Wednesday, May 4, 2016

Second Leg of SARFAESI: All Transactions to be Registered with CERSAI

[The following guest post is contributed by Niddhi Parmar of Vinod Kothari & Company. The author can be contacted at parmar@vinodkothari.com]

Introduction

The Central Government introduced the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Amendment Rules, 2016 (hereinafter referred as ‘Amendment Rules, 2016’) on January 22, 2016 (being the date of publication in the Official Gazette) requiring the particulars of transactions to be registered with Central Registry of Securitisation Asset Reconstruction and Security Interest of India (‘CERSAI’) by banks and financial institutions as the Central Government may notify. The term “financial institutions” has been defined under section 2(m) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act) to mean –

“XX

(iv)    any other institution or non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934), which the Central Government may, by notification, specify as financial institution for the purposes of this Act.”

Section 45NC of the Reserve Bank of India Act, 1934 grants power to the Reserve Bank of India (RBI) to exempt non-banking institutions from the applicability of the provisions of the RBI Act. Housing Finance Companies (HFCs), being, financial institutions are exempted from complying with the provisions of the RBI Act. However, they are regulated by the National Housing Bank. The Central Government has notified 19 HFCs as on July 25, 2014 to make use of the SARFAESI Act. Subsequently, 41 more HFCs were notified on December 18, 2015.

Non-Banking Financial Companies (‘NBFCs’) irrespective of class or asset size were advised to file and register the records of all equitable mortgages created in their favour on or after March 31, 2011 with the CERSAI as and when equitable mortgages are created in their favour vide its circular no. RBI/2013-14/369 DNBS.(PD).CC.No.360 /03.10.001/2013-14 dated November 12, 2013. Subsequently, NBFCs were advised to register all types of mortgages with CERSAI.

Prior to the Amendment Rules, 2016

Banks and financial institutions were required to register equitable mortgages with CERSAI pursuant to section 23, 24 and 25 of the SARFAESI Act read with rule 4(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011 (hereinafter referred to as ‘Rules, 2011’).

Why only equitable mortgages?

Rule 4(2) of the Rules, 2011 required as follows:

“Particulars of every transaction of securitisation and reconstruction of financial assets and creation, modification or satisfaction of security interest by way of mortgage by deposit of title deeds shall be filed in Form I, Form II, Form III or Form IV, as the case may be, and shall be authenticated by a person specified in the Form for such purpose by use of a valid digital signature.”

The most common form of mortgage is mortgage by deposit of title deeds wherein the debtor simply delivers the title deeds to the creditor or its agent. Section 58(f) of the Transfer of Property Act, 1882 defines the term “mortgage by deposit of title-deeds” as follows –

“Where a person in any of the following towns, namely, the towns of Calcutta, Madras, and Bombay, and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.”

There exist three important elements for mortgage by deposit of title deeds: debt owed by the mortgagor, deposit of title deeds, and the intent to create security. In India, the expressions “mortgage by deposit of title deeds” and “equitable mortgage” are used interchangeably.

Post Amendment Rules, 2016

Post Amendment Rules, 2016, the institutions are not only required to register the equitable mortgages with CERSAI but also need to register the following:[1]

“2(A). Particulars of creation, modification or satisfaction of security interest in immovable property by mortgage other than mortgage by deposit of title deeds shall be filed in Form I or Form II, as the case may be, and shall be authenticated by a person specified in the Form for such purpose by use of a valid digital signature.

(2B). Particulars of creation, modification or satisfaction of security interest in hypothecation of plant and machinery, stocks, debt including book debt or receivables, whether existing or future shall be filed in Form I or Form II, as the case may be, and shall be authenticated by a person specified in the Form for such purpose by use of a valid digital signature.

(2C). Particulars of creation, modification or satisfaction of security interest in intangible assets, being knowhow, patent, copyright, trade mark, licence, franchise or any other business or commercial right of similar nature, shall be filed in Form I or Form II, as the case may be, and shall be authenticated by a person specified in the Form for such purpose by use of a valid digital signature.

