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LE - HANDBOOK
Index
Chapter I -- Aspects of Documentation, etc.
Page Nos. : 4 - 16
Q1 : Why is documentation required?
Q2 : What is defective documentation?
Q3: Who is an executant of a document?
Q4 : What is to be noted at the time of execution of lending documentation?
Q5 : What are the points to be noted when document is executed by a constituted
attorney/power of attorney holder?
Q6 : Who can be a “borrower”?
Q7 : Is borrowing by minors not valid?
Q8 : Queries relating to partnership firms:
(a) What are some points to be noted in case of lending to a partnership firm?
(b) Can HUF be a partner in a partnership firm and what are the points to be noted in case of
lending to a partnership firm which claims to have HUF as a partner?
(c) When a company is a partner in a partnership firm, is the company personally liable for
the firm’s debt? Is the company required to file particulars of charge when the partnership
firm creates charge on the assets of the partnership firm in which a company is a partner?
(d) What are the points to be noted when a trust is a partner in a partnership firm?
(e) Should a partnership firm which is providing guarantee on behalf of a borrower be a
registered firm?
Response :
Q9 : Can the existing documents continue in case of change in constitution of the borrower
from sole proprietor to partnership firm or a company?
Q10 : Queries relating to HUF:
(a) What are some points to be noted in case of lending to an HUF ?
(b) Can a female be a coparcener ?
Q11 : What are some points to be noted in case of lending to a company?
Q12 : What are some points to be noted in case of lending to a trust?
Q13 : What are some points to be noted in case of lending to a co-operative society?
Q14 : What are some points to be noted in case of lending to a society registered under the
Societies Registration Act?
Q15 : What are some points to be noted in case of lending to government bodies?
Q16 : What are some points to be noted in case of lending to “association of persons”?
Q17: Can documents constitutional documents, rules & regulations, permissions, etc. in
vernacular language be accepted?
Q18: When is a certificate of the auditors / chartered accountant confirming: (a) that the
borrowing or the availing of the financial assistances under the facility agreement would not
cause any borrowing limit binding on the borrower to be exceeded, and (b) that the assets to
be mortgaged / charged / pledged as security for the financial assistances, are the absolute
property of the security provider and are free from any encumbrance, required?
Q19: Is notarization of financing / security documents (including guarantees) necessary or
required?
Q20: What is the difference between an Agreement to Lease and a Lease Deed? Is it
advisable to accept lease agreement that is not duly stamped and registered as title deed?
Q21: Is the signature of the guarantor/s also required on the sanction letter / credit
arrangement letter / letter of intent?
Q22: Is full signature required to be affixed on each page of a document by the authorised
official(s)?
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Q23: Sometimes the manual changes are done only at the end of the page after which full
signature is affixed. For such change/s is the initial required to be placed against the change?
Q24: Is a specific Board Resolution in relation to the financial assistances agreed to be
provided by the lenders mandatory? Can a general resolution for borrowing be taken?
Q25: Whether the absence of a common seal on any document(except power of attorney and
share certificates) shall invalidate such document ?
Q26: When facilities are being taken over from other banks / lenders, what are the documents
which are required to be taken from such banks / lenders and when?
Q27: On which documents should stamp duty be paid and what is the amount of stamp duty
to be paid on the documents, etc.?
Chapter II -- Aspects relating to law of Page Nos. : 16 - 17
limitation
Q28: What is the object of law of limitation?
Q29: Can the parties to a contract alter / waive period of limitation?
Q30: How can the period of limitation be extended?
Q31: What are the different periods of limitation?
Q32: What is a balance confirmation letter ?
Q33: What is a letter of acknowledgement of debt (LAD) ?
Chapter III – Registration of Charges Page Nos. : 18 - 20
created by companies
Q34: Why should particulars of charge be registered with the ROC by a company?
Q35: What kind of “charges” are compulsorily required to be registered?
Q36: What are the types of documents which should not be attached to Form 8?
Q37: When can the particulars of a charge created out of India by a company be registered?
Q38: Are the particulars of modification of charge also required to be registered with the
ROC?
Q39: Is filing of particulars of satisfaction of charge also required under the Companies Act,
1956?
Q40: Particulars of what kind of charges are not required to be registered with the concerned
ROC?
Chapter IV – Security & ranking of charges
Page Nos. : 20 - 29
Q41: What are the different types of assets which can be secured to a lender? Who is required
to provide such security and in whose favour such security is to be created?
Q42: What are the different forms of creation of security?
Q43: What is mortgage by deposit of title deeds?
Q44: What is legal / English mortgage?
Q45: Is there a requirement to carry out due diligence before accepting an immovable
property as security?
Q46: Is there a requirement to take search report from advocates providing details of charges
on properties / assets to be secured?
Q47: Whether it is permissible to release the title deeds to the security provider / borrower
before the debt is paid off?
Q48: What are the points to be noted in case Guarantee is provided as security?
Q49: What is the difference between indemnity and guarantee?
Q50: What is a letter of comfort?
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Q51: What do the terms “first”, “exclusive”, “second”, “subsequent”, “prior”, / “pari passu”
charge mean? Is there a separate process for creation of security for first charge, exclusive
charge, etc.?
Q52: What are the points to be noted in case a leasehold property is to be mortgaged?
Q53: What are check points which need to be ensured prior to creation of security?
Chapter V – list of documents FOR EXECUTION Page Nos. : 29 – 31
OF
FACILITY
AGREEMENT,
DEED
OF
HYPOTHECATION, MORTGAGE DEED, GUARANTEE,
PLEDGE AGREEMENT, CREATION OF EQUITABLE
MORTGAGE,
CONCLUSION
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CHAPTER I
ASPECTS OF DOCUMENTATION, ETC.
Query 1 : Why is documentation required?
Response :
Documentation is an integral part of lending by banks. It establishes a formal legal
relationship between the lenders and borrower & other parties and provides for various rights
and obligations in relation to financial assistances provided / agreed to be provided by the
lenders as also for creation of charge on the properties of the borrower / guarantor / third
party security provider as security for the financial assistances.
Query 2 : What is defective documentation?
Response :
In the process of lending, lenders face innumerable complications as a fall out of defective
documentation, execution etc., resulting in avoidable losses. In the absence of legally valid
documents, it becomes difficult to establish the lenders’ position besides adding to delay and
expense in the resolution of disputes and defective documentation may also invalidate and/or
affect the lenders’ rights.
The following are some of the common instances of defective documentation:
Inappropriate documents (i.e. documents not relevant to the type of advance and the
type of securities offered etc.);
Incomplete set of documents;
Documents not properly filled in/partially filled in/incorrectly filled in/not filled in at
all;
Documents unstamped or inadequately stamped or improperly stamped; documents
with stamps affixed after date of execution of documents;
Unauthenticated corrections / overwritings / erasures / cancellations / insertions;
Documents executed by persons / agents having no authority to execute such
documents;
Documents executed by persons incompetent to contract i.e. who have no legal
capacity to contract / borrow, etc.;
Documents not executed properly by the authorised persons, as per bye-laws, articles
of association / resolutions, etc.
Query 3 : What is meant by an “executant” of a document?
Response :
The party executing a document is known as an " Executant". The Executant should be
competent to contract.
Query 4 : What is to be noted at the time of execution of lending documentation?
Response :
It is very important to follow certain important points as enumerated below in the process of
execution of documentation for lending :
The prescribed user notes should be adhered to.
Contents of circulars issued by Reserve Bank of India and provisions of applicable
laws are complied with / adhered to in relation to lending to and security creation by
the borrower / the security provider.
Scrutinize the terms and conditions of sanction and ascertain whether the same are
reflected adequately in the documents.
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Ensure that a copy of the letter of intent / sanction letter / credit arrangement letter
issued to the borrower has been returned after being duly accepted by the authorised
signatory/ies (unless specifically approved otherwise by the lenders).
All borrowers & other parties have signed the relevant documents for financial
assistances. Even though, according to the Indian Contract Act, 1872, a creditor can,
in the absence of an express agreement to the contrary, call upon any one or more of
the joint debtors to repay the debt, joint and several liability of all the joint borrowers
& other parties should expressly be established.
Ensure that all relevant documents as prescribed by the lenders are executed by
competent persons only.
Ensure that relevant documents are properly stamped on or before execution thereof.
The request letter / application duly signed by borrower for availing credit facility is
always treated as a part of documentation. Hence, it must be ensured that these are
filled up properly and unambiguously.
Ensure that all original executed documents are kept in safe custody. In case any
document is to be executed by the lenders, please ensure that the same is signed by
the authorised official(s) of the lenders prior to putting such documents in the safe
custody.
Documents should generally be executed in the presence of the Branch Manager
/official(s) of the lenders or authorized official(s) of the approved representative(s) /
agents(s) of the lenders.
Documents may be signed on behalf of a body corporate :
o by officials authorised by the Board / Committee of directors / members/
trustees (in this case, the lenders will need to acquaint themselves with the
constitutional documents to check if the documents on behalf of such
corporates can be executed by officials authorised by the Board or in case
there is a specific manner in which the documents are to be executed).
Certified true copies of constitutional documents, resolutions, specimen
signature of authorised officials, should be kept on record of the lenders –
Please also see the contents of the response to Query 3 below - ; or
o by a constituted attorney, i.e. by an official to whom power of attorney has
been granted by the corporate. Such power of attorney should have been
executed under the common seal of the corporate (in this case too the lenders
should acquaint itself with the constitutional documents for the purposed
stated above). Certified true copies of constitutional documents and power of
attorney should be however kept on record; or
o common seal may be affixed in the presence of authorised official/s.
