SECURITY FOR EXTERNAL COMMERCIAL BORROWINGS LIBERALISATION
- Under the extant ECB guidelines, the choice of security to be provided to the overseas lender / supplier for securing ECB is left to the borrower. However, creation of charge over immovable assets and financial securities, such as shares, in favour of the overseas lender is subject to FEMA Regulations
- As a measure of rationalization of the existing procedures, it has been decided to allow AD Category - I banks to convey ‘no objection’ under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of Corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower.
- On compliance of the above conditions, AD Category - I banks may convey their ‘no objection’, under FEMA, 1999 for creation of charge on immovable assets, financial securities and issue of personal or corporate guarantee, subject to the conditions indicated in paragraphs 6(a), 6(b) and 6(c), respectively.
Creation of Charge on Immovable Assets
- The ‘no objection’ for creation of charge on immovable assets may be conveyed under FEMA, 1999 either in favour of the lender or the security trustee, subject to the following conditions:
- ‘No objection’ shall be granted only to a resident ECB borrower.
- The period of such charge on immovable assets has to be co-terminus with the maturity of the underlying ECB.
- Such ‘no objection’ should not be construed as a permission to acquire immovable asset (property) in India, by the overseas lender / security trustee.
- 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.
Creation of Charge over Financial Securities
AD Category – I banks may convey their ‘no objection’ under FEMA, 1999 to the resident ECB borrower for pledge of shares of the borrowing company held by promoters as well as in domestic
associate companies of the borrower to secure the ECB subject to the following conditions :
- The period of such pledge shall be co-terminus with the maturity of the underlying ECB.
- In case of invocation of pledge, transfer shall be in accordance with the extant FDI policy.
- A certificate from the Statutory Auditor of the company that the ECB proceeds have been / will be utilized for the permitted end-uses.
Issue of Corporate or Personal Guarantee
The ‘no objection’ to the resident ECB borrower for issue of corporate or personal guarantee under FEMA, 1999 may be conveyed after obtaining -
- Board Resolution for issue of corporate guarantee from the company issuing such guarantees, specifying names of the officials authorised to execute such guarantees on behalf of the company or in individual capacity.
- Specific requests from individuals to issue personal guarantee indicating details of the ECB.
- Ensuring that the period of such corporate or personal guarantee is co-terminus with the maturity of the underlying ECB.
AD Category–I banks may invariably specify that the ‘no objection’ is issued from the foreign exchange angle under the provisions of FEMA, 1999 and should not be construed as an approval by any other statutory authority or Government under any other laws / regulations.
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