getting credit - legal rights questionnaire india mumbai · amended sarfaesi act - goo.gl/6tknb2 6....

Getting Credit - Legal Rights Questionnaire – India Mumbai www.doingbusiness.org

Dear Contributor,

We would like to thank you for your participation in the Doing Business project. Your expertise in the area of Getting

Credit Legal Rights in India Mumbai is essential to the success of the Doing Business report, one of the flagship

publications of the World Bank Group that benchmarks business regulations in 190 economies worldwide. The Getting

Credit Legal Rights indicator, which measures rights of secured creditors and borrowers in secured transactions, is one

of the 11 indicator sets published by the Doing Business report.

The report attracts much attention around the world. The latest edition, Doing Business 2017: Equal Opportunity for

All, introduced improvements in the paying taxes and protecting minority investors indicators, and included a gender

component in 3 of 11 Doing Business indicator sets. It received over 7,000 media citations within just a week of its

publication on October 25, 2016 and the report was downloaded almost 40,000 times within that same period. A record

137 economies implemented a total of 283 reforms. Low and middle income countries carried out more than 75% of

these reforms, with Sub-Saharan Africa accounting for 80 of them.

Governments worldwide read the report with interest every year, and your contribution makes it possible for the Doing

Business project to disseminate the regulatory best practices that continue to inspire their regulatory reform

efforts. Since 2010, economies worldwide have implemented 81 reforms improving the strength of legal rights of

borrowers and lenders. In 2015/16, 9 economies implemented such reforms.

We are honored to be able to count on your expertise for Doing Business 2018. Please do the following in completing

the questionnaire:

1. Review the assumptions of the case study before updating last year's information in the questionnaire.

2. Describe in detail any reform that has affected secured creditors and debtors in secured transactions since June

1, 2016.

3. Be sure to update your name and address if necessary, so that we can mail you a complimentary copy of the

report.

4. Kindly return the questionnaire to [email protected].

We thank you again for your invaluable contribution to the work of the World Bank Group.

Sincerely,

Maika Chiquier

Private Sector Development Specialist

Tel: (202) 473-2324

Fax: (202) 473-5758

Email: [email protected]

Magdalini Konidari

Operations Analyst

Tel: (603) 2263-4900

Fax: (603) 2263-4949


Nadine Abi Chakra

Operations Analyst

Tel : (202) 458-9096

Fax: (202) 473-5758


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Doing Business 2018 – Getting Credit – Legal Rights 3

The Getting Credit - Legal Rights indicator measures the legal framework for secured transactions by

examining whether collateral and bankruptcy laws for movable assets facilitate lending.

IMPORTANT: This questionnaire is divided into four sections: Section 1 focuses on reform updates, Section 2 on

the secured transactions system in general, Section 3 on the case study assumptions, and Section 4 on non-

possessory security interests in movable property.

Section 1. Reform Updates

Reforms of secured transactions and insolvency laws

a. Have there been any reforms or amendments of secured transactions law(s) or regulations in your

economy between June 1, 2016, and now? (Please describe in detail, including the date of adoption, the date of

official publication in the official gazette if this is required, and the date of entry into force. We would greatly

appreciate it if you could also send us an electronic copy of the law.)

1. The Department of Financial Services (DFS) has amended the Securitization and Reconstruction

of Financial Assets and Enforcement of Security Interest (Central Registry) Amendment Rules, 2016.

The amendment modifies Rule 4(2A) to (2D) to include additional types of charges, including:

(i) "security interest in immovable property by mortgage other than deposit of title deeds";

(ii) "security interest in hypothecation of plant and machinery, stocks, debt including book debt or

receivables"; "security interest in intangible assets, being know-how, patent, copyright, trademark or

any other business or commercial right of similar nature"; and

(iii) "Security interest in any under construction residential or commercial building or a part thereof".

This amendment allows Central Registry of Securitization Asset Reconstruction and Security Interest

i.e. CERSAI to register the charges/security interests created on the aforesaid additional properties. Over

100,000 charges on movables have been registered thus far on CERSAI.

CERSAI Rules- URL: goo.gl/9Vo4p6

2. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous

Provisions (Amendment) Act, 2016 introduced Section 26E in the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act, 2002 (―SARFAESI Act. Section 26E is a

non obstante clause and provides that after the registration of security interest, the debts due to a secured

creditor shall be paid first over all other debts and all revenues, taxes, cesses and other rates payable to

the Central Government or State Government or local authority. Amended SARFAESI Act -

goo.gl/6TKNb2

3. In cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of

the borrower, priority to secured creditors in payment of debt shall be governed by the Insolvency and

Bankruptcy Code, 2016. The Insolvency and Bankruptcy Code, 2016 became effective from 28 May

2016. The order of priority in which the liquidation proceeds will be paid is provided under Section 53

of the code which states as under:

(i) Insolvency related costs

(ii) Secured creditors and workmen dues upto 24 months

(iii) Other employee‘s salaries/dues up to 12 months

(iv) Financial debts (unsecured creditors)

(v) Government dues (up to 2 years)

(vi) Any remaining debts and dues

(vii) Preference shareholders

(viii) Equity shareholders.

