1. Applicability of the Registration System:
The Provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) are applicable to secured creditors as defined by section 2(1)(zd) of the Act. In terms of the definition following categories of secured creditors are governed by the SARFAESI Act:
(i) Banks
(ii) Financial Institutions
(iii) Debenture Trustee appointed by any bank or financial institution
(iv) Securitisation Company (SC) or Reconstruction Company (RC)
(v) Any other trustee holding securities on behalf of a bank or financial institution.
In terms of the definition of bank and financial institution contained in section 2(1)(c) and (m), the Central Government has powers to declare any other bank or financial institution as a bank or financial institution for the purposes of the provisions of the SARFAESI Act. In exercise of the above powers the Central Government has declared certain banks and housing finance companies as financial institutions for the purposes of the SARFAESI Act, by issue of Notifications as under:
a) Notification No.SO105(E) dated 28.01.2003 declaring Co-operative Bank as defined in clause (cci) of section 5 of the Banking regulation Act, 1949 as 'bank' for the purposes of SARFAESI Act.
b) Notification No.So.1282(E) dated 10.11.2003 declaring certain Housing Finance Companies registered under section 29A of the National Housing Bank Act, 1987, as 'financial institutions' for the purposes of SARFAESI Act.
c) Notification No.SO 1275(E) dated 30.10.2003 declaring Asian Development Bank as 'financial institution' for the purposes of SARFAESI Act.
d) Notification No.SO772(E) dated 17.05.2007 declaring Regional Rural Banks as defined in clause (f) of section 2 of the Regional Rural Banks Act, 1976 as 'bank' for the purposes of SARFAESI Act.
All such entities are secured creditors for the purposes of SARFAESI Act and are required to register security interest by way of mortgage by deposit of title deeds with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). IN addition to debenture trustees referred to in the definition of secured creditors there are certain trustee companies holding securities on behalf of banks and financial institutions. Such trustee companies are also secured creditors for the purposes of the SARFAESI Act and are governed by the requirements of the Registration System.
2. What types of Security Interests are required to be registered with CERSAI?
The Central Government has notified the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011 (Central Registry Rules) with effect from 31st March 2011. In terms of the provisions of the said Rules, the Forms have been prescribed for the purposes of registration of following transactions with CERSAI:
(i) Creation of mortgage by deposit of title deeds in favour of secured creditors: Form-I
(ii) Satisfaction of Charge : Form-II
(iii) Securitisation or Reconstruction of Financial Assets: Form-III
(iv) Satisfaction of Securitisation or Reconstruction of Financial Assets : Form-IV
It can be seen from the provisions of the Central Registry Rules that no Forms have been prescribed for registration of charges other than mortgage by deposit of title deeds. Hence for the present, the secured creditors are required to file particulars of only equitable mortgages with CERSAI.
3. Registration of Securitisation and Reconstruction Transactions:
Banks and financial institutions undertake securitisation of healthy assets, but such securitisation may not be under the provisions of the SARFAESI Act. The assignment of loan receivables with or without the benefit of underlying securities is done in favour of a Special Purpose Vehicle (SPV), using the provisions of the Indian Trust Act, 1882. Such assignment of loan receivables may not be in favour of any SC or RC registered under the provisions of section 3 of the SARFAESI Act. Such securitisation transactions are therefore not required to be registered with CERSAI. If any SC or RC registered under the SARFAESI Act is acquiring loan receivables for securitisation or asset reconstruction, such transactions are required to be registered in Form-III prescribed under the Central Registry Rules. It needs to be noted that registration of transactions of securitisation or reconstruction has no relevance with creation of mortgage by deposit of title deeds. There could be cases where securitisation or reconstruction is undertaken in respect of loan receivables which are unsecured or secured by security interest other than mortgage by deposit of title deeds. All such transactions of securitisation or reconstruction are required to be registered with CERSAI. In many cases, such securitisation or reconstruction transactions would relate to a bundle of loans consisting of many loan accounts acquired from any bank or financial institution. In such cases, satisfaction of the securitisation / reconstruction transaction will have to be filed with CERSAI after all the accounts contained in such bundle of loans are satisfied or otherwise closed. It is not necessary to file any Form for Satisfaction, if only part of such loan portfolio acquired by SC/RC is settled and recovered.
It is not necessary that the loans acquired by SC/RC for the purpose of securitisation or reconstruction or secured by mortgage by deposit of title deeds. However, any SC/RC registered with Reserve Bank of India is also a secured creditor for the purposes of SARFAESI Act. Hence, if in the process of reconstruction of any loans acquired by SC/RC, a mortgage is created in favour of SC/RC to secure the reconstructed loans or any further finance granted to the borrower, such mortgage created in favour of SC/RC will have to be registered by filing Form-I with the CERSAI.