Affixation of common seal will need to be done as per the provisions of
articles of association / constitutional documents; this clause generally
specifies the manner in which common seal is required to be affixed. If the
Articles of Association are silent on this point, then the Common Seal of the
company should be affixed only as per the contents of Table A, Schedule I of
the relevant Appendix of the Companies Act, 1956 should be followed, i.e. the
common seal should be affixed in the presence of two directors and of the
Secretary or such other person as the Board may appoint for the purpose.
Where documents are executed under common seal, the officials of the body
corporate authorized to affix common seal should append the signature(s) just
next to / below / above the common seal. The common seal should not be
affixed on the printed matter. The same should be affixed next to the clause
provided for signing.
To ensure that the Memorandum and Articles of Association / constitutional
documents are the updated version, a letter signed by the borrower & other parties and
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accompanying the certified true copy should be taken mentioning that it is the latest
and updated version.
Thumb impression of illiterate executant(s) should not be got attested. In case of
executants who are illiterate/blind/not conversant with English, it must be ensured that
the executant has understood the transaction and the documents being executed. A
separate declaration / confirmation in this behalf is to be recorded as per the
prescribed format. This is also applicable in case of ‘pardanashin’ ladies (i.e. ladies
living in seclusion, having no social interaction), where special care has to be taken,
including, if required, provision of independent legal advice to such ladies.
In case of sole-proprietorship and partnership firms, full name of the firm and full
name/s of the sole-proprietor/all partners should be mentioned in the body of the
documents.
Query 5 : What are the points to be noted when document is executed by a constituted
attorney / power of attorney holder?
Response :
In special cases, where documents are to be executed by an attorney on behalf of the
principal, the original Power of Attorney must be examined to ensure that the same covers
requisite authority for the purpose of such execution. It is advisable to obtain written
confirmation from the principal at the time of execution of the document/s to the effect that
such Power of Attorney continues to be in force and is subsisting. Notarisation of power of
attorney is not mandatory; however in such instances, care should be taken to verify that the
power of attorney has been executed in the presence of at least two witnesses / executed in
the presence of a consulate (if the document is executed outside India) & that the names and
residential addresses and signatures of the witnesses are also clearly specified / made in the
power of attorney. A letter should be sent by the Lead Bank / security trustee to the principal
providing details of the security created as also forwarding copy of the documents. Certified
true copy of the Power of Attorney, in favour of persons who have signed on behalf of the
principal should be compared with the original of such Power of Attorney and endorsement
of having so compared should be made by the official of the lenders under (h)is/er signature
and should be kept alongwith the original documents.
Query 6 : Who can be a “borrower”?
Response :
Any “person” who is competent to contract and is entitled to borrow can be a borrower.
“Persons” would include individuals, body corporates, partnership firms, proprietary
concerns.
It should be however noted that a proprietary concern is not a separate legal entity and the
proprietor is personally responsible for all acts done in the name of the concern. A company
cannot be a sole proprietor.
Lenders should also keep in view the provisions of applicable law before lending to any
person including restrictions imposed by Reserve Bank of India and Exchange Control
Regulations in force while considering advances to Non-Resident Indians / foreign nationals /
PIOs.
Query 7 : Is borrowing by minors not valid?
Response :
Borrowing by minors is not valid.
However, financial assistances can be provided to legal / natural guardian (if empowered
under the court orders) of a minor. The point to be carefully noted here is that the lenders
would need to prove that such borrowing by the legal / natural guardian was for the benefit of
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the minor. Thus lending to a natural guardian / legal guardian of a minor should be
considered carefully.
Query 8(a) : What are some points to be noted in case of lending to a partnership firm?
Response :
The number of partners in a partnership firm should not exceed 10 if it is engaged in banking
business and 20 in other cases.
It should be ensured that no partner is lunatic or undischarged insolvent and no other
partnership firm is a partner in the borrower firm & other parties. The word "Person" in
section 4 of the Partnership Act, 1932, contemplates only a natural or juridical person. Hence,
a partnership firm not being a legal entity cannot be a partner in another firm.
A minor cannot be a partner in the firm even through his natural / legal guardian, but can be
admitted to the benefits of a partnership, with the consent of all the partners. In such cases,
minor’s date of birth/attaining majority should be noted. Upon the minor attaining majority
and if he opts to become a partner, then confirmation of documents is to be obtained from
such minor with the concurrence of other partners. Partnership deed for the reconstituted
firm is also required to be taken on record of the lenders.
Certified true copy of the current partnership deed duly certified in writing by all the partners
or the authorized partner/s should be kept on record for the purpose of verification of details
of partners, details of partnership, etc. It is not necessary to take a “notarized” copy of
partnership deed. It is advisable to carry out searches in the office of Registrar of Firms to
determine the current status of the partnership as also the partners. A certificate from the
firm’s Chartered Accountant may be taken in lieu of such searches; such certificate should
clearly specify the details of the current partners as also that the partnership deed is valid and
subsisting.
Care should be taken whilst lending to unregistered firms. It should be noted that in case of
an unregistered firm, the firm will not be able to raise claim of set off or other proceedings to
enforce a right arising under a contract entered into by it and if the lenders wants rights under
contracts as security, then it would be difficult to enforce such security. Also if receivables
are being taken and if any party fails to pay such receivables, the unregistered firm will not be
able to proceed against the parties who are liable to pay such receivables. It is also advisable
to procure certified true copy of the partnership deed as also that all the partners sign the
documents for and on behalf of the partnership firm and also in their personal capacity.
All the partners should sign all documents (including application form) in their personal
capacity also. In case certain partners are proposed to be authorized for the purpose of signing
of documents in connection with the credit facilities, such authority should be granted to such
partners under a power of attorney. The partnership deed should also be checked to verify
that such deed permits delegation of authority.
Unless the partnership deed provides otherwise, the firm automatically dissolves upon the
death or retirement of any partner and the surviving partners can act only for winding up of
the activities of the firm.
When financial assistances are proposed to be continued to a reconstituted firm (carrying on
business with the same name) after proper credit appraisal, a declaration from the partners of
the reconstituted firm should be obtained stating, inter alia, the fact of the reconstitution of
the firm. As a result of death or retirement or insolvency of partner(s) if there is only one
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partner surviving, then credit facility cannot be continued to the firm as it stands dissolved. It
is advisable to enter into fresh documents with the reconstituted firm.
Signature procedure : All partners should sign the documents and it advisable to include the
following language in the signing clause: “Mr/Ms[•], in their individual capacity and as
partners of the [•] firm”.
It is advisable to obtain the specified forms under the Partnership Act, 1932 i.e. Form A
(Current list of partners as certified by Registrar) & Form C (Registration certificate) in case
of registered partnerships. The nomenclature of the form issued by ROF may be different in
certain States. (e.g. in Gujarat, the same is referred to as Form G)
However, if it is not possible to procure such Forms, then the following papers may be
procured:
a certificate from chartered accountant should be taken stating that the partnership
firm is valid and providing the names of the partners;
certified true copy of partnership deed with letter from all partners stating the names
of the partners;
certified true copy of latest IT return.
Alternatively, the list of mutation entries printed on the stamp paper and bearing the seal of
ROF may be taken.
In case of change in constitution of the borrower & other parties from partnership firm to a
company, suitable undertakings should be taken.
For the purpose of identifying the current partners of a partnership firm, it is suggested that
certified true copy of extract of register maintained by registrar of firms may be taken to
evidence the list of current partners of the firm.
Query 8(b) : Can Hindu Undivided Family (HUF) be a partner in a partnership firm
and what are the points to be noted in case of lending to a partnership firm which
claims to have HUF as a partner?
Response :
The lenders may be approached for financial assistances by partnerships which claim to have
HUFs as partners. It should be noted that an HUF cannot be a partner in a partnership firm.
Even two HUFs cannot join to form a partnership firm. However, an HUF and a partnership
firm can be co-borrowers/security provider. If an individual has signed a partnership deed as
a Karta of an HUF or on behalf of an HUF, only such individual is to be considered a partner
in such partnership firm in his individual capacity. Any adult members / coparceners who
have signed the partnership deed shall also be considered to be partners of the partnership
firm in their individual capacity; in such event it should be ensured that the total number of
partners do not exceed the permissible limit, which is 20 at present.
If in the event any facility is proposed to be provided to a partnership firm where HUF is
stated to be involved in any manner, then the lenders must exercise caution in dealing with
such firms. It should be noted that the lenders will not be able to proceed against the members
/ coparceners and the assets of the HUF; the lenders may be able to proceed only against the
Karta / personal assets of the Karta (including his share in HUF property) and such of the
members / coparceners (including their personal assets) who have executed the documents, in
their individual capacity. Thus the lenders should identify the individuals who are intended to
be bound (alongwith the other partners) and ensure that the relevant documents are also duly
executed by such individuals in their individual capacity.
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Query 8(c) : When a company is a partner in a partnership firm, is the company
personally liable for the firm’s debt ? Is the company required to file particulars of
charge when the partnership firm creates charge on the assets of the partnership firm
in which a company is a partner?
Response :
Where a company is a partner in a partnership firm, the company, like any other partner, is
personally liable for the firm’s debt. A company can enter into a contract of partnership if it is
empowered by its Memorandum of Association. It may be noted that whenever the assets of
the partnership firm are charged as security, then the registration of charge with Registrar of
Companies (ROC) is not required even if a company is a partner.
The authorised persons from the company need to sign the documents on behalf of the
company as a partner. The memorandum and articles of association of a company should be
checked to verify if the company can become a partner of a partnership firm and certified true
copy of requisite resolutions should be procured in relation to execution of documents,
securing of properties of etc. by the company as a partner.
