Amendments to the ECB guidelines VIDE RBI/2008-09/92 A. P. (DIR Series) Circular No. 01 dated 11th July 2008, which shall come into force with immediate effect, subject to review from time to time.
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 immoveable assets and financial securities, such as shares, in favour of the overseas lender is subject to Regulation 8 of Notification No. FEMA 21/RB-2000 dated May 3, 2000 and Regulation 3 of Notification No. FEMA 20/RB-2000 dated May 3, 2000, respectively, as amended from time to time.
Now, it is resolved to get "No Objection Certificate" [NoC] from Category - I Authorised Dealer for
(a) (a) Creation of Charge on Immovable Assets
(b) Creation of Charge over Financial Securities
(c) Issue of Corporate or Personal Guarantee
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. If further approval or permission is required from any other regulatory / statutory authority or Government under the relevant laws / regulations, the applicant should take the approval of the authority concerned before undertaking the transaction. Further, the 'no objection' should not be construed as regularizing or validating any irregularities, contravention or other lapses, if any, under the provisions of FEMA or any other laws or regulations.
Hence, following steps to be considered:
Step 1: AD Category - I banks may ensure and satisfy themselves that
(i) the underlying ECB is strictly in COMPLIANCE with the extant ECB guidelines;
(ii) there exists a security clause in the Loan Agreement REQUIRING the borrower to create charge on immovable assets / financial securities / furnish corporate or personal guarantee;
(iii) the loan agreement has been SIGNED by both the lender and the borrower, and
(iv) the borrower has obtained Loan Registration Number (LRN) from the Reserve Bank.
Step 2: In case of, Creation of Charge on Immovable Assets
(i) 'No objection' shall be granted only to a RESIDENT ECB borrower.
(ii) The period of such charge on immovable assets has to be CO-TERMINUS with the maturity of the underlying ECB. [Period of Charge = Maturity of such ECB]
(iii) Such 'no objection' should NOT be construed as a PERMISSION to acquire immovable asset (property) in India, by the overseas lender / security trustee.
(iv) 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 [PRII] and the sale proceeds shall be REPATRIATED to liquidate the outstanding ECB.
Step 3: In case of, Creation of Charge over Financial Securities [Pledge of Shares, etc…]
(i) The period of such pledge shall be CO-TERMINUS with the maturity of the underlying ECB. [Period of Charge = Maturity of such ECB]
(ii) In case of INVOCATION of pledge, transfer shall be in accordance with the extant FDI policy.
(iii) A CERTIFICATE from the Statutory Auditor of the company that the ECB proceeds have been / will be utilized for the permitted end-use/s.
Step 4: In case of, Issue of Corporate or Personal Guarantee
i) 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.
ii) Specific REQUESTS from individuals to issue personal guarantee indicating DETAILS of the ECB.
iii) Ensuring that the period of such corporate or personal guarantee is CO-TERMINUS with the maturity of the underlying ECB. [Period of Guarantee = Maturity of such ECB]
Step 5: AD Category - I banks to give 'NoC', on completing the above formalities
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.
