Second Leg of SARFAESI: All Transactions to be Registered with CERSAI

[The following guest
post is contributed by Niddhi Parmar of
Vinod Kothari & Company. The author can be contacted at parmar@vinodkothari.com]
Introduction
The Central Government introduced the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest (Central
Registry) Amendment Rules, 2016
(hereinafter referred as ‘Amendment Rules,
2016’) on January 22, 2016 (being the date of publication in the Official
Gazette) requiring the particulars of transactions to be registered with Central
Registry of Securitisation Asset Reconstruction and Security Interest of India
(‘CERSAI’) by banks and financial institutions as the Central Government may
notify. The term “financial institutions” has been defined under section 2(m)
of the Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interests Act, 2002 (SARFAESI Act) to mean –
“XX
(iv)   
any other institution or non-banking financial company as defined
in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of
1934), which the Central Government may, by notification, specify as
financial institution for the purposes of this Act
.”
Section 45NC of the Reserve Bank of India Act, 1934
grants power to the Reserve Bank of India (RBI) to exempt non-banking
institutions from the applicability of the provisions of the RBI Act. Housing
Finance Companies (HFCs), being, financial institutions are exempted from
complying with the provisions of the RBI Act. However, they are regulated by the
National Housing Bank. The Central Government has notified 19 HFCs as on July
25, 2014 to make use of the SARFAESI Act. Subsequently, 41 more HFCs were
notified on December 18, 2015.
Non-Banking Financial Companies (‘NBFCs’)
irrespective of class or asset size were advised to file and register the
records of all equitable mortgages created in their favour on or after March 31,
2011 with the CERSAI as and when equitable mortgages are created in their
favour vide its circular
no. RBI/2013-14/369 DNBS.(PD).CC.No.360 /03.10.001/2013-14
dated November
12, 2013. Subsequently, NBFCs
were advised
to register all types of mortgages with CERSAI.
Prior to
the Amendment Rules, 2016
Banks and financial institutions were required to
register equitable mortgages with CERSAI pursuant to section 23, 24 and 25 of
the SARFAESI Act read with rule 4(2) of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest
(Central Registry) Rules, 2011
(hereinafter referred to as ‘Rules, 2011’).
Why only equitable
mortgages?
Rule 4(2) of the Rules, 2011 required as follows:
“Particulars
of every transaction of
securitisation and reconstruction of financial assets and creation,
modification or satisfaction of security interest by way of mortgage by deposit of title deeds shall be filed in Form
I, Form II, Form III or Form IV, 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.”
The most common form of mortgage is mortgage by
deposit of title deeds wherein the debtor simply delivers the title deeds to
the creditor or its agent. Section 58(f) of the Transfer of Property Act, 1882 defines
the term “mortgage by deposit of title-deeds” as follows –
“Where
a person in any of the following
towns, namely, the towns of Calcutta, Madras, and Bombay, and in any other town
which the State Government concerned may, by notification in the Official
Gazette, specify in this behalf, delivers
to a creditor or his agent documents of title to immovable property, with
intent to create a security thereon
, the transaction is called a mortgage
by deposit of title-deeds.”
There exist three important elements for mortgage by
deposit of title deeds: debt owed by the mortgagor, deposit of title deeds, and
the intent to create security. In India, the expressions “mortgage by deposit
of title deeds” and “equitable mortgage” are used interchangeably.
Post
Amendment Rules, 2016
Post Amendment Rules, 2016, the institutions are not
only required to register the equitable mortgages with CERSAI but also need to
register the following:[1]
“2(A).
Particulars of creation, modification or satisfaction of security interest in
immovable property by mortgage other than 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.
(2B).
Particulars of creation, modification or satisfaction of security interest in
hypothecation of plant and machinery, stocks, debt including book debt or
receivables, whether existing or future 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.
(2C).
Particulars of creation, modification or satisfaction of security interest in
intangible assets, being knowhow, patent, copyright, trade mark, licence,
franchise or any other business or commercial right of similar nature, 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.
(2D).
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 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.”
All subsisting transactions under sub-rules (2A) to
(2D) need to be registered with CERSAI by the secured creditor on or before
such date as may be specified by the Central Government wherein no fee shall be
payable on such filing. However, in case of failure to register within the
prescribed time limit, the same shall be subject to applicable fees specified
in table below.
The term subsisting transaction has been defined
under the explanation to proviso to mean those transactions which existed
before the Amendment Rules, 2016 coming into force.
Fees for creation and
modification of security interest:
Particulars
Form No.
Amount of fee payable (in Rs.)
Post Amendment Rules, 2016[2]
Prior to the Amendment Rules, 2016
Creation or modification of
security interest by way of mortgage by deposit of title deeds:
1.     
For
a loan upto Rs.5 lakh
2.     
For
a loan above Rs. 5 lakh
Form I
50
100
250
500
Creation or modification of
security interest by way of mortgage of immovable property other than by
deposit of title deeds
Form I
NIL
NA
Creation or modification of
security interest in hypothecation of plant and machinery, stocks, debt
including book debt or receivables, whether existing or future:
1.     
For
a loan upto Rs.5 lakh
2.     
For
a loan above Rs. 5 lakh
Form I
50
100
NA
Creation or modification of
security interest in intangible assets, being know- how, patent, copyright,
trade mark, licence, franchise or any other business or commercial right of
similar nature:
1.     
For
a loan upto Rs.5 lakh
2.     
For
a loan above Rs. 5 lakh
Form I
50
100
NA
Creation or modification of
security interest in any under construction residential or commercial
building or a part thereof by an agreement or instrument other than by
mortgage:
1.     
For
a loan upto Rs.5 lakh
2.     
For
a loan above Rs. 5 lakh
Form I
50
100
NA
Satisfaction of charge for
security interest filed under subrule (2) and (2A) to (2D) of rule 4
Form II
NIL
250
(only for subrule 2)
Securitisation or
reconstruction of financial assets
Form III
500
1000
satisfaction of securitisation
or reconstruction transactions
Form IV
50
50
Any application for information
recorded/ maintained in the Register by any person
10
Any application for condonation
of delay upto 30 days
Not exceeding 10
times of the basic fee , as applicable
Not exceeding 2500
in case of creation of security interest for loan upto 5 lakh and not
exceeding 5000 in all other cases
An additional fee[3]
is payable on delay in filing the records from January 22, 2016 as below:

From 31 days to 40 days – twice the amount of applicable fees;

From 41 days to 50 days – five times the amount of applicable fees;

From 51 days to 60 days – ten times the amount of applicable fees.
Conclusion
Post Amendment Rules, 2016, the banks and financial
institutions are required to register all transactions referred in rule 4(2) to
(2D) with CERSAI within a period of 30 days from the date of such transactions.
Further, the gazetted copy of the Amendment Rules, 2016 states that the fees
payable in case of security interest being created under sub-rule (2A) of rule
4 shall be NIL. However, a notification issued by CERSAI dated February 1, 2016[4]
states that no fees shall be payable in case of security interest being created
under sub-rule (2A) of rule 4 to sub-rule (2D) of rule 4.
– Niddhi Parmar



[1] Sub-rules have been inserted in rule 4 of the Rules, 2011.
[2] As per the
Gazetted Amendment Rules, 2016.
[3] CERSAI
Notification No. CERSAI/CMD/2016-1232 dated March 4, 2016 –
site last visited on April 30, 2016.
[4] CERSAI Notification No. CERSAI/IT/1178/2016 – site last visited on
April 30, 2016.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

4 comments

  • The Amendment Rules, 2016 do not require a pledge over shares or other securities to be reported to the CERSAI as yet, thereby not completely aligning with the requirements of the Companies Act, 2013. This is a curious omission in the Amendment Rules, 2016.

  • Dear sir,
    I am adv Mehta
    Sir, one of my client has participated in auction and paid entire auction money and till the date sale certificate is not issued by the bank, but he searched and verified the documents I come to know about that following things
    1) bank has not properly value by approved valued?
    2) bank has not mentioned in the public notice of auction about pending SA on the said property?
    3) bank has created charge on the property by depositing of title deed ?
    4) before auction of the property bank has not paid stamp duty as per amendment in 2013 of Maharashtra stamp act?
    And deed transfer of apartment is lying with sub register office?
    5) bank has filed for impound during the pendancy of auction?
    6) 30 days are over as per mandate of SARFASI act?
    7) bank has not deposit the said documents with the Central registry of securitisation of asset as admendment of of Sarfasi act?

    Above mentioned defects are

    Kindly give me suggestions
    On what ground successful bidder can claim or refund his money???

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