Getting Credit - Legal Rights Questionnaire India Mumbai

Transcription

1 Getting Credit - Legal Rights Questionnaire India Mumbai 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 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, 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 DBCreditLegalRights@worldbank.org. 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) Fax: (202) mchiquier@ifc.org Magdalini Konidari Operations Analyst Tel: (603) Fax: (603) mkonidari@worldbank.org Nadine Abi Chakra Operations Analyst Tel : (202) Fax: (202) nabichakra@worldbank.org

2 Primary Contributor Information: Please check the box next to information you do not want us to publish. Do not publish Never Published Name Title (Mr., Ms., Dr.) [Mr. ] First Name Contributor [Shailendra] Last Name [Singh] Position (e.g. manager, associate, partner) Profession (e.g. judge, lawyer, architect) [Joint Secretary ] [ ] Contact details Firm name [Department of Industrial Policy and Do not publish Promotion, Government of India ] Website [ Do not publish address [singh.shailen@nic.in] Do not publish Phone [ ] Never Published Do not publish Fax [ ] Mobile phone [ Firm Address ] Street [Udyog Bhawan, P.O. Box [ ] Rafi Ahmed Kidwai Marg, Rajpat ] City [New Delhi ] State/ Province [ New Delhi ] Zip/Postal code [110017] Country [India] 7 IND 379 Additional Contributor(s): If there are more people whom you would like us to acknowledge, kindly send us an . Name Occupation Phone Address [title] [first name] [last name] [title] [first name] [last name] [firm] [position] [profession] [firm] [position] [profession] [ ] [phone] [mobile] [ ] [phone] [mobile] [street] [state/province] [city/country] [street] [state/province] [city/country] [title] [first name] [last name] [firm] [position] [profession] [ ] [phone] [mobile] [street] [state/province] [city/country] Paperless Option for Complimentary Report and Certificate Last year contributors saved nearly half a million pieces of paper by selecting the paperless report option. We welcome you to join us in conserving resources: Please me an electronic copy of the report and my certificate of appreciation, rather than mailing me a paper copy. Referrals: Please help us expand our list of contributors by referring us to other experts in the private or public sector (lawyers, notaries, public officials or any expert on this field) who can respond to the questionnaire. First name Last name Position Firm Address Phone [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] 2

3 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 nonpossessory 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, 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, The Insolvency and Bankruptcy Code, 2016 became effective from 28 May 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, goo.gl/lzxguz 4. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous 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;

4 Doing Business 2018 Getting Credit Legal Rights 4 and sales with retention of title to security interests in movable assets. Amended SARFAESI Act - goo.gl/6tknb2 5. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous 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 6. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous 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 7. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous 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 9. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous 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 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.)

5 Doing Business 2018 Getting Credit Legal Rights 5 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. nincorporated 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.) 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.) 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. For both incorporated and nonincorporated debtors Last year's answers Movable property : specific statute. Interpreted and regulated according to general law of contract. for movable property with Registrar of Companies For both incorporated and nonincorporated debtors This year's answers, 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, for enforcement of the security interest, it needs to be registered with the Central Registry under Section 26D of the SARFAESI Act, 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.) regulation expressly covers the financial lease agreements, it is covered under the general law of contracts i.e Indian Contract Act, 1872 Also, charge created on the assets of the companies needs to be registered with Registrar of Companies. Amended SARFAESI Act - goo.gl/6tknb2 The financial lease agreements are covered under the amended SARFAESI Act, The definition of debt, borrower, financial assistance, security interest, etc. under Section 2 has been accordinglt amended to include financial lease within its ambit. Amended SARFAESI Act - goo.gl/6tknb2 d. Do financial leases have to Financial leases for movable assets, after the amendment in the

6 Doing Business 2018 Getting Credit Legal Rights 6 be registered to be enforceable against third parties? If yes, please specify the name of the registry. 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.) 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. 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.) 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. i. Does the law allow for women s personal property to be given as a collateral for a loan taken for commercial activities? do not have to be registered to be valid. In case of assignment of receivables to a "factor", Factoring Regulation Act 2011 covers the law of assignmen tifying the assignment to the debtor is governed by the terms of the underlying transaction. 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) New question. Please provide an answer 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 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, 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, URL: goo.gl/yd9yzj 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. Amended SARFAESI Act - goo.gl/6tknb2, the retention-of-title sales needs to be registered with Central Registry (i.e. CERSAI), 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

7 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 Doing Business 2018 Getting Credit Legal Rights 7 commercial activities., 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? 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

8 Doing Business 2018 Getting Credit Legal Rights 8 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 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 te: 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.

9 Doing Business 2018 Getting Credit Legal Rights 9 Section 4. n-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. 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. 1. Assets and their description 1.1 Please answer the following questions based on Scenario A: Security interest in ONE CATEGORY of movable assets 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? 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? b. Can ABC (the Debtor) grant BizBank (the Secured Creditor) a non-possessory security interest over only its inventory? 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) b. 2. According to the law, can the inventory be described in general terms Last year's answer, 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 General description is allowed by law This year's answer 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, Hence, general description is allowed by law in security agreement. URL:goo.gl/C4y49h General description is allowed by law.

