Reserve Bank of India (RBI) vide RBI/2014-15/377 A.P. (DIR
Series) Circular No. 55 dated January 01, 2015 has issued a
circular relating to creation of charge over securities for
External Commercial Borrowings (ECB).
In the existing guidelines, the choice of security to be
provided to the overseas lender or the supplier for securing ECB is
left to the borrower.
In order to liberalise and expand the options of securities and
to consolidate various provisions related at one place, it has been
decided that AD Category-I banks may allow creation of charge on
immovable assets, movable assets, financial securities and issue of
corporate and / or personal guarantees in favour of overseas lender
/ security trustee, to secure the ECB to be raised / raised by the
borrower, subject to satisfying themselves that:
(i) the underlying ECB is in compliance with the extant ECB
(ii) there exists a security clause in the Loan Agreement
requiring the ECB borrower to create charge, in favour of overseas
lender / security trustee, on immovable assets / movable assets /
financial securities / issuance of corporate and / or personal
(iii) No objection certificate, wherever necessary, from the
existing lenders in India has been obtained.
Once aforesaid stipulations are met, the AD Category-I bank may
permit creation of charge on immovable assets, movable assets,
financial securities and issue of corporate and / or personal
guarantees, during the currency of the ECB with security
co-terminating with underlying ECB, subject to the following:
a. Creation of Charge on immovable assets:
i. Such security shall be subject to provisions contained in the
Foreign Exchange Management (Acquisition and Transfer of Immovable
Property in India) Regulations, 2000.
ii. The permission should not be construed as a permission to
acquire immovable asset (property) in India, by the overseas lender
/ security trustee.
iii. In the event of enforcement / invocation of the charge, the
immovable asset / property will have to be sold only to a person
resident in India and the sale proceeds shall be repatriated to
liquidate the outstanding ECB.
b. Creation of Charge on Movable Assets
In the event of enforcement / invocation of the charge, the
claim of the lender, whether the lender takes over the movable
asset or otherwise, will be restricted to the outstanding claim
against the ECB. Encumbered movable assets may also be taken out of
c. Creation of Charge over Financial Securities
i. Pledge of shares of the borrowing company held by the
promoters as well as in domestic associate companies of the
borrower will be permitted. Pledge on other financial securities,
viz. bonds and debentures, Government Securities, Government
Savings Certificates, deposit receipts of securities and units of
the Unit Trust of India or of any mutual funds, standing in the
name of ECB borrower/ promoter, will also be permitted.
ii. In addition, security interest over all current and future
loan assets and all current assets including cash and cash
equivalents, including Rupee accounts of the borrower with AD
Category-I banks in India, standing in the name of the
borrower/promoter, can be used as security for ECB. The Rupee
accounts of the borrower/ promoter can also be in the form of
escrow arrangement or debt service reserve account.
iii. In case of invocation of pledge, transfer of financial
securities shall be in accordance with the extant FDI/FII policy
including provisions relating to sectoral cap and pricing as
applicable read with the Foreign Exchange Management (Transfer or
Issue of Security by a Person Resident outside India) Regulations,
d. Issue of Corporate or Personal Guarantee
i. A copy of Board Resolution for the issue of corporate
guarantee for the company issuing such guarantee, specifying name
of the officials authorised to execute such guarantees on behalf of
the company or in individual capacity should be obtained.
ii. Specific requests from individuals to issue personal
guarantee indicating details of the ECB should be obtained.
iii. Such security shall be subject to provisions contained in
the Foreign Exchange Management (Guarantees) Regulations, 2000.
As clarified by RBI in its notification, amendments to the ECB
guidelines shall come into force with immediate effect, subject to
review from time to time. All other provisions related to raising
of ECB remain unchanged.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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