such company and with the intention to defraud the government revenue, such charge will be void against any claim in respect of any tax or any other sum payable by the company. Typically, lenders require the security provider to obtain permission from the assessing officer under the IT Act and the proper officer under the CGST Act before creating any mortgage or charge in favour of the lender or security trustee. Please also see 7.2 Waterfall of Payments regarding the priorities granted in case of liq - uidation. Lenders sharing security can enter into inter - creditor agreements to define the priority of the security amongst themselves. An intercredi - tor agreement governs the following matters, amongst others: • the ranking of security and the order of prior - ity amongst the creditors; • consultation periods before taking any enforcement actions in relation to the secu - rity; • a waterfall for the distribution of enforcement proceeds;
• a decision mechanism as to the waiver of events of default; • the voting rights of different classes of lend - ers; and • collective action and a common approach to security enforcement and exceptions thereto. 5.9 Cash Pooling and Hedging/Cash Management Obligations Cash pooling is not common in India, except for project financing transactions. Private cred - it providers are not typical lenders for project In India, security can be held by any Indian enti - ty, except when security is created for NCDs, in which case it is created in favour of a deben - ture trustee. Debenture trustees have to register with SEBI in order to act as debenture trustee in relation to secured NCDs. Furthermore, the debenture trustees have to comply with SEBI regulations and provide certain regulatory cer - tifications to confirm that security is adequate and unencumbered. If the security is created in favour of a debenture trustee or a security trustee, it is not required to be re-taken in case of the assignment or transfer of debt. financing transactions. 5.10 Bank Licensing 6. Enforcement 6.1 Enforcement of Collateral by Non- Bank Secured Lenders The enforcement of security is governed by the terms and conditions of the security documents. Generally, a lender may enforce its security on the occurrence of an event of default.
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