The company as a partner needs to initial / sign only once on the documents. In case
common seal is being affixed on the document then please check and procure certified true
copy of resolutions authorizing company to affix common seal as per the provisions of its
articles of association.
Query 8(d) : What are the points to be noted when a trust is a partner in a partnership
firm?
Response :
Credit facilities to a partnership firm, where a Trust is a partner, should normally not be
considered to avoid inherent risk, if any, of being a party, knowingly or unknowingly, to a
breach of trust by the trustees. It should be ascertained from the trust deed whether the Trust
can become a partner in a firm. The authorised persons of the trust need to sign the
documents on behalf of the trust as a partner. The constitutional documents of a trust should
be checked to verify if the trust can become a partner of a partnership firm and certified true
copy of requisite resolutions should be procured in relation to execution of documents,
securing of properties of etc. by the trust as a partner.
Query 8(e) : Should a partnership firm which is providing guarantee on behalf of a
borrower be a registered firm?
Response :
It is advisable that a partnership firm which is providing guarantee for on behalf of a
borrower is a registered firm.
Query 9 : Can the existing documents continue in case of change in constitution of the
borrower / other parties from sole proprietor to partnership firm or a company?
Response :
The existing documents cannot continue. The entire set of documentation should be executed
afresh.
Query 10(a) : What are some points to be noted in case of lending to an HUF?
Response :
Who is Karta ? Can a junior coparcener be appointed as manager in the presence of the
“karta”
Karta is the senior most coparcenor of the HUF. The senior coparcener can however give up
his rights of management and a junior coparcener can be appointed as manager /karta with
proper consent of all other coparcenors. A karta has a superior right than other coparcenors
since he has the power of disposition for causes recognized as just and proper under Hindu
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Law for the whole family property including interest of the minor members. He / she has the
implied authority to borrow money and contract debts for family purposes on the security of
HUF property.
The Karta can bind the HUF when he acts in the ordinary course of family business, but no
other member can do so unless all the adult members sign the documents.
In order to charge the HUF estate, it is necessary that all the adult members of the family join
in the execution of the documents or give their specific written consent for the documents to
be signed by the Karta prior to the execution of the documents. The powers of the Karta are
limited and he can bind the HUF estate only when he has carried out an action that is
necessary or beneficial to the HUF.
When a suit is to be filed against a HUF estate, the burden lies on the lenders to prove that the
financial assistances were taken for the purpose which was beneficial to the HUF.
Application for financial assistances and documents including receipts should be signed by
the Karta for and on behalf of the HUF, and by all adult members / coparceners (including the
Karta) in their personal capacity to make them liable in their individual capacity.
The Supreme Court has held that only a coparcener can be the Karta or manager of a joint
family. Therefore, a Karta cannot delegate his/her powers of management of an HUF to a
person who is not a member/coparcener.
Query 10(b) : Can a female be a coparcener ?
Response :
Female as a coparcener
On and from the commencement of the Hindu Succession (Amendment) Act, 2005 in a joint
Hindu Family governed by Mitakshara law, the daughter of a coparcener shall by birth
become a coparcerner in her own right in the same manner as the son of a coparcerner and
shall have the same rights (including the right to seek partition of the coparcenary property)
and liabilities in the coparcernary property as the son. However, this amendment is
prospective in effect and therefore, shall not affect or invalidate any disposition or alienation
including any partition or testamentary disposition of property which had taken place before
the December 20, 2004. The above mentioned amendment does not apply to Dayabhaga
HUF. Under Dayabhaga Law the females were treated as coparceners (including the widows)
and the same position is maintained till date
The rights and liabilities of a female coparcener
Female coparceners have the same rights and liabilities as that of a male coparcener. They
cannot deal with HUF properties as no one other than the Karta can deal with the coparcenary
property and that too only to the limited extent of the interests of the business. In all other
circumstances the consent of all the other coparceners of the HUF have to be taken. Further
they are liable for the debts of the HUF incurred by the Karta if the same was incurred for
furthering the interests of the HUF. The extent of their liability is however restricted to their
share in the property.
Females as the manager of HUF
Pursuant to the amendment to the Hindu Succession (Amendment) Act, 2005, the daughters
of a coparcener can become a coparcener/Karta and therefore can be the managers of the joint
Hindu family governed by Mitakshara Law.
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Dealing by female coparaceners with the HUF property
Only in situations where the female coparcener is the Karta of the family can she deal with
coparcenery property, and that too to the limited extent of the interests of the family property.
Query 11 : What are some points to be noted in case of lending to a company?
Response :
The company’s Memorandum and Articles of Association (updated and certified true copy)
should be procured and scrutinized to check whether the company has the power to borrow
monies and also charge its assets. It should be ensured that there are no "restrictive clauses"
in this respect. The Articles of Association of the company should be scrutinized to ascertain
the mode of exercising the borrowing powers and executing documents. Further, it must be
ensured that the purpose for which credit facility is sought is consistent with the objects of the
company.
In addition to the prescribed set of duly executed documents, the following should also be
furnished :
Certified true copy of the Resolution of its Board of Directors, duly certified by the Chairman
of the meeting /any Director / Company Secretary. It should be ensured that the company has
passed the resolution to borrow at a duly convened meeting of the Board of Directors and not
by way of a circular resolution. For operational convenience, the Board may delegate the
borrowing function to a Committee of Directors in which case the certified true copy of
resolution passed by the Committee of Directors may be accepted along with the resolution of
the Board delegating such function.
Certificate from the statutory auditor or Chartered Accountant of the company or a certificate
from the Company Secretary, certifying that the company is entitled to draw the amount of
the lenders financial assistance must be obtained in case the resolution authorizing borrowing
does not contain specific approval of the lenders’ assistances.
Certified true copy of resolutions passed under Section 293(1)(d) and Section 293(1)(a) of the
Companies Act, 1956 should be obtained from the company, wherever applicable. The
aforesaid requirements are applicable only to public limited companies and private
companies which are subsidiaries of public companies. The provisions of S. 293 of the
Companies Act, 1956 are not applicable for “temporary loans obtained from the company’s
bankers in the ordinary course of business” –“temporary loans” means loans repayable on
demand or within six months from the date of the loan such as short term, cash credit
arrangements, discounting of bills and issue of other short term loans of a seasonal character
but does not include loans raised for the purpose of financing expenditure of a capital nature.
Contingent liabilities like amounts outstanding on a deferred payment agreement or under
guarantee issued by the bankers for such deferred payment instalments or in respect of LCs
established by the company’s bankers are not borrowings.
In case a public company (or a private company which is a subsidiary of a public company) is
providing a guarantee/other security (for financial assistance to borrower), the company is
required to comply with the provisions of S. 372 A of the Companies Act, 1956. The
aforesaid provisions would not be applicable to a guarantee/security provided by a company
to its wholly owned subsidiary, or by a banking company. In case the aforesaid provisions are
not applicable, please obtain a certificate from the company’s statutory auditors / from a
chartered accountant that the provisions of the aforesaid section is not applicable and the
reasons for non applicability. For further details on applicability of S. 372 A of the
Companies Act, 1956 and exemptions thereunder, please refer to such Section in the
Companies Act, 1956.
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The extract of resolutions should be certified by the company secretary or the chairman or a
director who has not been authorized to sign the documents. If a company does not have a
whole time Company Secretary, the board resolution can be certified by person(s) authorized
under Section 2(3) of The Companies (Appointment And Qualifications Of Secretary) Rules,
1988.
Query 12 : What are some points to be noted in case of lending to a trust?
Response :
In case of advances lending to a Trust, documents should be executed as per the resolution
passed by such Trust in terms of the rules/provisions governing the respective
institutions/bodies. Byelaws / constitutional documents of such Trusts should permit
borrowings for specified purposes and creation of security.
In case of Public Trusts, Charity Commissioner’s permission may be required for
borrowings/creation of security. It should be noted that the Trustees are themselves owners
of the properties of the Trust in name only, as they are holding the same for the benefit of
others. As such, the Trustees’ powers and authorities are totally restricted by the provisions
of the Trust Deed/Agreement. The Trustees cannot delegate their functions, even to a cotrustee, unless the Deed/Agreement provides for the same; the delegation is in the regular
course of business, or is absolutely necessary; or if the beneficiary of the Trust, being
competent to contract, consents to the same. In the absence of the above, it is advisable to
have all Trustees sign the documents.
Query 13 : What are some points to be noted in case of lending to a co-operative
society?
Response :
A Co-operative Society may be registered under the statewise enactments governing
cooperative societies, or under the Multi-State cooperative Societies Act, 2002. The extent
and manner of exercise of the borrowing powers of a society may be found in the respective
Acts, Rules/Regulations thereunder, or in the Byelaws of such Society. The purpose of the
financial assistance should also fall within the objects of the Society. In several cases,
permission of the relevant Registrar of Cooperative Societies may be required for the availing
of the assistance/creation of security. The documents would require to be executed in
accordance with the resolution(s) passed by the governing body/managing committee
members of the Society. The documents would be required to be executed with proper
authority.
Query 14 : What are some points to be noted in case of lending to a society registered
under the Societies Registration Act?
Response :
A society registered under the Societies Registration Act, 1960, is established for the
promotion of literature, science or fine arts, or for the diffusion of useful knowledge or of
political education or for charitable purposes. Such a society is governed by a governing
body (governing council, directors, committee, trustees or other body). In most states, the
Memorandum of Association and rules and regulations governing the functioning of the
Society are required to be filed with the Inspector General of Registration/Registrar of
Societies/Charity Commissioner. However, such registration may not be compulsory. The
extent and manner of exercise of the borrowing powers of a society may be found in the
Memorandum of Association of the society. The purpose of the assistance should also fall
within the objects of the society. The documents would be required to be executed with
proper authority.
