Government of India Volume I: Analysis and Recommendations

ANNEXES
(c) Pledged shares and exemptions from the Takeover Code: When the underlying
security, which has been acquired by an ARC, are shares held in dematerialised
form, there are no statutory provisions or regulatory guidelines allowing
substitution of the ARC in place of the original lender. This leads to complications
and excessive procedural requirements. Further, while banks and
financial institutions have been exempted from the Securities and Exchange
Board of India Substantial Acquisition of Shares and Takeover, Regulations,
2011 (Takeover Code), for pledged shares held by them, similar exemptions
have not been made applicable to ARCs. This WG recommends that substitution
of ARCs in place of the original lender, and the exemption from the applicability
of the Takeover Code must be allowed. This would however require
appropriate amendments to sub-ordinate legislation by SEBI and Ministry of
Company Affairs, Government of India (MCA), as applicable.
(d) Modification of charges: Companies which mortgage their assets are necessarily
required to intimate the Registrar of Companies (ROC) to assist in case of
insolvency/winding up. However, currently dormant companies (companies
who have not complied with filing of annual returns among other things) are
not allowed to change or modify their charge registers in light of recent notifications
of the MCA. 3 This leads to a situation where if the assets of the dormant
company are securitised and transferred to ARCs, the names of ARCs cannot
be substituted leading to difficulties in enforcement proceedings/insolvency
and winding up cases. This WG is of the opinion that modification of charges
and exemptions in case of ARCs acquiring NPAs of dormant companies must
be allowed. This would however require appropriate clarifications by the MCA.
(e) Central Registry: The Central Government has set up a central electronic
registry under SARFAESI effective from March 31, 2011 to prevent frauds in loan
cases involving multiple loans from different banks. The central registry is
maintained by Central Registry of Securitisation Asset Reconstruction and Security
Interest of India (CERSAI) under SARFAESI. The registration of charges can
be done online and search of the records of the registry can be done by any
person online. This WG is of the opinion that the scope of the registry must
be expanded to include encumbrance over any property and not just those
which are mortgaged to banks or financial institutions. In addition all existing
registration systems such as land registry and filings with the registrar of
companies, must be integrated with the central registry so that encumbrance
on any property (movable or immovable or intangible) is recorded and can be
verified by any person dealing with such property.
19.10.4. List of Acts governing the Indian banking sector
1. Banking Regulation Act, 1949
2. Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (applicable
to banks nationalised in 1970)
3. Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (applicable
to banks nationalised in 1980)
4. Companies Act, 1956 (to a limited extent)
5. Reserve Bank of India Act, 1934, rules, guidelines, master circulars, and regulations
made thereunder
3 The Ministry of Company Affairs through General Circular 33/ 2001 dated June 1, 2011 notified that unless a company
files its updated balance sheet and profit and loss account it will not be able to file any event based compliance
forms, including for modification of charges.
FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION 191