URL for Insolvency and Bankruptcy Code, 2016 - goo.gl/LzxgUz


Provisions (Amendment) Act, 2016 amended Section 23 of the SARFAESI Act. Section 23 in Chapter

IV of the SARFAESI Act provides for registration of different types of security interest created on

different kinds of property as may be notified by Central Government. This reform facilitates the

creation of an integrated legal framework for secured transactions that extends to the creation, publicity

and enforcement of fiduciary transfers of title; financial leases; assignments or transfers of receivables;


and sales with retention of title to security interests in movable assets. Amended SARFAESI Act -

goo.gl/6TKNb2


Provisions (Amendment) Act, 2016 introduced Section 26B of the SARFAESI Act. Section 26B in

‗New Chapter IVA – Registration by Secured Creditors and Other Creditors' extends the provision of

registration to all creditors other than secured creditor for creation, modification or satisfaction of any

security interest over any property of the borrower for the purpose of securing due repayment of any

financial assistance granted by such creditor to the borrower. Amended SARFAESI Act -

goo.gl/6TKNb2


Provisions (Amendment) Act, 2016 introduced Section 20A of the SARFAESI Act. Section 20A in

Chapter IV of the SARFAESI Act provides for integration of records registered with various registration

systems. The Central Registry (i.e. CERSAI) shall have the complete database of security interest on

property rights. Amended SARFAESI Act -goo.gl/6TKNb2


Provisions (Amendment) Act, 2016 introduced Section 26D of the SARFAESI Act. Section 26D in

‗New Chapter IVA – Registration by Secured Creditors and Other Creditors‘ provides that no secured

creditor shall be entitled to exercise the rights of enforcement of securities unless the security interest

created in its favour by the borrower has been registered with the Central Registry. Thus, it makes it

mandatory for a secured creditor to register the security interests with Central Registry (i.e. CERSAI) to

enforce the rights over them. Amended SARFAESI Act - goo.gl/6TKNb2

8. Under Section 13 of the Insolvency and Bankruptcy Code, 2016, NCLT has the power to issue

an order to declare a moratorium period for prohibiting all of the following, namely:—

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor

including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or

other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any

legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in

respect of its property including any action under SARFAESI Act, 2002

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the

possession of the corporate debtor. Amended SARFAESI Act - goo.gl/6TKNb2


Provisions (Amendment) Act, 2016 introduced Section 2(1)(zf) of the SARFAESI Act. Section 2(1)(zf)

provides for definition of security interest and the definition also covers the title sale within its ambit.

Amended SARFAESI Act - goo.gl/6TKNb2

New Questions incorporated in DBR 2018

10. The law of the land does not discriminate on the ground of gender and there is no bar for

women's personal property to be given as a collateral for a loan taken for commercial activities.

11. As per Section 7 of the Transfer of Property Act, 1882 every person competent to contract and

entitled to transferable property or authorised to dispose of transferable property not his own, is

competent to transfer such property, either wholly or in part and either absolutely or conditionally.

Accordingly, even the personal property such as jewellery, household applicances, etc, may be given as

a collateral. URL: goo.gl/R9bnGN

b. Are you aware of any plans to change the secured transactions and insolvency law(s) by June 1, 2017, or

in the near future? (Please describe in detail, providing dates when possible.)


IMPORTANT: This section of the questionnaire focuses on the secured transactions system as a whole in

reference to both incorporated and non-incorporated entities. (Debtors that are incorporated entities are understood

as separate legal entities incorporated through a registration process established through legislation. Non-

incorporated entities are considered non-registered partnerships, sole proprietorships and individuals).

Section 2. Secured Transactions System

Integrated and functional approach to secured transactions (Secured transactions are here understood as all transactions that create a right in any type of asset meant to

secure the performance of an obligation. For the purposes of our study the focus is on non-possessory security

interests, fiduciary transfer of title, financial leases, assignment of receivables and sales with reservation of title.)

For both incorporated and non-

incorporated debtors

Last year's answers

For both incorporated and non-

incorporated debtors

This year's answers

a. Which regulation, if any,

covers fiduciary transfer of

title? (Fiduciary transfer is

understood here as transfer of

ownership for security purposes

until the debt is extinguished.

The debtor may retain

possession of the assets. An

example: Company/individual

“A” transfers the title of

machine “B” to bank “C” as

security for the loan and expects

to retrieve ownership following

payment of the debt.)

Movable property : No specific

statute. Interpreted and regulated

according to general law of

contract.

Yes, the fiduciary transfer of title is

covered under the Securitisation

and Reconstruction of Financial

Assets and Enforcement of Security

Interest Act, 2002 (SARFAESI Act,

2002).

The SARFAESI Act has been

amended in 2016, whereby the

definition of ―Security interest‖

under section 2(1) (zf) has been

broadened to cover any right, title or

interest of any kind upon property

both tangible and intangible created

in favour of any secured creditor.

Amended SARFAESI Act -

goo.gl/6TKNb2

b. Do fiduciary transfers of

title have to be registered to be

enforceable against third

parties? If yes, please specify

the name of the registry.

Yes for movable property with

Registrar of Companies Yes, for enforcement of the security

interest, it needs to be registered

with the Central Registry under

Section 26D of the SARFAESI Act,

2002.

Also, charge created on the assets of

the companies needs to be registered

with Registrar of Companies.


goo.gl/6TKNb2

c. Which regulation, if any,

covers financial lease

agreements? (An example:

Company/individual “A” agrees

to lease machine “B” from

company “C”. The lease

agreement guarantees the use of

the vehicle and guarantees that

“C” receives regular payments

from “A” for a specified period

of time. Both “A” and “C” must

uphold the terms of the contract

for the lease to remain valid.)

No regulation expressly covers the

financial lease agreements, it is

covered under the general law of

contracts i.e Indian Contract Act,

1872

The financial lease agreements are

covered under the amended

SARFAESI Act, 2002. The

definition of debt, borrower,

financial assistance, security

interest, etc. under Section 2 has

been accordinglt amended to include

financial lease within its ambit.


goo.gl/6TKNb2

d. Do financial leases have to Financial leases for movable assets Yes, after the amendment in the


be registered to be enforceable

against third parties? If yes,

please specify the name of the

registry.

do not have to be registered to be

valid. SARFAESI Act, the security

interests created on financial lease

would be required to be registered in

Central Registry (i.e. CERSAI) to be

enforceable. Refer Section 26B(2)

where the creditors secured or

unsecured are required to register

any security interest (including

financial lease). Amended

SARFAESI Act - goo.gl/6TKNb2

e. Which regulation, if any,

covers assignment of

receivables and outright

transfer of receivables?