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Query 15 : What are some points to be noted in case of lending to government bodies?
Response :
Government bodies could be governed by /constituted under various statutes, or subject of
various rules, regulations, administrative orders, directions, resolutions, etc. The same would
need to be examined on a case-to-case basis to understand the entity’s powers to borrow, as
also the delegation of authority to specific officers for the execution of documents.
Query 16 : What are some points to be noted in case of lending to “association of
persons”?
Response :
An association of persons is not a legal entity and hence if any financial assistance is lent to
an association of persons, it will be joint and several lending to such individual persons.
Unless the association of persons is in the form of partnership firm or incorporated as a
company or any other type of body corporate, it does not have any legal entity.
The expression “JV” or “joint venture” is loosely used. Unless such JV or joint venture is a
legal entity, lending to any persons forming JV or joint venture will be in their individual
capacity only.
Query 17 : Can documents like constitutional documents, rules & regulations,
permissions, etc. in vernacular language be accepted?
Response :
In case documents like constitutional documents, rules & regulations, permissions, etc. are in
vernacular language, the same should be translated through the high court approved translator
or the lenders’ empanelled lawyers. If the lenders’ empanelled lawyers are translating the
documents, then such translation should be accompanied by an opinion of such empanelled
lawyer.
Query 18 : When is a certificate of the auditors / chartered accountant confirming: (a)
that the borrowing or the availing of the financial assistances under the facility
agreement would not cause any borrowing limit binding on the borrower to be
exceeded, and (b) that the assets to be mortgaged / charged / pledged as security for the
financial assistances, are the absolute property of the security provider and are free
from any encumbrance, required?
Response :
Certificate as stated above:
is required from public limited company and from private limited company that is subsidiary
of public limited company;
is not required from private limited company which is not subsidiary of a public limited
company;
is not required from proprietary concern;
is not required from partnership firms, if all partners are signing the documents; However, if
one partner is signing the document on behalf of all partners and if there is any reference
related to the borrowing limits in the partnership deed, then the certificate has to be taken.
Query 19 : Is notarization of financing / security documents (including guarantees)
necessary or required?
Response :
Notarisation of financing / security documents (including guarantees) is not required;
however it should be ensured that the documents are executed in the presence of the officials
of the lenders / their authorised representatives or agents.
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Query 20 : What is the difference between an Agreement to Lease and a Lease Deed? Is
it advisable to accept lease agreement that is not duly stamped and registered as title
deed?
Response :
An agreement to lease, is merely an agreement to lease in future i.e., it does not create the
lease but merely provides confirmation to give the property on lease. Whereas a lease deed is
a document of title, whereunder the lease is created and granted. Sometimes an agreement to
lease automatically converts to lease agreement on happening of certain events. It is not
advisable to accept a lease agreement that is not duly stamped and registered as a title deed.
Query 21 : Is the signature of the guarantor/s also required on the sanction letter /
credit arrangement letter / letter of intent?
Response :
No, only the borrower’s signatures are required on the sanction letter / credit arrangement
letter / letter of intent, unless otherwise specified by the lenders.
Query 22 : Is full signature required to be affixed on each page of a document by the
authorised official(s)?
Response :
Only initials would suffice at the bottom of each page of a document and against each change
/ inscription / deletion / overwritings / alterationsmade in the document. Full signature of the
authorised official(s) / signatories should be made on the last page of the document.
In case an executant is signing in more than one capacity, a single initial and full signature by
such executant would suffice provided such capacities are clearly stated in the document.
The rubber stamp of the firm / company / concern need not be affixed on the documents if the
name of the person(s) who is signing the document and the name of the business / firm /
concern / company is mentioned clearly in the signing clause.
In case there are too many changes on a particular place a bracket may be drawn in the
margin, against the entire portion containing the changes and initials can be obtained once
against such a bracket.
Query 23 : Is affixing of a rubber stamp of the executant necessary ?
Response :
Affixation of rubber stamp is not necessary under law.
Following should however be noted :
For partnership firms & proprietory concern : In case there is language in the document
capturing the obligations of the partners both in their individual capacity and as partners of
the firm, then affixing a rubber stamp is not required. Even if such rubber stamp is affixed, it
does not affect the interest of the lenders on account of the aforesaid reason. Thus it should be
ensured that the document contains suitable language to the effect that “the partners are liable
to the lenders, both in their individual capacity as also as partners of the firm”.
Query 24 : Is a specific Board Resolution in relation to the financial assistances agreed
to be provided by the lenders mandatory? Can a general resolution for borrowing be
taken?
Response :
A general resolution and not specifically in relation to the financial assistances agreed to be
provided by the lenders can be accepted provided such general resolution covers aspects
provided for in the format of the Board Resolution and also authorises the body corporate to
borrow financial assistances from the lenders on terms to be specified by the lenders. Certain
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officials should also be authorised to finalise, settle and approve such terms. Care should be
taken to ensure (by way of auditor’s certificate) that the amount of the financial assistances
agreed to be provided by the lenders is within the limits specified in such resolution.
Query 25 : Whether the absence of a common seal on any document(except power of
attorney and share certificates) shall invalidate such document ?
Response :
Failure to affix the common seal on any document (except power of attorney and share
certificates) by itself will not invalidate such document if the same has been executed
pursuant to and in accordance with the authorization / resolution.
Query 26 : When facilities are being taken over from other banks / lenders, what are the
documents which are required to be taken from such banks / lenders and when?
Response :
No due certificate/s and letter/s releasing charge should be taken. Title deeds (if agreed to be
placed with the lead bank/security trustee) should also be taken from such banks / lenders. It
is advisable to take such letters / certificates before disbursing the amount or at least
simultaneously with the first disbursement.
Query 27 : On which documents should stamp duty be paid and what is the amount of
stamp duty to be paid on the documents, etc.?
Response :
It is essential to know the nature of a document to enable ascertainment of the applicable
stamp duty. Quantum of stamp duty will depend on the provisions of the Stamp Act of
various State.
Non-judicial stamp paper should be purchased from reputed stamp vendors either in the name
of the executant or the lenders (if the lenders are a party to such document). It may be noted
that in some States the stamp papers are required to be used within six months from the date
of issue thereof.
All documents should be properly stamped on or before execution thereof. An unstamped or
insufficiently stamped document will not be admitted in evidence or form the basis of a suit.
The date of the documents should be subsequent to the date of the stamp paper / franking.
No substance should be typed / inscribed on the face of the stamp.
Where a document is to be executed at two or more places, following procedure should be
adopted :
a)
The document should be properly stamped at the place where it is first executed and
the executant(s) at such place. Just below the signature of each executant, the executant
should put the date of execution by (h)im/er.
c)
The document should, thereafter, be forwarded to the other place(s) for execution by
the remaining executants. The document should be dated as of the date when the last
executant signs; the authorized official of the lenders should sign such document (where
required) on such last date.
d)
If the stamp duty payable for the document at the any of the other place(s) is more
than that paid at the first place, then stamp duty representing the highest of the differential
amount should be paid and the non judicial stamp paper for the differential amount should be
attached to the document; the signatures of the remaining executants at that place should be
obtained with endorsement as stated below:
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It is not advisable to attach blank non-judicial stamp papers to documents for payment to
make up the differential stamp duty. Each of the stamp papers should contain part of the
matter from the document and should be attached to the document; however where it is not
possible to do so, such stamp papers should be attached to the document with a noting that
“this stamp paper(s) form a part of <name of document eg. facility agreement, deed of
hypothecation, etc., dated the __ day of ___, 20__> and the signatures of all the executants
should be obtained on such stamp papers.
CHAPTER II
ASPECTS RELATING TO LAW OF LIMITATION
Query 28 : What is the object of law of limitation?
Response :
The object of the law of limitation is to prescribe the period within which existing rights on
the securities can be enforced in a court of law. However, for exercising rights out of court,
there is no limitation period, for e.g. right of set off and combining accounts. The law of
limitation does not itself create an obligation or a right to sue where none existed. It simply
imposes time limit to litigation.
It may be noted that any suit instituted, appeal preferred and application made after the
prescribed period as laid down under the Limitation Act, 1963, is liable to be dismissed.
Query 29 : Can the parties to a contract alter / waive period of limitation?
Response :
The parties cannot, by agreement, express or implied, alter / waive the period of limitation as
laid down in law. It is also not possible for them to waive limitation by agreement. An
agreement not to raise the plea of limitation in case a suit / application / appeal is filed / made
/ preferred is inoperative and ineffective.
Query 30 : How can the period of limitation be extended?
Response :
Limitation can be extended by the acts of the parties in any one of the following ways:
Fresh documents:
If the borrower executes a fresh promissory note or a new set of documents etc. (including for
time barred debt), the limitation period becomes available from the date of the fresh
document.
Acknowledgement:
Acknowledgement of debt properly executed within the period of limitation extends the
limitation period from the date thereof.
Part Payment:
Part Payment of a debt made before expiry of the prescribed limitation period can also extend
the period of limitation, provided such payment has been authenticated by the borrower, or by
his duly authorized agent under his signature.
Query 31 : What are the different periods of limitation?
Response :
The period of limitation for filing a suit for recovery of money under various documents is as
set out under the Limitation Act, 1963.
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Query 32 : What is a balance confirmation letter ?
Response :
Balance Confirmation is a letter wherein borrowers confirm and agree that debit balance in
their borrowal accounts as on a particular date as appeared in the books of accounts of the
lenders. Balance confirmation should be obtained from the borrower once in a year as on 31st
March (as per prescribed formats of the lenders).
Query 33 : What is a letter of acknowledgement of debt (LAD) ?
