PLEDGE OF SHARES IN CONNECTION WITH ECBs
Pledge of shares of a company incorporated in India
- Subject to a ‘no objection certificate’ (NOC) from an authorized dealer bank, the promoter of an Indian company which has raised ECBs can secure the same by pledging the borrower company’s shares or the shares of its associated resident companies.
- Authorized dealer bank may grant NOC on satisfaction of the following –
- underlying ECB is in compliance with extant ECB guidelines
- loan agreement is signed by both lender and borrower
- existence of security clause in loan agreement requiring the borrower to create charge on financial securities
- borrower has obtained loan registration number (LRN) from RBI
Additional conditions –
- period of pledge is co-terminus with the maturity of the underlying ECB
- in case of invocation of pledge, transfer shall be in accordance with the FDI policy and RBI.s directions
- certificate from statutory auditor has been obtained that the borrower will utilize/has utilized the ECBs for permitted end-use/s only
The regulation has been made effective from 11 July 2008. By implication, it now appears that any other kind of pledge of shares would require the Reserve Bank of India.
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