(2D). Particulars of creation, modification or satisfaction of security interest in any under construction residential or commercial building or a part thereof by an agreement or instrument other than by mortgage, shall be filed in Form I or Form II, as the case may be, and shall be authenticated by a person specified in the Form for such purpose by use of a valid digital signature.”

All subsisting transactions under sub-rules (2A) to (2D) need to be registered with CERSAI by the secured creditor on or before such date as may be specified by the Central Government wherein no fee shall be payable on such filing. However, in case of failure to register within the prescribed time limit, the same shall be subject to applicable fees specified in table below.

The term subsisting transaction has been defined under the explanation to proviso to mean those transactions which existed before the Amendment Rules, 2016 coming into force.

Fees for creation and modification of security interest:

Particulars
Form No.
Amount of fee payable (in Rs.)
Post Amendment Rules, 2016[2]
Prior to the Amendment Rules, 2016
Creation or modification of security interest by way of mortgage by deposit of title deeds:

1.      For a loan upto Rs.5 lakh
2.      For a loan above Rs. 5 lakh

Form I




50
100




250
500
Creation or modification of security interest by way of mortgage of immovable property other than by deposit of title deeds

Form I
NIL
NA
Creation or modification of security interest in hypothecation of plant and machinery, stocks, debt including book debt or receivables, whether existing or future:

1.      For a loan upto Rs.5 lakh
2.      For a loan above Rs. 5 lakh

Form I






50
100
NA
Creation or modification of security interest in intangible assets, being know- how, patent, copyright, trade mark, licence, franchise or any other business or commercial right of similar nature:

1.      For a loan upto Rs.5 lakh
2.      For a loan above Rs. 5 lakh

Form I






50
100
NA
Creation or modification of security interest in any under construction residential or commercial building or a part thereof by an agreement or instrument other than by mortgage:

1.      For a loan upto Rs.5 lakh
2.      For a loan above Rs. 5 lakh

Form I






50
100
NA
Satisfaction of charge for security interest filed under subrule (2) and (2A) to (2D) of rule 4

Form II
NIL
250
(only for subrule 2)
Securitisation or reconstruction of financial assets

Form III
500
1000
satisfaction of securitisation or reconstruction transactions

Form IV
50
50
Any application for information recorded/ maintained in the Register by any person

-
10
-
Any application for condonation of delay upto 30 days
-
Not exceeding 10 times of the basic fee , as applicable
Not exceeding 2500 in case of creation of security interest for loan upto 5 lakh and not exceeding 5000 in all other cases


An additional fee[3] is payable on delay in filing the records from January 22, 2016 as below:

- From 31 days to 40 days – twice the amount of applicable fees;

- From 41 days to 50 days – five times the amount of applicable fees;

- From 51 days to 60 days – ten times the amount of applicable fees.

Conclusion

Post Amendment Rules, 2016, the banks and financial institutions are required to register all transactions referred in rule 4(2) to (2D) with CERSAI within a period of 30 days from the date of such transactions. Further, the gazetted copy of the Amendment Rules, 2016 states that the fees payable in case of security interest being created under sub-rule (2A) of rule 4 shall be NIL. However, a notification issued by CERSAI dated February 1, 2016[4] states that no fees shall be payable in case of security interest being created under sub-rule (2A) of rule 4 to sub-rule (2D) of rule 4.

- Niddhi Parmar



[1] Sub-rules have been inserted in rule 4 of the Rules, 2011.
[2] As per the Gazetted Amendment Rules, 2016.
[3] CERSAI Notification No. CERSAI/CMD/2016-1232 dated March 4, 2016 - site last visited on April 30, 2016.
[4] CERSAI Notification No. CERSAI/IT/1178/2016 – site last visited on April 30, 2016.

1 comment:

Anonymous said...

The Amendment Rules, 2016 do not require a pledge over shares or other securities to be reported to the CERSAI as yet, thereby not completely aligning with the requirements of the Companies Act, 2013. This is a curious omission in the Amendment Rules, 2016.