Response :
LAD is a letter wherein borrowers/guarantors/security providers confirm execution of
documents and acknowledge debt / correctness of debit balances in respect of the credit
facilities as on a particular date as appearing in the books of accounts of the lenders. LAD for
all the credit facilities should be obtained (as per prescribed formats of the lenders) at the
time of renewal of working capital facilities or after every second year but in any event
before expiry of the third year from the date of the original documents / date of previous
LAD. Such acknowledgements should be executed by all the borrowers/guarantors/ security
providers under valid authorization, across the revenue (adhesive) stamps in the presence of
the officials of the Bank and should be kept alongwith the set of original documents. The
LAD should be properly stamped.
CHAPTER III
REGISTRATION OF CHARGES CREATED BY COMPANIES
Query 34 : Why should particulars of charge be registered with the ROC by a
company?
Response :
The system of charge registration is intended to disclose to persons about to deal with or
become creditors of, the company the degree of creditworthiness of the company in so far as
their position might be affected by the existence of certain debts entitled to be paid in
priority. By virtue of the Companies Act, 1956 every relevant charge created by a company
is, so far as any security on the company’s property is conferred by the charge, void against
the liquidator or any creditor of the company unless registered with the ROC within 30 days
of its creation. The Companies Act, 1956 gives a list of assets, a charge on which must be
registered. Registration of charges identifies the assets which are subject to the charge and
operates as constructive notice. It makes the charge effective against each and every person
including the liquidator.
If a mortgage or charge, which requires registration, is not registered, it does not mean that
the transaction is altogether void or the debt not recoverable. The only consequence is that the
security created becomes void against the liquidator and other creditors.
The omission to register charge does not prejudice any contract or obligation for repayment
of the money secured by such charge, and where the charge becomes void for want of
registration, the money secured by it immediately becomes payable.
A subsequent charge in respect of which particulars of charge are registered will have priority
over a prior charge in respect of which such particulars are not registered, even if the
subsequent chargeholder had notice of the prior charge.
Part V of the Companies Act, 1956 consisting of section 124 to 145 deals with the subject of
registration of ‘Charges’.
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Query 35: What kind of “charges” are compulsorily required to be registered? What is
the time period for registration of particulars of charge?
Response :
The following charges are compulsorily required to be registered:
a charge for the purpose of securing any issue of debentures;
a charge on uncalled share capital of the company;
a charge (including an equitable or legal mortgage) on any immoveable property,
wherever situate, or any interest therein;
a charge on any book-debts of the company;
a charge, not being a pledge (e.g. an hypothecation), on any moveable property of the
company;
a floating charge** on the undertaking or any property of the company including
stock-in-trade;
a charge on calls made but not paid;
a charge on a ship or any share in a ship;
a charge on goodwill, on a patent or a license under a patent, on a trademark, or on a
copyright or a license under a copy right.
** A floating security is an equitable charge on the assets for the time being of a going
concern. It attaches to the subject charged in the varying condition in which it happens to be
from time to time. An essential term of such charge is that the security provider may continue
to use its assets in the ordinary way until the charge is crystallized, when it fastens on the
underlying assets. The charge, so to say, is kept latent and dormant, till it crystallizes by the
happening of some event which fixes the charge, e.g. liquidation / bankruptcy / insolvency of
the security provider or the appointment of a receiver for taking possession of the charged
property, or default by the security provider / borrower, which would entitle its holder to take
action for the enforcement of the security.
The particulars of charges are to be registered in the prescribed format alongwith the
prescribed fee within 30 days after the date of its creation. In case of delay, the Registrar may
allow the charge to be registered within 30 days thereafter on payment of additional fee. Any
further delay entails filing of petition before the Company Law Board to secure condonation
of delay. Different forms have been prescribed for different charges. (Presently, Form 8 is
required to be filed for creation of charge, other than for debentures. For debentures, Form 10
is prescribed).
The aforesaid forms are required to be digitally signed on behalf of the company and the
charge-holder.
Query 36 : What are the types of documents which should not be attached to Form 8?
Response :
It may be noted that the facility agreement does not create any charge; it merely records the
agreement of the borrower in relation to the providing of the financial assistance. Hence, the
same is not to be filed with the forms. In the case of equitable mortgage, there is no
document creating the charge and care should be taken that a copy of the Memorandum of
Entry or the declaration is not filed with the forms. Mortgage Deed and Deed of
Hypothecation can be attached to Form 8.
One copy of such forms should be kept alongwith original documents.
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Query 37 : When can the particulars of a charge created out of India by a company be
registered?
Response :
In the case of a charge created out of India by a company incorporated in India on properties
situate outside India, the particulars of charge are to be filed within 30 days after the date on
which the instrument creating or evidencing the charge or a copy thereof could, in due course
of post and if dispatched with due diligence, have been received in India.
Query 38 : Are the particulars of modification of charge also required to be registered
with the ROC?
Response :
If any term or condition or the extent of operation of any charge registered by the company
under the Companies Act, 1956 is modified, then particulars of such modification should be
filed with the concerned ROC (as per prescribed format of Form 8). The time limit for filing
particulars or modification of charge is the same as for the original charge.
The following are examples of what would constitute ‘modification’ : :
Security created for enhanced limit of credit facility.
Further charge for the same loan or credit facility by way of additional security on
different property.
Release of a part of security from the operation of the charge.
Inclusion of different type of loan or credit facility within the overall limit (provided
original charge has not been registered for overall limit as such without giving break
up).
Addition of another creditor as a charge-holder by modifying the original document of
charge, with or without any additional credit limit (provided the original charge was
registered as a joint charge and names of all creditors have been mentioned).
Change in chargeable rate of interest (other than Bank rate) (provided the original
forms specified the rate of interest).
Change in the terms relating to the maintenance of margin or in the period of
repayment of a loan or any other change in repayment terms (provided these terms are
mentioned in the original forms).
Change in the nature of security in respect of a charge already created (eg. Equitable
mortgage to legal mortgage, hypothecation to pledge)
Handing over title deeds by the mortgagee to another creditor for continuation of
security.
Assignment of a charge.
Query 39 : Is filing of particulars of satisfaction of charge also required under the
Companies Act, 1956?
Response :
Upon satisfaction of debt / charge, Form 17 is required to be filed.
The company is required to give intimation to the ROC of the payment or satisfaction in full
of any charge, within 30 days from the date of such payment or satisfaction in the prescribed
format. Forms 17 are required to be filed for satisfaction of charge.
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Query 40 : Particulars of what kind of charges are not required to be registered with
the concerned ROC?
Response :
A charge in the nature of pledge, say, on goods, shares, Government securities held by a
company does not require registration.
Where a negotiable instrument has been given to secure the payment of any book debts of a
company, the deposit of the instrument for the purpose of securing an advance to the
company is not considered, for the purpose of the Companies Act, 1956, as a charge on those
book-debts.
CHAPTER IV
SECURITY & RANKING OF CHARGES
Query 41 : What are the different types of security which are generally stipulated by the
lenders? Who is required to provide such security and in whose favour such security is
to be created?
Response :
Generally stipulated security -Charge on moveable fixed assets / properties - either all or assets situate in particular
location
Charge on current assets
Charge Specific equipment or machinery
Mortgage on immoveable fixed assets / properties - either all or assets situate in
particular location
Guarantee
Letter of comfort by a third party
Pledge / hypothecation of shares, units of mutual funds, insurance policies
Mortgage / charge / assignment by way of security over / of rights under project
documents
Charge on receivables, bank accounts
Assignment by way of security of trade mark / brand names / goodwill
Mortgage of a ship
Lien / pledge on/of Term Deposits
Such security may be required to be provided by either the borrower or third party or both.
The lenders may require the security to be created either in their own favour or the lead bank
/ institution or a facility agent or a security trustee.
Query 42 : What are the different modes / forms of creation of security?
Response :
Hypothecation :
Moveable assets can be either hypothecated by way of charge or mortgaged. Generally, the
mode / form of creation of security on moveable fixed assets, specific machinery, current
assets, receivables, is by way of hypothecation. There is no specific definition of the term
“hypothecation”. Section 2(n) of the Securitisation & Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 however defines “hypothecation”.
The charge could be either in the nature of a fixed charge or a floating charge. The aforesaid
assets are hypothecated by way of charge under “Deed of Hypothecation”.
A “fixed charge” is a charge where specific identified moveables are secured in favour of the
lender (e.g. specific item of machinery / equipment, vehicle, etc.). In the case of a fixed
charge, the property charged must be described, and the information of the existence of the
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charge thereon must be specified on the property itself / place where the property is installed /
stored / lying, e.g. by affixing a board / notice thereon. The rights available to the lenders /
hypothecatee in respect of the charge (e.g. the right to appoint a receiver, enter and inspect,
sell the properties, restrain the borrower from dealing with the property, etc.) must be
specified in the security documents.
A “floating charge” is an equitable charge on the assets for the time being of a going concern.
It attaches to the subject charged in the varying condition in which it happens to be from time
to time. An essential term of such charge is that the security provider may continue to use its
assets in the ordinary way until the charge is crystallized, when it fastens on the underlying
assets. The charge, so to say, is kept latent and dormant, till it crystallizes by the happening of
some event which fixes the charge, e.g. liquidation / bankruptcy / insolvency of the security
provider or the appointment of a receiver for taking possession of the charged property, or
default by the security provider / borrower, which would entitle its holder to take action for
the enforcement of the security
There is no delivery of the assets / delivery of possession of the assets / properties by the
security provider to the hypothecatee (i.e. person in whose favour the security is created).
