A new Bill has been put up by the Reserve Bank of India for the approval of the Indian Parliament, that would substantially alter the way banks and financial institutions receive and enforce their security against lending

Called the Creation and Enforcement of Security Interest by Banks and Financial Institutions Bill, 2001, it seeks to codify and consolidate creation and enforcement of security interest without intervention of courts

Some of its relevant provisions are -

Definitions

A Borrower means any person who has availed financial assistance from any bank/financial institution and/or furnished or created any security interest in or upon any property as security for the assistance

Financial Assistance means any of the following facilities given by a secured creditor -

loan or advance granted

debenture or bonds subscribed

guarantees or letters of credit issued or any other commitment made which may give rise to any pecuniary liability or

interest fees commitment charges or other charges for such financial assistance

Hypothecation means a charge in or over any movable property, whether tangible or intangible, present or future, created by a borrower without delivery of possession of hte property, whether actual or constructive, as a security for financial assistance and includes floating charge and crystallisation thereof, but does not include pledge of movables

Property means -

Immovable Property

Movable Property

any debt or receivable or other right to receive payment of money whether unsecured or secured and includes any receivable which is conditional or contingent upon happening of any event or accruing in future

all rights of any kind and nature, present and future, in and to all contracts, copyrights, designs, patents and general intangibles

Secured creditor means any bank or financial institution or any consortium or group, including -

debenture trustee or security agents appointed by any bank/financial institution as debenture trustee

special purpose vehicle involved in the securitization of financial assistance

any specially created entity for assets reconstruction, which has acquired receivables under any financial assistance with securities therefor, from any secured creditor

any trustee holding securities on behalf of bank/financial institution, in whose favour security interest is created for due repayment of any financial assistance by the borrower

Security Interest means right, title and interest of every kind and nature over property created in favour of secured creditor including any mortgage, charge, hypothecation, assignment, lien, grant, indenture of trust, trust receipt, transfer or conveyance executed as security for financial assistance granted or to be granted to the borrower by the secured creditor - certain security interests have been expressly excluded (see below)

Creating Security - Security interest over any property may be created by any security agreement or arrangement - it may provide the borrower to sell, assign, transfer exchange or otherwise deal with finished products, consumer goods or stocks-in-trade

A Central Registry shall be established for the purpose of recording notice of security interest. Such notice shall be filed by the secured creditor with the Central Registry within whose geographical area the secured creditor or the borrower has his registered or head office or residence (if individual). The security notice shall be marked satisfied (on payment and discharge of all obligations) or modified (by the secured creditor) on modification

Registration of the notice of security intelrest under the proposed Act is optional

Enforcement - where any borrower makes any defaults, the secured creditor may require the borrower by written notice to rectify the breach within 60 days - failure shall entitle the creditor

to take possession of the secured asset and sell, lease or otherwise assign the assets

to appoint a receiver with specified rights

to require the borrower's debtor/s to pay such of the amount/s due as satisfies the borrower's debt to the creditor

any wrongful disposal by the borrower after receiving notice shall be bad in law and the receipient of the sale proceeds shall hold them in trust for the creditor