(Assignment of receivables is

understood here as the creation

of a security right in a receivable

that secures the performance of

an obligation. Although outright

transfers of receivables are

transfers not intended to secure

an obligation, for convenience of

reference the term is included in

the assignment of receivables.

An example:

Company/individual "A" assigns

its accounts receivable "B" to

lending company "C" in return

for a loan. Company "C" gets

the right to collect the

receivables if "A" fails to repay

the loan in time.)

In case of assignment of receivables

to a "factor", Factoring Regulation

Act 2011 covers the law of

assignmen

The Factoring Act Rules 2011

covers the assignment of receivables

and outright transfer of receivables.

URL: goo.gl/Yd9YZJ

Further, the SARFAESI Act has

been amended in 2016, whereby the

definition of ―Security interest‖ at

section 2(1) (zf) has been broadened

to cover the assignment of

receivables. Amended SARFAESI

Act -goo.gl/6TKNb2

f. Do assignments of

receivables and outright

transfers of receivables have to

be registered to be enforceable

against third parties? If yes,

please specify the steps of the

notification process or the

name of the registry.

Notifying the assignment to the

debtor is governed by the terms of

the underlying transaction.

Yes, every factor is required to

register the assigment of receivables

in his favour with Central Registry

(i.e. CERSAI) as per Rule 3 of The

Registration of Assignment of

Receivables Rules, 2012. URL:

goo.gl/Yd9YZJ

g. Which regulation, if any,

covers retention-of-title

sales?(An example: The title of

inventory remains vested with

seller “A” until the purchase

price has been paid in full by

buyer company/individual “B”.)

Retention of title sale is subject

matter of contract and will have to

be expressly provided for in the

underlying documentation. Other

than Indian Contract Act, 1872, the

Sale of Goods Act, 1830 (if the asset

falls within the definition of

"goods", i.e. a moveable property)

The SARFAESI Act has been

amended in 2016, whereby the

definition of ―Security interest‖ at

section 2(1) (zf) has been broadened

to cover the title sale.


goo.gl/6TKNb2 The SARFAESI Act has been amended in 2016, whereby the definition of ―Security interest‖ at section 2(1) (zf) has been broadened

h. Do retention-of-title sales

have to be registered to be

enforceable against third

parties? If yes, please specify

the name of the registry.

No Yes, the retention-of-title sales

needs to be registered with Central

Registry (i.e. CERSAI)

i. Does the law allow for

women’s personal property to

be given as a collateral for a

loan taken for commercial

activities?

New question. Please provide an

answer Yes, the law of the land does not

discriminate on the ground of gender

and there is no bar for women's

personal property to be given as a

collateral for a loan taken for


commercial activities.

j. If yes, can such personal

property as:

(i) jewelry;

(ii) household appliances; and

(iii) furniture be given as a

collateral?

Please provide the article of

law.

New question. Please provide an

answer Yes, as per Section 7 of the Transfer

of Property Act, 1882 every person

competent to contract and entitled to

transferable property or authorised

to dispose of transferable property

not his own, is competent to transfer

such property, either wholly or in

part and either absolutely or

conditionally. Accordingly, even the

personal property such as jewellery,

household applicances, etc, may be

given as a collateral.

goo.gl/R9bnGN

Did you make any changes from last year‘s answers?

Yes

If yes, please indicate whether the changes reflect a correction (specify when the relevant provision was put into

place) or a reform (specify the date of entry into effect) and explain.

Reform

Comments:

The SARFAESI Act, 2002 has been amended vide The Enforcement of Security Interest Act and Recovery of Debts

Laws and Miscellaneous Provisions (Amendment) Act, 2016 which was notified on 16 August 2016 and the

reforms listed in Section1 : Reform Update were undertaken with this amendment. Amended SARFAESI Act -

goo.gl/6TKNb2


Section 3. Case Study Assumptions

REMINDER: For the following sections, please base your answers on non-possessory security interests in movable

property—or, if these are not allowed in your economy, on fiduciary transfer-of-title arrangements.

CASE STUDY

ABC (the Debtor): 1. Is a Private Limited Company. The company has 50–100 employees and is an incorporated entity.

2. Is 100% domestically owned.

3. Has its registered office and only base of operations in Mumbai.

BizBank (the Creditor):

Is a commercial bank that is 100% domestically owned.

SCENARIOS

Note: Please consider Scenario A or B (as indicated) when completing section 4 on non-possessory security

interests. This will allow us to measure the flexibility of your economy’s secured transactions system.

Scenario A: Security interest in ONE

CATEGORY of movable assets

Scenario B: Security interest in the company’s

COMBINED movable assets

As collateral for a loan ABC grants BizBank

a non-possessory security interest in one

category of revolving movable assets, for

example its accounts receivable or inventory.

ABC keeps ownership and possession of the

assets.

ABC grants BizBank a business charge,

enterprise charge, floating charge or any other

charge that gives a security interest over

ABC‘s combined assets.

ABC keeps ownership and possession of the

assets.


Section 4. Non-possessory Security Interests

Please update the data, taking into account the assumptions of the case study. For your convenience, last year‘s

answers are included in this part of the questionnaire. They represent a unified answer based on the inputs we

received from various contributors last year.