Pledge :
Moveable properties / assets can also be pledged. The ingredients of a pledge are the
delivery of the properties / assets being pledged to the pledgee (i.e. person in whose favour
the security is created), with the intention of creating security thereon, coupled with the
authority to deal with or dispose of the said property.
A pledge can be created in respect of any tangible moveable property – goods, stocks,
jewelry, etc. In cases where physical delivery of the pledged property is not possible,
constructive delivery can constitute a pledge, e.g. when documents of title to the goods, such
as warehouse receipts, are duly discharged and handed over to the pledgee, or when the
goods are stored in a godown, and the keys to the same are handed over to the pledgee and
separate independent access is made available to the pledgee, so as to ensure that the pledge
has control of the pledged assets / securities.
In case of shares/securities held in physical form, the deposit of the relevant certificate along
with duly signed blank transfer forms (with endorsement of the concerned Registrar of
Companies, where applicable) will be required to be made to the pledgee.
In the case of shares held in dematerialised form, the procedure stipulated under the
Depositories Act, 1996 must be followed :
Filing of the relevant form by the Pledgor with his Depository Participant (DP) containing
details of the DP account, the shares pledged, the details of the pledgee’s DP account, etc.
(the duplicate/acknowledgement copy of this form is to be deposited with the pledgee).
The details are then forwarded by the Pledgor’s DP to the central depository service
(NSDL/CSDL), who seek confirmation from the pledgee’s DP.
Upon the pledgee’s DP accepting/confirming the pledge, the shares held in the Pledgor’s DP
account are locked in favour of the pledgee’s DP account.
In case of other securities, such as units, etc. for which no certificates are issued and the same
are not held in DP accounts, the specific procedure for pledge/creation of charge in each case
would need to be examined – e.g. in the case of GOI securities (which are held in ledger
form), the securities are required to be transferred in the name of the pledgee; in the case of
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certain mutual fund units, certain forms have to be filed with the Registrars of the said funds
for noting the pledgee’s pledge on the same.
It must also be noted that certain securities may not be pledgeable – e.g. certain types of
units, etc., or certain specific approvals may be required e.g. shares of a special purpose
vehicle (SPV) where the Memorandum of such SPV restrict transferability, etc., or certain
conditions may be required to be met for the same – e.g. shares under lock-in, etc.. It should
also be ensured that the limits specified under S. 19 (2) of the Banking Regulation Act, 1949
and relevant circulars of Reserve Bank of India in relation to pledge of shares for financial
assistances by banks are not breached.
Term Deposits :
For creation of security over the term deposits, the security provider should deposit the
receipt(s) of the term deposit with the lenders, duly discharged. A lien of the lenders is noted
by the lenders on the term deposits. Banks are not allowed to lend against term deposits of
other banks.
Mortgage of a Ship :
Ships, being moveable property, would generally be hypothecated. However, ships
registered under specific Act(s) may have to be secured by following a different procedure as
specified in such Act(s) – e.g. ships registered under the Merchant Shipping Act, 1958, are
required to be mortgaged, by filling in the particulars of the mortgage on a specific form
(Form 11) and filing the same with the concerned Mercantile Marine Department.
Mortgage :
There are various methods of creation of mortgage of immoveable properties. Methods
generally adopted by the institutions /banks in India are mortgage by way of deposit of title
deeds or by way of legal mortgage.
Query 43 : What is mortgage by deposit of title deeds / equitable mortgage?
Response :
The basic ingredients of mortgage by deposit of title deeds / equitable mortgage is that there
must be : a debt, an intent to create security for such debt, deposit of title deeds to a creditor
or his agent in any of the following towns viz. the towns of Calcutta, Madras, Mumbai and in
any other towns which the State Government concerned may, by notification in the official
gazette specify in this behalf.
As mentioned above, equitable mortgage can be created only at notified places and equitable
mortgage created at any place other than the notified place is ab initio invalid and would not
be enforceable against the mortgagor. The concerned lenders’ / their agent’s or trustee’s
offices located at other places should arrange for creation of equitable mortgage by the
mortgagor at any of such of their offices which are located in the notified places. If the
mortgagee’s office where equitable mortgage is proposed to be created is located in a
cantonment area, specific enquiry should be made with the local solicitors/advocates to
ascertain whether the said cantonment area is notified for the purpose of creating equitable
mortgage.
No document / instrument is required to be executed for creation of mortgage by deposit of
title deeds. The general practice of the lenders is to record the mortgage transaction under
Memorandum of Entry on the day immediately next to the date of creation of equitable
mortgage. A declaration from the security provider / mortgagor is also taken on the same day
as creation of mortgage and such declaration is required to be notarized.
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In case of an equitable mortgage, there being no document of mortgage, the question of
registration thereof does not arise.
In case of mortgage by deposit of title deeds, all original title deeds must be deposited with
the mortgagee. Wherever the original documents of title have been lodged for registration,
copies of such documents as certified by the sub-registrar of assurance, alongwith original
lodgement receipt and certified true copy of duly acknowledged letter addressed by the
mortgagor to such sub-registrar instructing him to forward the original documents to the
mortgagee after registration may be accepted.
In cases where the original title deeds are laminated and there is a definite possibility of the
title deeds been torn / damaged in case the lamination is removed, then laminated title deeds
can be accepted without removal of the same from the lamination if the empanelled lawyer
who has given the title / search report to us gives a certificate stating that the documents are
correct as verified from the office of the Sub-Registrar where the documents have been
registered. In addition, a suitable confirmation should be taken separately from the
mortgagor that the laminated copies are authentic and original.
Certified true copies of the receipts for the payment of property tax for the current period
should be obtained in case of buildings situated within municipal limits. Property taxes
constitute a preferential charge on property. Certified true copies of the receipts for the
payment of all dues relating to property should also be obtained. In case of agricultural land,
certified true copies of the latest revenue records should be obtained.
Though no instrument is executed in the case of mortgage by deposit of title deeds, stamp
duty is applicable in certain States on any document or recording, relating to such mortgage
transaction.
Notice of creation of equitable mortgage: A notice of the creation of equitable mortgage can
be sent by the lenders / person holding the charge to the Talathi/Mamlatdar/City Survey
Officer of the concerned Village/Taluk/City/Area, as the case may be, informing him of the
creation of equitable mortgage in favour of such person and requesting him to record their
charge on the property mortgaged and a copy of the record of right should be obtained by the
chargeholder thereafter and kept alongwith the relevant mortgage documents. However, cost
impact may be examined prior to sending of such notices.
Query 44 : What is legal / English mortgage?
Response :
In this type of mortgage, a mortgage deed is executed by the mortgagor. Immoveable and
moveable properties may be covered under such mortgage. In such form of mortgage, the
mortgagor conveys the property in the name of the mortgagee i.e. the lenders / their agent or
trustee, without handing over possession, on the condition that the same would be reconveyed to the mortgagor on payment of the debt. A legal mortgage may be unilateral
(signed only by the mortgagor) or bilateral (signed by both the mortgagor and the bank).
Legal mortgages have to be registered with the sub-registrar of assurances having jurisdiction
over the place where the immoveable property is located. There are restrictions on creation of
legal mortgage by certain individuals outside specified towns.
In case of legal mortgage too, original title deeds should be handed over by the mortgagor to
the mortgagee unless the original title deeds have been deposited already with some other
lender.
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Mortgage deeds need to be stamped as per provisions of the relevant State stamp Act and
registered with the concerned Registrar/ sub-Registrar within a period of 4 months from the
date of the mortgage deed. Registration fee is payable as per the rates prescribed by the
respective States.
Query 45 : Is there a requirement to carry out due diligence before accepting an
immovable property as security?
Response :
The property to be mortgaged must be properly investigated through empanelled solicitors /
advocates and only after the same is certified to be clear, marketable and free from
encumbrances, mortgage should be permitted to be created. The empanelled solicitors /
advocates are required to investigate the mortgagor’s title to the property, including by search
of the relevant land records, and report on the chain of title, transactions / encumbrances /
charges on the property, certificates / clearances / permissions required (including under
Urban Land (Ceiling & Regulation) Act, 1976 (ULCRA), wherever applicable), list of title
deeds to be deposited with the lenders / their agent or trustee, detailed description of the
property, etc. If any defects are pointed out by the aforesaid solicitors / advocates in the title
report, the same should be rectified and got certified by them. If mortgage is created pending
such rectification, then a suitable undertaking cum indemnity should be obtained.
All approvals as may be required for creation of mortgage should be obtained for creation of
effective mortgage.
Query 46 : Is there a requirement to take search report from advocates providing
details of charges on properties / assets to be secured?
Response :
It is advisable to take a search report from advocates which will provide details of any
encumbrances or interest of any nature on the properties / assets proposed to be secured for
the financial assistances by the lenders.
Search Report, i.e. searches at the office of Sub-registrar, Registrar of Companies, of a period
not later than 4 months prior to the date of creation of security is acceptable.
Query 47 : Whether it is permissible to release the title deeds to the security provider /
borrower before the debt is paid off?
Response :
The lenders / their agent or trustee should not part with the title deeds to the mortgagor or his
representative during the currency of the mortgage (including mortgage accepted on behalf of
other creditors) unless all the debt secured is paid off in full to the satisfaction of all the
lenders. In case an inspection of the title deeds is requested by the mortgagor, it may be
permitted under the supervision of the lenders’ authorised official.
Query 48 : What are the points to be noted in case Guarantee is provided as security?
Response :
The Guarantee inter alia provides: an irrevocable and unconditional undertaking to pay on
demand the amounts payable by the Borrower; the guarantor may be treated as the principal
debtor, which generally gives a lender the choice of proceeding against the Guarantor without
necessarily having to proceed against the Borrower (say, where the Borrower is in
liquidation). The standard corporate/personal guarantee specified by the lenders is a
continuing guarantee, where the guarantor’s liability (both as regards period and amount) is
co-terminus with that of the Borrower.