10 (e.g., all laptop inventories rather than PXS laptop, serial number , metal-colored, 14-inch screen ) both in the security agreement and when the security interest is registered? c. Can ABC (the Debtor) grant BizBank (the Secured Creditor) a non-possessory security interest over only its tangible movable property? (e.g., machinery, furniture, livestock, crops, etc.) 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 agreement and when the security interest is registered? General description is allowed by law, but the property needs to be identifiable Doing Business 2018 Getting Credit Legal Rights 10 General description is allowed by law, but the property needs to be identifiable Did you make any changes from last year s answers? 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 -Click to Select- Comments:

11 Doing Business 2018 Getting Credit Legal Rights 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)? 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) 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? Last year's answer General description is allowed by law This year's answer Did you make any changes from last year s answers? 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. -Click to Select- Comments:

12 1.3 Can ABC (the Debtor) use the following movable assets to secure a loan? Doing Business 2018 Getting Credit Legal Rights 12 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)? 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.) Last year's answer. 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. This year's answer 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 Did you make any changes from last year s answers? 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. -Click to Select- Comments:

13 Doing Business 2018 Getting Credit Legal Rights 13 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. 2. Debts and Obligations a. Can present and future debts and obligations be secured in Scenario A and Scenario B? b. Can all types of conditional, monetary and non-monetary debts and obligations be secured in Scenario A and Scenario B? 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 agreement and when the security interest is registered? If no, please indicate what the description requirements are. Last year's answer. Present as well as future obligations may be secured by charges. This year's answer Present as well as future obligations may be secured by charges. Did you make any changes from last year s answers? 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. -Click to Select- Comments:

14 Doing Business 2018 Getting Credit Legal Rights 14 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. 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. Last year's answer 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: 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 Financial Assets and Enforcement of Security Interest (Central Registry) Rules, However, as per Section 20 (4) of the Securitisation and Reconstruction of Financial Assets and This year's answer 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, 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

15 b. Please provide the website address and phone number for the main collateral registry for movable property. Enforcement of Security 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 Financial Assets and Enforcement of Security Interest Act, The centralised database can be accessed at The following are the contact details of the main collateral registry: Registrar of Companies, Mumbai Everest 5th Floor 100 Marine Drive Mumbai Phone: , / Fax: rd.west@mca.gov.in. The Central Registry can be accessed at and ed at contactus@cersai.org.in. It has its office at 5th Floor, MTNL Telephone Exchange Building, 8 Bhikaji Cama Place, New Delhi Phone: Doing Business 2018 Getting Credit Legal Rights The Central Registry can be accessed at and ed at contactus@cersai.org.in. It has its office at 5th Floor, MTNL Telephone Exchange Building, 8 Bhikaji Cama Place, New Delhi Phone: The centralised database can be accessed at The following are the contact details of the main collateral registry: Registrar of Companies, Mumbai Everest 5th Floor 100 Marine Drive Mumbai Phone: , / Fax: rd.west@mca.gov.in. 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? Last year's answer 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 This year's answer 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

16 b. Is the registry in operation? 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.) d. Who can perform the registration? (e.g., the secured creditor, its representatives) 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 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: 1/. 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. 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. Doing Business 2018 Getting Credit Legal Rights 16 registered with the Central Registry. Amended SARFAESI Act - goo.gl/6tknb2 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 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: 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: 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. 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

17 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.). f. Does the registry cover all types of security interests in movable assets (other than vehicles, ships, aircraft or intellectual property)? 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) h. Can everyone access the data in the registry without restriction from any geographic location in the economy? i. Is the collateral registry (the database) either centralized geographically for the entire economy or linked among different geographic regions within the economy? j. Does the collateral registry have an online system for registrations, amendments, renewals, cancellations and searches of security interests? k. Does the registry have an electronic database searchable online by debtor s name? The filing process can be completed within 1 hour but the data is reflected and retrievable in 2-3 working days timeframe.. The registration relates to the charges created/modified by companies only.. However, prescribed fees/charges may be payable for the inspection of the documents filed with the Registrar of Companies.. The collateral registry is linked among different geographical regions within the economy, it is an electronic database Doing Business 2018 Getting Credit Legal Rights 17 SARFAESI Act - goo.gl/6tknb2 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. The filing process can be completed within 1 hour but the data is reflected and retrievable in 2-3 working days timeframe. 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 SARFAESI Act - goo.gl/6tknb2 However, prescribed fees/charges may be payable for the inspection of the documents filed with the CERSAI and Registrar of Companies. The collateral registry is linked among different geographical regions within the economy, it is an electronic database Did you make any changes from last year s answers? 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:

18 Doing Business 2018 Getting Credit Legal Rights 18 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

19 Doing Business 2018 Getting Credit Legal Rights 19 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. 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?) 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.) Last year's answer 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. This year's answer 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. te 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 -Click to Select- NA Did you make any changes from last year s answers? 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

20 Doing Business 2018 Getting Credit Legal Rights 20 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. 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?) b. Do labor claims (e.g., wages) have priority over BizBank s secured claim even if they were never registered or were registered afterward? c. Do state claims (e.g., taxes) have priority over BizBank s secured claim even if they were never Last year's answer, 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, 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. This year's answer As per Section 26E of the SARFAESI Act, twithstanding 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 As per Section 26E of the SARFAESI Act, 2002, secured creditor shall be paid in priority over all other debts and government taxes, cesses. Amended SARFAESI Act - goo.gl/6tknb2 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 As per Section 26E of the SARFAESI Act, 2002, secured creditor shall be paid in priority over all

21 registered or were registered afterward? 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.. 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. Doing Business 2018 Getting Credit Legal Rights 21 other debts and government taxes, cesses. Amended SARFAESI Act - goo.gl/6tknb2 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, 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 Did you make any changes from last year s answers? 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 Further, the Insolvency and Bankruptcy code is also effective which provides for list of priority of payment of dues. goo.gl/lzxguz

22 Doing Business 2018 Getting Credit Legal Rights 22 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. 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.) b. If there is more than one reorganization procedure available, please indicate which would be the most commonly used in your jurisdiction, taking into account the assumptions of our case study. 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 Last year's answer 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. This year's answer 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 tification dated has notified, Companies (Transfer of Pending Proceedings) Rules, 2016 URL: 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 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. 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