1. Assets and their description

1.1 Please answer the following questions based on Scenario A: Security interest in ONE CATEGORY of

movable assets

Last year's answer This year's answer

a. Can ABC (the Debtor)

grant BizBank (the Secured

Creditor) a non-possessory

security interest over only

its accounts receivable (e.g.,

the amounts that ABC expects

to receive from third-party

buyers for goods or services

that ABC sold to them) or

the outstanding debts owed

to ABC by third parties?

Yes Yes

a. 1. According to the law,

can the accounts receivable

or outstanding debts be

described in general terms (e.g., “all accounts

receivable”) both in the

security agreement and

when the security interest is

registered, or do they need

to be specified with

particularity?

Yes, account receivables can

be described in general terms

both in security agreement as

well as when it is registered.

Account receivable comes

within the ambit of Financial

Asset as defined under

Section 2 (1)(l) of the

Securitisation and

Reconstruction of Financial

Assets and Enforcement of

Security Interest Act,2002

(SARFAESI Act). Hence,

general description is

allowed by law in security

agreement

Yes

Account receivables can be described in general

terms both in security agreement as well as when

it is registered. Account receivable comes within

the ambit of Financial Asset as defined under

Section 2 (1)(l) of the SARFAESI Act, 2002.

Hence, general description is allowed by law in

security agreement.

URL:goo.gl/C4y49h

b. Can ABC (the Debtor)




its inventory?

Yes Yes

b. 1. Are there any major

restrictions or requirements

prescribed by law when

using inventory as security? (e.g., preserving the

stipulated value of inventory,

specifically describing the

storage location, updating

lists)

No No

b. 2. According to the law,

can the inventory be

described in general terms

General description is

allowed by law

Yes

General description is allowed by law.


(e.g., “all laptop inventories”

rather than “PXS laptop,

serial number 3278632,

metal-colored, 14-inch

screen”) both in the security

agreement and when the

security interest is

registered?

c. Can ABC (the Debtor)




its tangible movable

property? (e.g., machinery,

furniture, livestock, crops,

etc.)

Yes Yes

c. 1. According to the law,

can tangible movable

property be described in

general terms (e.g., “300

head of Hereford cattle”

rather than “Roger Prime

Blue Ribbon Hereford bull,

tattoo #125, breeding registry

#456”) both in the security



registered?


allowed by law, but the

property needs to be

identifiable

Yes

General description is allowed by law, but the

property needs to be identifiable


No


place) or a reform (specify the date of entry into effect) and explain

-Click to Select-

Comments:


1.2 Please answer the following questions based on Scenario B: Security interests in a COMBINED

CATEGORY of movable assets


a. According to the law, can

ABC (the Debtor) grant

BizBank (the Secured

Creditor) a security interest

in a combined category of

assets (e.g. a floating charge

or an enterprise charge)?

Yes Yes

b. According to the law, is

there a limitation on the

assets that can be included

in this security interest? (e.g., collateral is accessory

to a mortgage, specific

description of location of

movables, updating of lists of

collateral upon change, limit

in value)

No No

c. According to the law, can

this collateral be described

in general terms (e.g., “all

combined assets of the

enterprise”) both in the

security agreement and

when the security interest is

registered?


allowed by law

Yes


No



-Click to Select-

Comments:


1.3 Can ABC (the Debtor) use the following movable assets to secure a loan?


a. Can ABC (the Debtor)

use the following movable

assets to secure a loan:

future assets (e.g., ABC

knows that it will receive a

fleet of trucks in the future

and uses them as collateral)

and after-acquired property (e.g., property that it has not

yet acquired and that it may

never acquire, or present and

future inventory)?

Yes. As per Section 2(1)(n) of

the Securitisation and

Reconstruction of Financial

Assets and Enforcement of

Security Interest Act, 2002

future assets may be used as

a collateral.

Yes

As per Section 2(1)(n) of the Securitisation and

Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002

future assets may be used as a collateral.

SARFAESI Act - goo.gl/C4y49h

b. By law, does the security

interest automatically

extend to “products,

proceeds and replacements”

of the original collateral?

Does it apply to Scenarios A

and B? (An example: If the

original collateral is a pile of

lumber, the products of this

asset could be the wooden

furniture made from it; the

proceeds could be the money

received from selling the

furniture or the lumber; and

the replacements could be

another pile of lumber given

in replacement after the

original pile of lumber was

destroyed.)

Yes Yes


No



-Click to Select-

Comments:




2. Debts and Obligations


a. Can present and future

debts and obligations be

secured in Scenario A and

Scenario B?

Yes. Present as well as future

obligations may be secured

by charges.

Yes

Present as well as future obligations may be

secured by charges.

b. Can all types of

conditional, monetary and

non-monetary debts and

obligations be secured in

Scenario A and Scenario B?

Yes Yes

c. By law, can the

obligations be described in

general terms (e.g., “all

obligations between the

parties,” or “obligations of a

debt of up to US$1,000,000

[as in a line of credit]; the

obligations will fluctuate

under that threshold without

requiring a new agreement

every time a new obligation is

created”) in the security



registered? If no, please

indicate what the

description requirements

are.

Yes Yes


No



-Click to Select-

Comments:




3. Collateral Registry

3.1 Please provide the following information on the collateral registry if applicable.


a. Please name the

registry (or registries)

where BizBank’s security

interest would be

registered in Scenario A

and Scenario B.

Registrar of Company as

per Section 81 of the

Companies Act 2013, shall,

in respect of each

company, cause to keep a

register containing the

particulars of all the

security interest for which

registration is required.

Thus, BizBank's security

interest would be

registered in Registrar of

Company (ROC) in

Scenario A and Scenario B.

The particulars of the

charge created by a

company are required to

be filed with the relevant

Registrar of Companies.

