CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest) registration is mandatory for all types of security interests created on assets, including mortgages, securitization, and asset reconstruction. This includes loans secured by properties or other assets. The registration must be done by the lender within 30 days of creating the security interest.Section 17 to Section 19 of the 2016 Act have been notified on December 26, 2019, by the Ministry of Finance in the official gazette (“SARFAESI Amendments”) and come into effect from January 24, 2020. In accordance with Sections 17 to Section 19 of 2016, inter alia Section 23 has been amended as follows:
1. Section 23 numbered as sub-section (1) by Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016. (w.e.f. 24-1-2020).
2. Removal of the words “within thirty days after the date of such transaction or creation of security, by the securitisation company or reconstruction company or the secured creditor, as the case may be” within which enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016. (w.e.f. 24-1-2020). It means a timeline of 30 days is removed for the secured creditors to file certain types of security interests in their favour with CERSAI.
3. to provide a right to the Central Government to notify types of transactions (pertaining to the creation of security interest over the property) which require registration with the CERSAI.
4. Security interest and attachment orders of banks and financial institutions, government agencies, local authorities, or any other parties who have not duly registered the security interest with the CERSAI shall not be entitled to exercise the right of enforcement of securities under Chapter III. ( for details read: Sarfaesi amendments 2019)
5. The new sub-rules 2E, 2F, 2G are inserted to rule 4 (as detailed at the bottom of this post).
The Government of India has amended the rules under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011(Referred to as principal rules). The amendment to principal rules came into force from the date the same was published in the Gazette of India Part II section3 sub-section. (i) (January 22, 2016) . The new rules are called Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Amendment Rules, 2016.
The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) is a Government Company licensed under Section 25 of the Companies Act 1956. It has been incorporated for the purpose of operating and maintaining the Central Registry under the provisions of the SARFAESI Act, 2002. Initially, transactions relating to securitization and reconstruction of financial assets and those relating to mortgage by deposit of title deeds to secure any loan or advance granted by banks and financial institutions, as defined under the SARFAESI Act, are to be registered in the Central Registry. The records maintained by the Central Registry will be available for search by any lender or any other person desirous of dealing with the property. The availability of such records would prevent fraud involving multiple lending against the security of the same property as well as the fraudulent sale of property without disclosing the security interest over such property. It may be noted that under the provisions of Section 23 of the SARFAESI Act, 2002 particulars of any charge creating the security interest over property is required to be filed with the registry (the timeline within 30 days from the date of creation is omitted w.e.f 24.01.2020).
As per the old rules, only the secured creditors were required to file in respect of equitable mortgages created in their favour to register the same with CERSAI. However, the new rules with the insertion of sub-rule Rule 2A, B, C, D in rule 4 makes it mandatory for creditors to register with CERSAI the other type of charges.
The sub-rule (2A) statuses that “the particulars of creation, modification or satisfaction of security interest in the immovable property by mortgage other than a 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”. Section 2D conditions that the 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 with CERSAI. (To know the detail read “Guide to upgraded version of CERSAI 2.0“)
Whereas the sub-rule 2B marks it mandatory to file creation, modification, or satisfaction of security interest in the hypothecation of plant and machinery, stocks, debt including book debt or receivables, whether existing or future.
In terms of sub-rule 2C, creation, modification, or satisfaction of security interest in intangible assets, being know-how, patent, copyright, trademark, license, franchise, or any other business or commercial right of similar nature shall be filed.
Section 2D conditions that the 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 with CERSAI. (Read:
In SARFAESI amendment 2019 rule 4, sub-rule (2D) the following new sub-rules, are inserted namely:—
(2E) Particulars of creation, modification or satisfaction of a right, title or interest of any kind, including those referred to in sub-clauses (i) and (ii) of clause (ZF) of sub-section (1) of section 2 of the Act created by a borrower in favour of other creditors shall be filed in Form number I, through (i) e sign (through an Aadhaar based One Time Password validation); or (ii) digital signature; or (iii) CKYC number, as the case may be.
(2F) Particulars of attachment orders as referred to in sub-section (4) of section 26B of the Act with the particulars of the assesses and details of tax or other Government dues shall be filed electronically by the officers authorised in that behalf by such authority of the Central Government or the State Government or local authority in Form number I, and particulars of modification or satisfaction of such attachment orders shall be filed in Form number I or Form number II as the case may be.
(2G) Particulars of attachment orders passed by a court or other authority referred to in sub-section (5) of section 26B shall be filed electronically by the person in whose favour such orders have been passed in Form number I and the particulars of modification or satisfaction of such attachment orders shall be filed in Form number I or Form number II through (i) e sign (through an Aadhar based One Time Password validation); or (ii) digital signature; or (iii) CKYC number, as the case may be.
A Charge means an interest or lien created on the property and assets of the company or any of its undertakings or both as security and includes a mortgage.
When a charge created on the property and assets of a company is registered by ROC, it is a notice of such charge to the public from the date of such registration. Any person dealing or acquiring such property or part thereof shall be deemed to have notice of such charge from the date of registration of the charge.
What happens to the lender if the charge created is not registered?
The charge created over security offered becomes void if it is not registered within the stipulated period prescribed under section 125 of companies’ acts. Where a charge is void for non-registration, no right of lien can be claimed by the creditor on the documents of title, as they were only supplementary to the charge and were delivered pursuant to the charge. Further, the unregistered charge becomes unenforceable on the date of winding up order; as the Official Liquidator would treat such creditor whose charge is not registered as an ordinary creditor instead of a secured creditor. Even in the case of going concern, the first charge holder loses the priority of a charge holder if the charge created by him has not been registered. For instance, if the subsequent charge is created on the same property by another lender, the subsequent charge holder who has registered the charge would enjoy priority of charge over such property or assets. In such cases, the second charge-holder (who registered the charge first) may at any time attach the exact property of the borrower and get the charge enforced by selling or disposing–off such property to recover his dues.
The important point to be noted here is that the borrower company is not discharged from its liability and obligations to the creditor just because the security offered for such liabilities turn out to be invalid. The consequence of non-registration of charge is that it badly hits the creditor as explained above i.e. the lender loses the security offered to him for the money financed and also he loses his secured creditor status against the liquidator and other creditors.
In terms of section 125(3) of companies acts, when a charge becomes void, the money secured thereby shall immediately become payable by the company. Further, the company, and every officer of the company or other people who are in default, shall be punishable for not registering the charge (section 142(2) of company acts).
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