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A guarantor has the right of subrogation, i.e. he is entitled to step into the lender’s shoes (and
have the benefit of any security/other rights available to the lender) only after payment is
made to the lender. A Guarantor is also termed as surety, and the Indian Contract Act
provides that, in certain situations, a surety is released from his liability – e.g. when the
underlying transaction guaranteed by the surety is varied, or when, by an act of the lender, the
security/property available upon subrogation is reduced in any manner. The standard
guarantee contains clauses that provide for the guarantor’s consent upfront in such cases;
however, it is advisable to obtain the guarantor’s/security provider’s consent whenever any
amendment/modification, etc. is made to the facility documents
In case a public company (or a private company which is a subsidiary of a public company) is
providing a guarantee/other security (for financial assistance to borrower), the company is
required to comply with the provisions of S. 372 A of the Companies Act, 1956. The
aforesaid provisions would not be applicable to a guarantee/security provided by a company
to its wholly owned subsidiary, or by a banking company. In case the aforesaid provisions are
not applicable, please obtain a certificate from the company’s statutory auditors / from a
chartered accountant that the provisions of the aforesaid section is not applicable and the
reasons for non applicability. For further details on applicability of S. 372 A of the
Companies Act, 1956 and exemptions thereunder, please refer to such Section in the
Companies Act, 1956
Query 49 : What is the difference between indemnity and guarantee?
Response :
A guarantee involves three parties – the obligor, the beneficiary and the guarantor. There is
assumed to be a contract between the obligor and the guarantor, pursuant to which the
guarantee is issued. In the case of an indemnity, only two parties are involved – the
indemnifier and the indemnified (e.g. in a contract of insurance), and the obligor, if any, need
not be aware of the indemnity. A guarantee is usually payable on demand, without there
being any requirement for the beneficiary to prove any loss. A guarantee is provided as
security against any default by the obligor, and the guarantor may be treated on par with the
principal debtor if provided in the guarantee. An indemnity is normally against the loss
occasioned to the indemnified party in the transaction. An indemnifier is not automatically
entitled to the rights of a surety.
Query 50 : What is a letter of comfort?
Response :
A letter of comfort is provided by a third party in respect of the facility provided to the
borrower. The contents of a letter of comfort may vary, based on the
understanding/negotiation between the parties. A letter of comfort could amount to being a
guarantee, an indemnity or otherwise (i.e. in the form of a mere comfort letter wherein no
financial obligations are undertaken by the third party). Based on the credit comfort that is
required on a case-by-case basis it has to be decided which of the aforesaid functions the
letter of comfort should adopt. It is advisable to ascertain the commercial terms available as
to which of the above roles the letter of comfort is to play and then prepare a letter of comfort
as required.
1. Letter of comfort in the form of a Guarantee: If the comfort required from the third party is
in the form of a guarantee and such entity / person is not willing to execute the guarantee as
per prescribed format, subject to necessary approvals being obtained, a letter of comfort may
be prepared which would act as an equivalent to a guarantee. Such a letter of comfort has to
be issued by the issuer at the instance of the principal debtor and has to incorporate a promise
on the part of the issuer of the letter to pay to / make good to the lenders the financial
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assistances provided / agreed to be provided to the principal debtor upon his default. It may
additionally provide that the liability of the issuer to make payment arises immediately upon
default by the principal debtor.
If a letter of comfort is to provide the same credit comfort as a guarantee and is intended as a
guarantee, then it is imperative that the compliances necessary under Section 372A of the
Companies Act, 1956 are followed and that the letter of comfort is stamped at the relevant
duty applicable to a guarantee. Regardless of the same, the issuance of the letter of comfort is
to be pursuant to a resolution of the board of directors / trustees / members of the issuer in
case the issuer is a company. Since a board resolution may serve as an indicator of the
intention of the issuer in issuing the letter of comfort, care may be taken to ensure that the
intention to guarantee the debt of the principal debtor is evident from the resolution.
2. Letter of comfort in the form of an Indemnity: A letter of comfort may be prepared in the
form of an indemnity if required and in such a situation the issuer of the letter would agree to
reimburse the loss caused to the creditor / the bank pursuant to default by the principal
debtor. The obligation of the issuer here is to reimburse the loss and is not a promise to make
good the debt of the principal debtor upon his default. A guarantee involves three parties –
the surety, the creditor (beneficiary) and the debtor. There is assumed to be a contract
between the surety and the debtor, pursuant to which the guarantee is issued. In the case of
an indemnity, only two parties are involved – the indemnifier and the indemnified (e.g. in a
contract of insurance), and the debtor, if any, need not be aware of the indemnity.
It may be noted that in the case of a guarantee, the surety’s liability is co-extensive to the
liability of the principal debtor and the obligation of the surety to the creditor arises
immediately upon default of the principal debtor. This need not be the case in an indemnity
where the creditor may have to prove that actual loss has occurred before the indemnifier
becomes liable to pay the creditor (this may also give rise to an argument that actual loss can
be averred only once the creditor has exhausted all his remedies against the principal debtor).
For this reason an indemnity may provide a lesser credit comfort than a guarantee.
A letter of comfort in the form of an indemnity would need to be stamped as an indemnity
under the relevant stamping legislation and would also need to be authorised by a resolution
of the Board of directors / members / trustees of the issuer if the issuer is a company.
3. Not a Guarantee / Indemnity but a mere undertaking / comfort: There could also be letters
of comfort, which do not contemplate any obligations on the issuer in the form of a guarantee
or an indemnity and would merely be what they are titled as i.e. ‘letters of comfort’. An
illustration of such a letter of comfort would be where the issuer promises to infuse funds in
the debtor company to ensure that the amounts due to the creditor are satisfied. This is seen to
be purely a "letter of comfort" and not a guarantee / indemnity since the issuer does not
undertake to takeover the obligations or make good the liabilities of the debtor. It provides for
various means by which the issuer may instruct / compel / facilitate the debtor making
payments to the lenders, in case of default by the debtor.
If thus the comfort required by the lenders is merely an assurance that the issuer would
induce the debtor to fulfill his obligations and credit comfort does not mandate issuance of a
guarantee, then the letter can be worded such that it does not contemplate the issuer becoming
answerable for payment of the debt of the principal debtor upon his default. This would
certainly not give the creditor the comfort of a guarantee and thus a considered decision is to
be arrived at based on the credit comfort that is required.
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It is absolutely essential that wherever the Letter of Comfort contemplates a financial
obligation on the part of the issuer company whether as a indemnity/guarantee or
undertakings, the issuance / signing of the same be authorised by a resolution of the board of
directors / members / trustees of the issuer.
Query 51 : What do the terms “first”, “exclusive”, “second”, “subsequent”, “prior”, /
“pari passu” charge mean? Is there a separate process for creation of security for first
charge, exclusive charge, etc.?
Response :
Explanation of the terms:
A first / prior charge means that the person in whose favour mortgage / charge is
created holds charge in priority to other chargeholders.
An exclusive charge means that the person in whose favour mortgage / charge is
created holds charge is only entitled to the charge on the properties / assets secured in
his favour.
A second / subsequent charge means that the person in whose favour mortgage /
charge is created holds charge subsequent to the other chargeholders in whose favour
first charge has been created.
The term “pari passu” means that the chargeholders of the same ranking charge hold
similar rights amongst themselves in relation to the secured properties.
Ranking of charges will normally rank in chronological order – i.e. the priority of charge is
determined by their priority in time. The ranking of charge between the lenders can vary as
per the terms agreed to by each of them; this means that the rights of the lenders vis a vis
between themselves in relation to enforcement proceeds, etc. will depend on the ranking
agreed to by each of them. This priority can be varied by a contract/agreement between the
chargeholders, by ceding prior charge, or by accepting a subsequent charge. Without such
agreement, a charge created later in time (even if designated as a ‘first charge’) will rank
subsequent to any charge created earlier.
Creation of mortgage or charge on any asset by a security provider involves the same
procedure and documentation irrespective of ranking of charge between the lenders /
creditors in whose favour such mortgage / charge is created. However, the documents should
mention the ranking of charge.
A formal letter ceding first / prior / second / subsequent charge on the assets charged in
favour of the lenders / their agent or trustee has to be exchanged. It is also advisable to enter
into a detailed inter se / pari passu arrangements as per prescribed format.
Query 52 : What are the points to be noted in case a leasehold property is to be
mortgaged?
Response :
If a mortgage is sought to be created on a leasehold property, the lease deed must be carefully
scrutinised for power to the lessee to create a mortgage thereon, and if the same is permitted
subject to the consent in writing of the lessor, such consent should be obtained. The consent
should also recognise that a notice period of at least 180 days’ will be provided by the lessor
to the chargeholder/s prior to termination of the lease and that a right will be provided to the
chargeholder/s to cure the default.
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It should be ascertained that the balance period of lease is sufficiently long to cover the
repayment period of the financial assistances. In case where the properties are on lease from
entities such as MIDC etc., a Tripartite Agreement involving the customer, the lenders / their
agent or trustee and the Industrial Estate may also be required to be executed.
The security provider should also procure a latest no due certificate from the lessor and
furnish the same to the chargeholder.
The lease deed should also be scrutinized to verify that there are no restrictive or onerous
clauses affecting the interest of the chargeholders.
A mortgage cannot be created in respect of monthly tenancy of a property or property
occupied on leave and licence basis.
Query 53 : What are certain essential requirements which should be furnished by the
security provider prior to creation of security?