The said particulars are

maintained in the register

of charges on the Ministry

of Corporate Affairs portal

which is accessible at:

http://www.mca.gov.in/MC

A21/ The security interest

must also be registered

with Central Registry of

Securitisation Asset

Reconstruction and

Security Interest of India

under Section 23 of the

Securitisation and

Reconstruction of

Financial Assets and

Enforcement of Security

Interest Act, 2002 read

with Securitisation and

Reconstruction of



Interest (Central Registry)

Rules, 2011. However, as

per Section 20 (4) of the

Securitisation and

Reconstruction of


1. The security interest must be registered

with Central Registry of Securitisation Asset

Reconstruction and Security Interest of India

under Section 23 of the SARFAESI Act,

2002 read with Securitisation and

Reconstruction of Financial Assets and

amended Enforcement of Security Interest

(Central Registry) Rules, 2011. Further, as

per Section 26D of Chapter IVA of the

SARFAESI Act, no secured creditor shall be

entitled to exercise the rights of enforcement

of securities unless the security interest

created in its favour by the borrower has

been registered with the Central Registry.

Thus, BizBank's security interest would be

registered in CERSAI in Scenario A and

Scenario B. Amended SARFAESI Act -

goo.gl/6TKNb2

2. Further, Registrar of Company as per

Section 81 of the Companies Act 2013, shall,

in respect of each company, cause to keep a

register containing the particulars of all the

security interest for which registration is

required. Thus, BizBank's security interest

would be registered in Registrar of Company

(ROC) in Scenario A and Scenario B. The

particulars of the charge created by a

company are required to be filed with the

relevant Registrar of Companies. The said

particulars are maintained in the register of

charges on the Ministry of Corporate Affairs

portal which is accessible at

http://ebook.mca.gov.in/



Interest Act, 2002, failure

to register a charge with

this registry will not impact

the validity or the priority

of the charge registered

under the Companies Act,

1956 and registration of

the charge with this

registry is not a

prerequisite to enforcing

the charge under Section

13 of the Securitisation and

Reconstruction of



Interest Act, 2002.

b. Please provide the

website address and

phone number for the

main collateral registry

for movable property.

The centralised database

can be accessed at

www.mca.gov.in. The

following are the contact

details of the main

collateral registry:

Registrar of Companies,

Mumbai Everest 5th Floor

100 Marine Drive Mumbai

- 400002 Phone: 022-

22812627,

22020295/22846954 Fax:

022-22811977 Email:

[email protected]. The

Central Registry can be

accessed at

www.cersai.org.in and

emailed at

[email protected]. It

has its office at 5th Floor,

MTNL Telephone

Exchange Building, 8

Bhikaji Cama Place, New

Delhi - 110066.Phone: 011

- 26176856011 -

26176855011 - 26176847

1. The Central Registry can be accessed at

www.cersai.org.in and emailed at

[email protected]. It has its office at

5th Floor, MTNL Telephone Exchange

Building, 8 Bhikaji Cama Place, New Delhi -

110066.Phone: 011 - 26176856011 -

26176855011 - 26176847

2. The centralised database can be accessed

at www.mca.gov.in. The following are the

contact details of the main collateral registry:

Registrar of Companies, Mumbai Everest 5th

Floor 100 Marine Drive Mumbai - 400002

Phone: 022-22812627, 22020295/22846954

Fax: 022-22811977 Email:

[email protected].

3.2 What are the features of the collateral registry?


a. Must BizBank register its

non-possessory security

interest for the security

interest to be valid? Must it

do so for the security

interest to be enforceable

against third parties?

Under Section 77 of the

Companies Act 2013 every

company creating a charge

within or outside India, on its

property or assets or any of

its undertakings, whether

tangible or otherwise, and

situated in or outside India is

Yes

1. Under Section 26D of the SARFAESI Act will

overide all provisions of any other law in force

and secured creditor shall be entitled to exercise

the rights of enforcement of securities under

Chapter III only when the security interest

created in its favour by the borrower has been


required to register the

particulars of the charge with

the relevant Registrar of

Companies in accordance

with the provisions stipulated

under the Companies

(Registration of Charges)

Rules 2014. It may be

pertinent to note that no

charge created by a company

shall be taken into account by

the liquidator or any other

creditor of the company

unless the charge has been

duly registered in accordance

with the provisions of the

Companies Act, 2013 and the

rules thereunder. The

particulars of the charge

created by a company are

required to be filed with the

relevant Registrar of

Companies. The said

particulars are maintained in

the register of charges on the

Ministry of Corporate Affiars

portal which is accessible at:

http://www.mca.gov.in/MCA2

1/

registered with the Central Registry. Amended


2. Further, under Section 77 of the Companies

Act 2013 every company creating a charge

within or outside India, on its property or assets

or any of its undertakings, whether tangible or

otherwise, and situated in or outside India is

required to register the particulars of the charge

with the relevant Registrar of Companies in

accordance with the provisions stipulated under

the Companies (Registration of Charges) Rules

2014. It may be pertinent to note that no charge

created by a company shall be taken into account

by the liquidator or any other creditor of the

company unless the charge has been duly

registered in accordance with the provisions of

the Companies Act, 2013 and the rules

thereunder. The particulars of the charge created

by a company are required to be filed with the

relevant Registrar of Companies. The said

particulars are maintained in the register of

charges on the Ministry of Corporate Affiars

portal which is accessible

at:http://ebook.mca.gov.in/default.aspx

It may be pertinent to note that no charge created

by a company shall be taken into account by the

liquidator or any other creditor of the company

unless the charge has been duly registered in

accordance with the provisions of the Companies

Act, 2013 and the rules thereunder.

The particulars of the charge created by a

company are required to be filed with the

relevant Registrar of Companies.