4. Effective Date of the Registry System:
The Government notifications of establishing the Central Registry and prescribing the Central Registry Rules as well as for appointment of the Central Registrar are all dated 31st March 2011. The Registration System has therefore become effective from 31st March 2011 and all security interests by way of creation of mortgage by deposit of title deeds as also transactions of securitisation and asset reconstruction on and after 31st March 2011 are required to be registered. The relevant Rules have not been given retrospective effect and hence transactions of mortgages or securitisation or asset reconstruction undertaken prior to 31st March 2011 are not required to be registered. If in any loan accounts there is a release and re-deposit of title deeds on or after 31st March 2011 amounting to creation of mortgage, such transaction will require registration.
5. Equitable mortgages in favour of trusts/trustee companies
As stated above, the definition of secured creditor under the SARFAESI Act includes trustee acting on behalf of any bank or financial institution and is a secured creditor for the purposes of SARFAESI Act. In cases where equitable mortgages are created in favour of a trustee or a trustee company, Form-I should be filed by such trustee and in para 7 of Form-I, name of the charge holder may be stated as under:
'..... Trustee Company acting on behalf of ...... Bank and ..... Financial Institution'. (The names of the Banks and Financial Institutions on whose behalf the trustee is holding the securities may be indicated after the name of the trustee / trustee company).
6. As of now there is a requirement to file Form 8 under the Companies Act for creation or modification of charge u/s. 125-128. Does the filing of equitable mortgage before this Registry in any way affect this requirement for ROC filing or registration under the Registration Act, 1918?
The Central Registration system established under the SARFAESI act is in addition to and supplemental to other registration system already in operation under other laws such as the Companies Act 1956 or Registration Act, 1918. The registration under the SARFAESI Act does not in any way affect or change the requirement of registration under other laws. Please refer to sub-section (4) of section 20 of the SARFAESI Act.
7. Whether registration fees attract Service Tax and whether TDS is required to be deducted from the advance remittance by the HFCs.
The registration fees are payable as required under the Central Registry Rules 2011 framed in exercise of powers conferred on the Central Government under Section 23 read with Section 38 (2) (d) of the SARFAESI Act, 2002. The fees which is being collected by the Central Registry from the banks and financial institutions is an advance towards the fees to be paid to the Government for registration. When the particulars of mortgages are filed with the registry the fees will be debited to the advance already collected. In our views no TDS/ST is payable in respect of such payments which are charges payable to the Govt. The amount of advance is linked to registrations required to be filed by the Bank or Financial Institution. Once the Central Registry installs the Payment Gateway for payment of fees for registration there will be no requirement of payment of advance.
The Provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) are applicable to secured creditors as defined by section 2(1)(zd) of the Act. In terms of the definition following categories of secured creditors are governed by the SARFAESI Act:
(i) Banks
(ii) Financial Institutions
(iii) Debenture Trustee appointed by any bank or financial institution
(iv) Securitisation Company (SC) or Reconstruction Company (RC)
(v) Any other trustee holding securities on behalf of a bank or financial institution.
In terms of the definition of bank and financial institution contained in section 2(1)(c) and (m), the Central Government has powers to declare any other bank or financial institution as a bank or financial institution for the purposes of the provisions of the SARFAESI Act. In exercise of the above powers the Central Government has declared certain banks and housing finance companies as financial institutions for the purposes of the SARFAESI Act, by issue of Notifications as under:
a) Notification No.SO105(E) dated 28.01.2003 declaring Co-operative Bank as defined in clause (cci) of section 5 of the Banking regulation Act, 1949 as 'bank' for the purposes of SARFAESI Act.
b) Notification No.So.1282(E) dated 10.11.2003 declaring certain Housing Finance Companies registered under section 29A of the National Housing Bank Act, 1987, as 'financial institutions' for the purposes of SARFAESI Act.
c) Notification No.SO 1275(E) dated 30.10.2003 declaring Asian Development Bank as 'financial institution' for the purposes of SARFAESI Act.
d) Notification No.SO772(E) dated 17.05.2007 declaring Regional Rural Banks as defined in clause (f) of section 2 of the Regional Rural Banks Act, 1976 as 'bank' for the purposes of SARFAESI Act.
All such entities are secured creditors for the purposes of SARFAESI Act and are required to register security interest by way of mortgage by deposit of title deeds with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). IN addition to debenture trustees referred to in the definition of secured creditors there are certain trustee companies holding securities on behalf of banks and financial institutions. Such trustee companies are also secured creditors for the purposes of the SARFAESI Act and are governed by the requirements of the Registration System.
2. What types of Security Interests are required to be registered with CERSAI?
The Central Government has notified the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011 (Central Registry Rules) with effect from 31st March 2011. In terms of the provisions of the said Rules, the Forms have been prescribed for the purposes of registration of following transactions with CERSAI:
(i) Creation of mortgage by deposit of title deeds in favour of secured creditors: Form-I
(ii) Satisfaction of Charge : Form-II
(iii) Securitisation or Reconstruction of Financial Assets: Form-III
(iv) Satisfaction of Securitisation or Reconstruction of Financial Assets : Form-IV
It can be seen from the provisions of the Central Registry Rules that no Forms have been prescribed for registration of charges other than mortgage by deposit of title deeds. Hence for the present, the secured creditors are required to file particulars of only equitable mortgages with CERSAI.