Response :
The security provider should furnish, in addition to the other requirements as may be
specified by the lenders / their agent or trustee, the following :
Title report / search report from an advocate empanelled with the lenders / their agent
or trustee;
Resolutions (eg. under section 293 of the Companies Act, 1956, board resolutions)
Final details of existing financial assistances and charges created by the security
provider on the assets proposed to be secured in favour of the lenders / their agent or
trustee
Letters ceding charge in favour of the lenders / their agent or trustee
Certificate under Section 281(1)(ii) of the Income Tax Act, 1961 for creation of
security on assets as described under such Section
Permission under Urban Land (Ceiling & Regulation) Act, 1976 (wherever
applicable) to create mortgage over the properties
Any other permission / letter from concerned authority / lessor / collector /
government as may be necessary for creation of mortgage
All requirements as may be specified in the title report / search report
Query 54 : What are the different modes for release of security?
Response :
Release of security can be done either on full repayment of the financial assistances / when
the security coverage is in excess of the requirement / upon request by the security provider
and if agreed to by the lenders.
Equitable mortgage / mortgage by deposit of title deeds –
In case of equitable mortgage / mortgage by deposit of title deeds, since there is no written
instrument under which the mortgage has been created, no instrument is required for release
of such security. A letter communicating such release and return of the title deeds will
suffice. It is advisable to take written acknowledgement of receipt of title deeds whilst
returning the same. Care should also be taken to verify and ensure that all the financial
assistances which are secured by mortgage of the underlying property by ways of deposit of
title deeds have been repaid prior to release of title deeds.
In case the security provider is a company, the satisfaction of charge (vide Form 17) should
be filed with the concerned ROC. In case partial security is released, then form 8 for
modification of charge should be filed.
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Process for release of security (either partial or full) as laid down by each lender should be
adhered to.
Legal / English mortgage -In case all the properties secured under the mortgage deed are to be released then a
reconveyance deed should be executed by the chargeholder(s) in favour of the mortgagor and
registered with the concerned sub-registrar of assurances.
In case partial properties are to be released, then a deed of partial release should be executed
by the chargeholder(s) in favour of the mortgagor and registered with the concerned subregistrar of assurances.
Process for release of security (either partial or full) as laid down by each lender should be
adhered to.
Hypothecation, pledge, other types of security –
A letter communicating release of charge / pledge, etc. will suffice. Process for release of
security (either partial or full) as laid down by each lender should be adhered to.
CHAPTER V
DOCUMENTS REQUIRED FOR EXECUTION OF FACILITY AGREEMENT,
DEED OF HYPOTHECATION, MORTGAGE DEED, EXECUTION OF
GUARANTEE, PLEDGE AGREEMENT, CREATION OF EQUITABLE
MORTGAGE,
Documents required fOR execution of facility agreement :
1.
2.
3.
4.
5.
6.
7.
Facility Agreement & General Conditions ( a copy of the General Conditions to be
handed over to the Borrower)
Supplemental & Amendatory Agreement (as applicable)
Board Resolution (applicable for body corporates)
Certified true copy of constitutional documents, eg. Memorandum and Articles of
Association
Resolution under Section 293(1)(a) of the Companies Act, 1956 (if the Borrower is a
company)
Certificate from statutory auditors / chartered accountant (acceptable to the Lead
Bank) certifying the limits available for borrowing and the specific consortium term
loan being within such limits
Other approvals if any for borrowing of the consortium term loan
Documents required fOR execution of deed of hypothecation BY THE BORROWER:
1.
2.
3.
4.
5.
6.
7.
8.
Deed of Hypothecation & Standard Terms as applicable to Deed of Hypothecation
(which is to be handed over to the security provider) OR Supplemental Deed of
Hypothecation
Certified true copy of Board Resolution (applicable for body corporates)
Certified true copy of constitutional documents, eg. Memorandum and Articles of
Association
Resolution under Section 293(1)(a) of the Companies Act, 1956 (if the Borrower is a
company)
Search Report from an empanelled advocate to the effect that the assets to be secured
are free from encumbrances and in case there are encumbrances, then the details of
such encumbrances to be provided
Letters ceding charge in favour of consortium term lenders
Certificate under Section 281(1)(ii) of the Income Tax Act, 1961
Undertaking to create further security & POA (if applicable)
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9.
Any other requirements of the consortium term lenders
If the aforesaid requirements have been submitted already at the time of execution of the
facility agreement and if substantial time gap has not elapsed, then there is no requirement for
re-submitting the same.
The requirements specified in point 2 - 7 will be required at the time of execution of
supplemental deed of hypothecation in case additional assets are required to be secured /
modifications are to be made. In case the earlier resolutions, etc. have suitable provisions for
the above also, then no further requirements are to be complied with.
Documents required fOR execution of mortgage deed BY THE BORROWER / THIRD
PARTY :
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Mortgage Deed & Standard Terms as applicable to Mortgage Deed (which is to be
handed over to the security provider) or Supplemental Mortgage Deed
Certified true copy of Board Resolution (applicable for body corporates)
Certified true copy of constitutional documents, eg. Memorandum and Articles of
Association
Resolution under Section 293(1)(a) of the Companies Act, 1956 (if the Borrower is a
company and if the provisions of such section are applicable)
Certified true copy of resolution under Section 372 (A) of the Companies Act, 1956
(if applicable)
Search Report from an empanelled advocate to the effect that the assets to be secured
are free from encumbrances and in case there are encumbrances, then the details of
such encumbrances to be provided
Letters ceding charge in favour of consortium term lenders
Certificate under Section 281(1)(ii) of the Income Tax Act, 1961
Undertaking to create further security & POA (if applicable)
Any other requirements of the consortium term lenders
If the aforesaid requirements have been submitted already at the time of execution of the
facility agreement and if substantial time gap has not elapsed, then there is no requirement for
re-submitting the same.
The requirements specified in point 2 - 8 will be required at the time of execution of
mortgage deed in case additional assets are required to be secured / modifications are to be
made. In case the earlier resolutions, etc. have suitable provisions for the above also, then no
further requirements are to be complied with.
Documents required fOR CREATION of EQUITABLE MORTGAGE BY THE BORROWER /
THIRD PARTY :
1.
2.
3.
4.
5.
6.
7.
8.
Declaration – to be executed by the security provider
Memorandum of Entry – to be recorded by the Lead Bank
Certified true copy of Board Resolution (applicable for body corporates)
Certified true copy of constitutional documents, eg. Memorandum and Articles of
Association
Resolution under Section 293(1)(a) of the Companies Act, 1956 (if the Borrower is a
company and if the provisions of such section are applicable)
Certified true copy of resolution under Section 372 (A) of the Companies Act, 1956
(if applicable)
Search Report from an empanelled advocate to the effect that the assets to be secured
are free from encumbrances and in case there are encumbrances, then the details of
such encumbrances to be provided
Letters ceding charge in favour of consortium term lenders
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9.
10.
11.
Certificate under Section 281(1)(ii) of the Income Tax Act, 1961
Undertaking to create further security & POA (if applicable)
Any other requirements of the consortium term lenders
If the aforesaid requirements have been submitted already at the time of execution of the
facility agreement and if substantial time gap has not elapsed, then there is no requirement for
re-submitting the same.
The requirements specified in point 3, 4, 5, 6, 7, 8, 9 will be required at the time of execution
of modifications are to be made. In case the earlier resolutions, etc. have suitable provisions
for the above also, then no further requirements are to be complied with.
Documents required fOR execution of GUARANTEE :
1.
2.
3.
4.
5.
6.
7.
Guarantee & Standard Terms as applicable to Guarantee (which is to be handed over
to the security provider)
Certified true copy of Board Resolution (applicable for body corporates)
Certified true copy of constitutional documents, eg. Memorandum and Articles of
Association
Resolution under Section 293(1)(a) of the Companies Act, 1956 (if the Borrower is a
company and if the provisions of such section are applicable)
Certified true copy of resolution under Section 372 (A) of the Companies Act, 1956
(if applicable)
Undertaking to create further security & POA (if applicable)
Any other requirements of the consortium term lenders
If the aforesaid requirements have been submitted already at the time of execution of the
facility agreement and if substantial time gap has not elapsed, then there is no requirement for
re-submitting the same.
Documents required fOR execution of PLEDGE AGREEMENT :
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Pledge Agreement
Certified true copy of Board Resolution (applicable for body corporates)
Certified true copy of constitutional documents, eg. Memorandum and Articles of
Association
Resolution under Section 293(1)(a) of the Companies Act, 1956 (if the Borrower is a
company and if the provisions of such section are applicable)
Certified true copy of resolution under Section 372 (A) of the Companies Act, 1956
(if applicable)
Search Report from an empanelled advocate to the effect that the assets to be secured
are free from encumbrances and in case there are encumbrances, then the details of
such encumbrances to be provided
Letters ceding charge in favour of consortium term lenders
Certificate under Section 281(1)(ii) of the Income Tax Act, 1961
Undertaking to create further security & POA (if applicable)
Any other requirements of the consortium term lenders
If the aforesaid requirements have been submitted already at the time of execution of the
facility agreement and if substantial time gap has not elapsed, then there is no requirement for
re-submitting the same.
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CONCLUSION
Endeavour has been made to provide certain guidelines / tips on various aspects which can be
valuable to the officials dealing with documentation. Users can provide their valuable
suggestions / additions to this handbook to Indian Banks’ Association to make it more fruitful
and useful.
Formats of certain documents for term loan and working capital have been provided by
Indian Banks’ Association on its website. Suggestions / recommendations for additional
formats are welcome and the same can be sent to Indian Banks’ Association for
consideration.
-- §..§ --
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