CERSAI Rules make mandatory registration of charges of every kind

Updated till 24.01.2020: 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.

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.

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.

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