Fis Set New Mortgage Rules For Core Sector

Financial institutions have decided to enter into mortgage agreements for infrastructure financing where they will have the right to sell the security in case of a default with the permission of the high court. This has been objected to by the borrowers.

The financial institutions have decided to insist on mortgages, termed English Mortgage, which allow the mortgagee to sell or concur in selling the mortgaged property without the intervention of the court on default by the mortgagor in payment.

This would ensure that the financiers can enforce the security more effectively without litigation. In addition, the pending of a winding-up petition before courts does not affect the mortgagee’s right of private sale outside courts by way of public auction.

Such power is absent in case of the alternative to the English Mortgage_the Equitable Mortgage_which is by way of deposit of title deeds. In case of the English mortgage, the mortgagee is only required to serve a notice in writing on the mortgagor and the default would have had to be in payment of principal for a period of three months etc.

The financial institutions assist infrastructure projects on a non recourse basis and they have been asking for security in three forms viz. a first mortgage and charge on all the company’s immovable and movable properties both present and future, assignment of all rights, titles and interests of the project company in all project documents and pledge of promoters shares.

The institutions and the project sponsors have been at loggerheads on the above issue with the latter expressing a preference for creation of mortgage by way of deposit of title Fixed-Rate Mortgage deeds because of the high stamp duty payable at the time of creation of security for English Mortgage.

The issue was discussed at the inter institutions meeting where it was decided that in the states where the stamp duty, surcharges and registration fees are high, the FIs could try to persuade the state government for granting relaxations. It was also decided that for the purpose of payment of stamp duty the project company would be required to maintain a stamp duty reserve.

However in states like Karnataka, Tamil Nadu and Andhra Pradesh the documents in respect of properties situated in the state are required to be compulsorily lodged with the registration authorities and hence the English Mortgage in respect of properties from such states cannot be created at Mumbai.

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