The said particulars are maintained in the register

of charges on the Ministry of Corporate Affairs

portal which is accessible at:

http://ebook.mca.gov.in/default.aspx

b. Is the registry in

operation?

Yes Yes

c. Is this a notice-based

registry? (That is, no

documents, such as a copy of

the contract, need to be

submitted and the registry

does not verify the legality of

the transactions.)

No. the particulars of the

charge together with a copy

of the instrument

creating/modifying such

charge (if any) are required

to be filed with the relevant

Registrar of Companies in the

prescribed forms.

No

No. the particulars of the charge together with a

copy of the instrument creating/modifying such

charge (if any) are required to be filed with the

relevant Registrar of Companies in the prescribed

forms.

d. Who can perform the

registration? (e.g., the

secured creditor, its

representatives)

The primary obligation is on

company creating/modifying

the charge to file the

particulars thereof with the

Registrar of Companies

within 30 days of the

creation/modification of such

charge.

Yes

1. As per Section 26B in ‗New Chapter IVA –

Registration by Secured Creditors and Other

Creditors‘ the registration with CERSAI is

extended to all creditors other than secured

creditor for creation, modification or satisfaction

of any security interest over any property of the

borrower for the purpose of securing due

repayment of any financial assistance granted by

such creditor to the borrower. Amended



2. As per Section 77 of the Companies Act, 2013,

the primary obligation is on company

creating/modifying the charge to file the

particulars thereof with the Registrar of

Companies within 30 days of the

creation/modification of such charge.

http://ebook.mca.gov.in/default.aspx

e. When is a new

registration reflected and

retrievable in the database?

Please provide an estimate (e.g., within 1 hour, 24 hours,

3 business days, etc.).

The filing process can be

completed within 1 hour but

the data is reflected and

retrievable in 2-3 working

days timeframe.

Yes

The filing process can be completed within 1

hour but the data is reflected and retrievable in 2-

3 working days timeframe.

f. Does the registry cover all

types of security interests in

movable assets (other than

vehicles, ships, aircraft or

intellectual property)?

Yes Yes

g. Is the collateral registry

limited to security interests

granted by certain types of

borrowers or creditors? (e.g., incorporated entities,

only individuals, commercial

banks)

Yes. The registration relates

to the charges

created/modified by

companies only.

No

The registration with the Registrar of Companies

is applicable only for companies. However, as

per Section 26B of the SARFAESI Act, 2002

(Chapter IV A), the provisions for registration of

security interest is also extended to creditors

other than the secured creditors. Amended


h. Can everyone access the

data in the registry without

restriction from any

geographic location in the

economy?

Yes. However, prescribed

fees/charges may be payable

for the inspection of the

documents filed with the

Registrar of Companies.

Yes

However, prescribed fees/charges may be

payable for the inspection of the documents filed

with the CERSAI and Registrar of Companies.

i. Is the collateral registry

(the database) either

centralized geographically

for the entire economy or

linked among different

geographic regions within

the economy?

Yes. The collateral registry is

linked among different

geographical regions within

the economy, it is an

electronic database

Yes

The collateral registry is linked among different

geographical regions within the economy, it is an

electronic database

j. Does the collateral

registry have an online

system for registrations,

amendments, renewals,

cancellations and searches

of security interests?

Yes Yes

k. Does the registry have an

electronic database

searchable online by

debtor’s name?

Yes Yes


Yes



Reform

Comments:


The SARFAESI Act, 2002 has been amended vide The Enforcement of Security Interest Act and Recovery of

Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 which was notified on 16 August 2016 and the


goo.gl/6TKNb2




4. Priority of Claims Outside of Insolvency or Bankruptcy Assumption: ABC has defaulted on its loan but has not entered any kind of formal insolvency or bankruptcy

procedure.


a. Does BizBank have

absolute priority over all

other creditor claims that

were never registered or

that were registered

afterward in both Scenarios

A and B before any court

proceedings are initiated? (In other words, is the

secured creditor with a

pledge paid before any other

possible creditor claim, such

as labor wages or state

taxes?)

No Yes

As per Clause 26E under Chapter IV A of the

SARFAESI Act, 2002 provides that the debts due

to secured creditor shall rank in priority over all

other debts. Note that this clause is a nonobstante

clause and it shall override any other section of

any law which is in force. Amended SARFAESI

Act - goo.gl/6TKNb2

b. If not, please provide the

priority rankings of

different types of creditor

claims. (Please note that

since the debtor is outside

any insolvency or bankruptcy

procedure, the relevant

articles might be found in

different laws, such as the

labor code or tax law.)

Since ABC is not in formal

insolvency proceedings,

sections 529/529A of the

Companies Act will be

inapplicable. However,

several Central and State

taxation laws provide for

overriding priority to the

claims of governments under

the respective laws - for

example, central excise,

customs, employee provident

funds, employee state

insurance, etc.

-Click to Select-

NA


Yes



Reform

Comments:




goo.gl/6TKNb2




5. Priority Rules within Insolvency or Bankruptcy Proceedings Assumption: ABC is now in a formal insolvency or bankruptcy procedure and creditors have been invited to file

claims.


a. Does BizBank’s secured

claim have absolute priority

over the claims of all other

creditors, including the

state and employees, in both

Scenarios A and B? (In

other words, is the secured

creditor paid before any other

possible creditors with

claims?)

No, labour creditors have a

pari passu security over the

property.

In addition to this, certain

claims that have been given

priority under a overriding

statutory provision will rank

higher than the claims of a

secured creditor of a

company in liquidation (for

instance claims under Section

11(2) of the Employees'

Provident Funds and

Miscellaneous Provisions

Act, 1952

Yes

As per Section 26E of the SARFAESI Act, 2002.

