Understanding Documentation Procedure and stamping in Banks

It is inevitable for banks to ascertain that bank could easily take possession of such security based on documents obtained from the borrower with very little expenses and dispose-off the same to recover its dues when the account goes bad. Banks obtain different types of documents from the borrower based on the type of security offered for the loan or advance.

The type of security offered to the bank is an important criterion while entertaining a loan proposal.  The prime security can be hypothecation/pledge of stock, book debts, or other assets created out of bank finance. The bank may insist on a charge on immovable property as collateral security in addition to prime security and a third-party guarantee (which is also treated as security to bank finance). The main concern is that security available to the bank should be good enough to fall back upon in the event of adverse circumstances. The value of security accepted should be steady and easy to ascertain. All precautions are to be taken while accepting the immovable property as security that the security offered has a clear marketable title.

Stamping: Under section 17 of the Indian Stamp Act 1899, all the documents chargeable with stamp duty shall be properly and duly stamped before or at the time of execution in India. In the cases of Demand Promissory Note (pro-note), acknowledgment of debts, bill of exchange, etc, if under-stamped, is void ab initio and the same cannot be admitted in evidence even by paying penalty. The revenue stamps on the document should be effectively canceled at the time of execution. The best way of canceling of revenue stamp is by signing over all the stamps in such a manner that the signature extends even beyond the stamps.

Execution: The document should be executed in the presence of the Manager/Authorised official of the bank. The documents should not be given to the borrower for obtaining signature/s from other borrowers or guarantors. The documents should be executed in one sitting and also ensure that the executants read the content of the documents before execution. The borrower should sign in full on all the documents and not by initials. The cutting, overwriting, and interlineations must be authenticated under the full signature of the executants/s. Any instrument chargeable with stamp duty executed out of India must be stamped within 3 months after it has been first received in India.

Attestation: Attestation means witnessing the execution of a document that is required to be attested under law. In the case of documents like the assignment of LIC policies, one witness is required and in the case of a mortgage deed, there should be two witnesses. Some documents like demand promissory notes need not be attested. The executants are the party to the deed and they should not be attesting persons. The attesting person need not know the contents of the document.

Registration of Mortgage/Memorandum of mortgage: In the case of mortgage deed or memorandum of title deeds to be registered the original deed must be presented for registration with the Registrar of Assurance (Commonly known as Sub-Registrar office) under whose jurisdiction the property is situated. The registration should be done within four months of the execution of documents.

Registration with Registrar of Companies (ROC): In the case of limited companies, the charge on the company’s assets like hypothecation of stocks and machinery, book debts, mortgages, etc shall be recorded with ROC within 30 days of execution of documents in terms of Sec.125 of the Companies Act. The registration should be done with the Registrar of Companies under whose jurisdiction the company’s Registered Office is situated.

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