3. Registration of Securitisation and Reconstruction Transactions:
Banks and financial institutions undertake securitisation of healthy assets, but such securitisation may not be under the provisions of the SARFAESI Act. The assignment of loan receivables with or without the benefit of underlying securities is done in favour of a Special Purpose Vehicle (SPV), using the provisions of the Indian Trust Act, 1882. Such assignment of loan receivables may not be in favour of any SC or RC registered under the provisions of section 3 of the SARFAESI Act. Such securitisation transactions are therefore not required to be registered with CERSAI. If any SC or RC registered under the SARFAESI Act is acquiring loan receivables for securitisation or asset reconstruction, such transactions are required to be registered in Form-III prescribed under the Central Registry Rules. It needs to be noted that registration of transactions of securitisation or reconstruction has no relevance with creation of mortgage by deposit of title deeds. There could be cases where securitisation or reconstruction is undertaken in respect of loan receivables which are unsecured or secured by security interest other than mortgage by deposit of title deeds. All such transactions of securitisation or reconstruction are required to be registered with CERSAI. In many cases, such securitisation or reconstruction transactions would relate to a bundle of loans consisting of many loan accounts acquired from any bank or financial institution. In such cases, satisfaction of the securitisation / reconstruction transaction will have to be filed with CERSAI after all the accounts contained in such bundle of loans are satisfied or otherwise closed. It is not necessary to file any Form for Satisfaction, if only part of such loan portfolio acquired by SC/RC is settled and recovered.
It is not necessary that the loans acquired by SC/RC for the purpose of securitisation or reconstruction or secured by mortgage by deposit of title deeds. However, any SC/RC registered with Reserve Bank of India is also a secured creditor for the purposes of SARFAESI Act. Hence, if in the process of reconstruction of any loans acquired by SC/RC, a mortgage is created in favour of SC/RC to secure the reconstructed loans or any further finance granted to the borrower, such mortgage created in favour of SC/RC will have to be registered by filing Form-I with the CERSAI.
4. Effective Date of the Registry System:
The Government notifications of establishing the Central Registry and prescribing the Central Registry Rules as well as for appointment of the Central Registrar are all dated 31st March 2011. The Registration System has therefore become effective from 31st March 2011 and all security interests by way of creation of mortgage by deposit of title deeds as also transactions of securitisation and asset reconstruction on and after 31st March 2011 are required to be registered. The relevant Rules have not been given retrospective effect and hence transactions of mortgages or securitisation or asset reconstruction undertaken prior to 31st March 2011 are not required to be registered. If in any loan accounts there is a release and re-deposit of title deeds on or after 31st March 2011 amounting to creation of mortgage, such transaction will require registration.
5. Equitable mortgages in favour of trusts/trustee companies
As stated above, the definition of secured creditor under the SARFAESI Act includes trustee acting on behalf of any bank or financial institution and is a secured creditor for the purposes of SARFAESI Act. In cases where equitable mortgages are created in favour of a trustee or a trustee company, Form-I should be filed by such trustee and in para 7 of Form-I, name of the charge holder may be stated as under:
'..... Trustee Company acting on behalf of ...... Bank and ..... Financial Institution'. (The names of the Banks and Financial Institutions on whose behalf the trustee is holding the securities may be indicated after the name of the trustee / trustee company).
6. As of now there is a requirement to file Form 8 under the Companies Act for creation or modification of charge u/s. 125-128. Does the filing of equitable mortgage before this Registry in any way affect this requirement for ROC filing or registration under the Registration Act, 1918?
The Central Registration system established under the SARFAESI act is in addition to and supplemental to other registration system already in operation under other laws such as the Companies Act 1956 or Registration Act, 1918. The registration under the SARFAESI Act does not in any way affect or change the requirement of registration under other laws. Please refer to sub-section (4) of section 20 of the SARFAESI Act.
7. Whether registration fees attract Service Tax and whether TDS is required to be deducted from the advance remittance by the HFCs.
The registration fees are payable as required under the Central Registry Rules 2011 framed in exercise of powers conferred on the Central Government under Section 23 read with Section 38 (2) (d) of the SARFAESI Act, 2002. The fees which is being collected by the Central Registry from the banks and financial institutions is an advance towards the fees to be paid to the Government for registration. When the particulars of mortgages are filed with the registry the fees will be debited to the advance already collected. In our views no TDS/ST is payable in respect of such payments which are charges payable to the Govt. The amount of advance is linked to registrations required to be filed by the Bank or Financial Institution. Once the Central Registry installs the Payment Gateway for payment of fees for registration there will be no requirement of payment of advance.
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