Notwithstanding anything contained in any other

law for the time being in

force, after the registration of security interest,

the debts due to any secured creditor

shall be paid in priority over all other debts and

all revenues, taxes, cesses and other

rates payable to the Central Government or State

Government or local authority (URL:

goo.gl/6TKNb2). However, in cases where

insolvency or bankruptcy proceedings are

pending in respect of secured assets of the

borrower, priority to secured creditors in

payment of debt shall be governed by Section 53

of the Insolvency and Bankruptcy Code, 2016

(goo.gl/LzxgUz)-

•• Insolvency related costs

•• Secured creditors and workmen dues upto 24

months

•• Other employee‘s salaries/dues up to 12

months

•• Financial debts (unsecured creditors)

•• Government dues (up to 2 years)

•• Any remaining debts and dues

•• Equity

b. Do labor claims (e.g.,

wages) have priority over

BizBank’s secured claim

even if they were never

registered or were

registered afterward?

No, as per Section 326 of the

Companies Act, 2013 labour

claims have pari passu

interest as claims of secured

creditors. In case of winding

up of the company, if the

assets are insufficent to meet

the labour claims and the

secured claims, then in that

case workmen dues and

secured creditor's claims

abate in equal

proportion.However, the

claims that enjoy priority

under statutory provisions

having an overriding effect

over all other laws will rank

higher than the claims of

secured creditors.

No

As per Section 26E of the SARFAESI Act, 2002,

secured creditor shall be paid in priority over all

other debts and government taxes, cesses.


Further, in case where insolvency and

bankruptcy proceedings are pending, the

workmen dues upto 24 months would have pari

passu interests as claims of secured creditors (i.e.

paid along with secured creditots claim). While

the other employee's salaries/dues upto 12

months would be paid after the secured creditors

dues. URL: goo.gl/LzxgUz

c. Do state claims (e.g.,

taxes) have priority over

BizBank’s secured claim

even if they were never

No No

As per Section 26E of the SARFAESI Act, 2002,

secured creditor shall be paid in priority over all


registered or were

registered afterward?

other debts and government taxes, cesses.


d. Does the law provide for

an actual ranking of claims

during a bankruptcy

procedure (e.g., 1.

bankruptcy costs; 2. labor

claims; 3. tax claims; 4.

secured creditors; 5.

judgment claims)? If yes,

please provide the rankings.

No. As a legal principle, a

secured creditor has priority

over all other creditors and

claimants and for recovery of

secured loan he has the right

to enforce the securities and

realize the secured loan. In

the event of insolvency or

winding up proceedings

against the borrower, the

secured creditor has a right

to remain outside such

proceedings and enforce the

securities. There is however

no fixed procedure or ranking

as such under Indian Laws

for ranking of claims during a

bankruptcy proceeding.

Yes

In cases where insolvency or bankruptcy

proceedings are pending in respect of secured

assets of the borrower, priority to secured

creditors in payment of debt shall be governed by

Section 53 of the Insolvency and Bankruptcy

Code, 2016 -

•• Insolvency related costs

•• Secured creditors and workmen dues upto 24

months

•• Other employee‘s salaries/dues up to 12

months

•• Financial debts (unsecured creditors)

•• Government dues (up to 2 years)

•• Any remaining debts and dues

•• Equity

URL:goo.gl/LzxgUz


Yes



Reform

Comments:




goo.gl/6TKNb2

Further, the Insolvency and Bankruptcy code is also effective which provides for list of priority of payment of dues.

goo.gl/LzxgUz




6. Secured Creditors’ Exemption from Automatic Stays in Reorganization


a. Is a judicial

reorganization procedure

available, either within a

general insolvency or

bankruptcy procedure or as

a separate process? (Please

do not consider informal

workouts. If there is no

judicial reorganization

procedure available, consider

only a general insolvency or

bankruptcy procedure.)

Yes Yes

b. If there is more than one


available, please indicate

which would be the most

commonly used in your

jurisdiction, taking into

account the assumptions of

our case study.

There are four reorganisation

procedures available: (i)

Corporate Debt

Restructuring (CDR) under

the guidelines issued by the

Reserve Bank of India;

There are four reorganisation

procedures available: (i)

Corporate Debt

Restructuring (CDR) under

the guidelines issued by the

Reserve Bank of India; (ii)

Section 230 of the Companies

Act, 2013 (National Company

Law Tribunal to order

compromise or make

arrangements with

creditors);(iii) Section 13

SARFAESI Act, 2002

(Enforcement of Security

Interest);(iv) Rsetructuring of

Sick Companies under

Chapter XIX of the

Companies Act, 2013 which

deals with revival of sick

companies. Of the above four

procedures, (i) is the most

preferred procedure for large

corporates (iii) is also very

significant is also used

commonly used in the

economy.

No

As per the Insolvency and Bankruptcy Code,

2016, all the reorganisation procedures have been

consolidated and the National Company Law

Tribunal would be the sole authority for

reorganisation and insolvency.

The Ministry of Corporate Affairs vide

Notification dated 07.12.2016 has notified,

Companies (Transfer of Pending Proceedings)

Rules, 2016 URL: http://ebook.mca.gov.in

whereby:

1. All proceedings under the Companies Act,

1956 including proceedings relating to

arbitration, compromise, arrangement s and

reconstruction, shall stand transferred to the

Benches of the National Company Law Tribunal

2. All applications and petitions relating to

voluntary winding up of companies pending

before a High Court shall be dealt by NCLT from

2 April 2017.

3. Where Board for Industrial and Financial

Reconstruction (BIFR) has forwarded an opinion

for Winding Up of company , under Section 20

of the Sick Industrial Companies (Special

Provisions) Act, 1985 to High Court and appeal

is pending then such appeal shall stand abated.

