The extant ECB guidelines allow the local borrower to offer security to the overseas lender / supplier for securing ECB. According to the latest directions of RBI, AD Category-I banks may allow creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised / raised by the borrower subject FEMA Regulations 2000.
The creation of such charges is subject to satisfying certain stipulations viz. (a) the underlying ECB is in compliance with the extant ECB guidelines, (b) there shall be a security clause in the Loan Agreement that the ECB borrower required to create charge, in favour of overseas lender / security trustee, on immovable assets / movable assets / financial securities / issuance of corporate and / or personal guarantee, and (c) No objection certificate, wherever necessary shall be obtained from the existing lenders in India.
However, the charge on immovable assets cannot be interpreted as a permission to overseas lender/security trustee to acquire the immovable assets (landed property) in India. In view of the enforcement / invocation of the charge on the immovable asset / property is subject to FEMA regulationss2000, the immovable 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. In the event of enforcement / invocation of the charge on movable property, the claim of the lender will be restricted to the outstanding claim against the ECB. Encumbered movable assets may also be taken out of the country. Pledge of shares of the borrowing company held by the promoters as well as in domestic associate companies of the borrower will be permitted. Pledge on other financial securities, viz. bonds and debentures, Government Securities, Government Savings Certificates, deposit receipts of securities and units of the Unit Trust of India or of any mutual funds, standing in the name of ECB borrower/promoter, will also be permitted. the security interest over all current and future loan assets and all current assets including cash and cash equivalents, including Rupee accounts of the borrower with AD Category-I banks in India, standing in the name of the borrower/promoter, can be used as security for ECB. The Rupee accounts of the borrower/promoter can also be in the form of escrow arrangement or debt service reserve account. In case, invocation of pledge, transfer of financial securities shall be in accordance with the extant FDI/FII policy including provisions relating sectoral cap and pricing as applicable read with the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000.