However, an application may be made to NCLT

by such person whose application is abated.

c. Are enforcement actions

by secured creditors subject

to an automatic stay (or an

automatic suspension,

moratorium, etc.) in

reorganization (or in

bankruptcy if a

reorganization procedure is

No Yes

Under Section 13 of the Insolvency and

Bankruptcy Code, 2016, NCLT has the power to

issue an order to declare a moratorium period for

prohibiting all of the following, namely:—

(a) the institution of suits or continuation of

pending suits or proceedings against the


not available)? corporate debtor including execution of any

judgment, decree or order in any court of law,

tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or

disposing of by the corporate debtor

any of its assets or any legal right or beneficial

interest therein;

(c) any action to foreclose, recover or enforce

any security interest created by

the corporate debtor in respect of its property

including any action under the

Securitisation and Reconstruction of Financial

Assets and Enforcement of Security

Interest Act, 2002;

(d) the recovery of any property by an owner or

lessor where such property is

occupied by or in the possession of the corporate

debtor.

URL: goo.gl/LzxgUz

d. Is there a time limit

prescribed by law on the

automatic stay imposed on

the secured claims in the


(or bankruptcy if

reorganization is not

available)? If yes, what is

the time limit?

No No

e. Does the law stipulate

that secured creditors may

apply for a relief of the stay

when the collateral is not

needed for the

reorganization or sale of the

business as a going

concern?

Yes.(i)Section 230 onwards of

the Companies Act, 2013

authorises the court to give

any direction for the proper

working of the reorganisation

of the company; (ii) Section

13(11) of the SARFAESI Act

provides for the sale of

pledged assets; and (iii)

Section 22A of the SICA gives

the board the discretion to

dispose off assets in the

interests of the sick

company/creditors/sharehold

ers/public interest.

Yes

f. Does the law stipulate

that secured creditors can

apply for a relief of the stay

in reorganization (or

bankruptcy if

reorganization is not

available) when the stay

poses a great risk to the

existence of the collateral (e.g., perishable goods)?

Yes.(i)Section 230 onwards of

the Companies Act, 2013

authorises the court to give

any direction for the proper

working of the reorganisation

of the company; (ii) Section

13(11) of the SARFAESI Act

provides for the sale of

pledged assets; and (iii)

Section 22A of the SICA gives

the board the discretion to

dispose off assets in the

interests of the sick

company/creditors/sharehold

ers/public interest.

Yes

(i)Section 230 onwards of the Companies Act,

2013 authorises the court to give any direction

for the proper working of the reorganisation of

the company;

(ii) Section 13(11) of the SARFAESI Act

provides for the sale of pledged assets; and

(iii) Section 22A of the SICA gives the board the

discretion to dispose off assets in the interests of

the sick company/creditors/shareholders/public

interest.




Yes



Reform

Comments:

The SARFAESI Act, 2002 has been amended vide The Enforcement of Security Interest Act and Recovery of

Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 which was notified on 16 August 2016 and the


goo.gl/6TKNb2

Further, the Insolvency and Bankruptcy code is also effective which provides for list of priority of payment of dues.

goo.gl/LzxgUz




7. Enforcement of Security Interests


a. Does the law allow parties

to a security agreement, at

the time a security interest is

created, to agree to enforce

the security interest outside

of court if the debtor

defaults in both Scenario A

and Scenario B? (That is,

upon default, may the secured

party (i) take possession of the

collateral or (ii) sell,

exchange, convert into money

or otherwise enforce against

the collateral privately or by

auction?)

Yes. Section 13(4) of the

Securitisation Act 2002 gives

power to banks and financial

institutions to enforce its

rights by giving notice to the

debtors, whereby a time of

60 days is given to the

debtor to return the debt and

in case the debtor is unable

to pay the amount, the

secured creditor can take

possession of the assets and

sell it without court's

intervention

Yes

Yes. Section 13(4) of the Securitisation Act 2002

gives power to banks and financial institutions to

enforce its rights by giving notice to the debtors,

whereby a time of 60 days is given to the debtor

to return the debt and in case the debtor is unable

to pay the amount, the secured creditor can take

possession of the assets and sell it without court's

intervention

SARFAESI ACT- goo.gl/C4y49h

Amended in 2012- goo.gl/VhKQJL

b. Can a sale of the asset take

place through a public or

private auction (or both)? (A

public auction is understood

here as a method of selling

assets in a public forum

through open and competitive

bidding and under the

authority of a court or a

government agency. It

contrasts with a private

auction, in which the buyer’s

and seller’s identities are not

disclosed and the procedure

may not be monitored by a

government agency.)

Yes, only public sale Yes

Only public sale

c. Is a “pactum

commissorium” possible in

your economy? (That is, may

the secured creditor

automatically appropriate the

encumbered asset upon default

of the debtor?) Is the creditor

allowed to acquire the asset

as a full or partial

repayment of the debt by

agreement?

Yes.

Article 7 Asset

Reconstruction, SARFAESI

Act, 2013

(4) Enforcement of Security

Interest

While taking recourse to the

sale of secured assets in

terms of Section 13(4) of the

Act, a Securitisation

Company or Reconstruction

Company may itself acquire

the secured assets, either for

its own use or for resale,

only if the sale is conducted

through a public auction.

Yes

Article 7 Asset Reconstruction, SARFAESI Act,

2013

(4) Enforcement of Security Interest

While taking recourse to the sale of secured

assets in terms of Section 13(4) of the Act, a

Securitisation Company or Reconstruction

Company may itself acquire the secured assets,

either for its own use or for resale, only if the

sale is conducted through a public auction.

http://www.drat.tn.nic.in/Docu/Securitisation-

Act.pdf


No




-Click to Select-

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