CMS Expert Guide for taking security in India

Yes, both individuals and legal entities can provide guarantees to secure the obligations of another individual/legal entity.

No, security and guarantees are treated differently in law. It is, however, common practice to see guarantees included in security documents.

No, except for the guarantees provided for consideration, which are treated as a financial service.

Yes, but restricted.

An Indian company can provide an upstream guarantee to its Indian parent, subject to compliance with the Indian Companies Act, 2013 (Companies Act). See answers to Q4 below.

Indian entities cannot provide guarantees for the obligations of their overseas parent company without prior approval from the Reserve Bank of India (RBI).

Yes, a company can provide a downstream guarantee, subject to compliance with Companies Act. See answers to Q4 below.

Yes, a company can provide a lateral guarantee, subject to compliance with Companies Act and extant foreign exchange regulations (where applicable).

See answers to Q‎4 below.

Corporate law and statutory restrictions 

• A company’s charter documents should permit the same; 
• A company cannot guarantee a loan taken by its own directors, directors of its holding company, or their relatives/partners;
• A public limited company cannot provide financial assistance by way of loans, guarantees, security or other means for the purchase of its own shares or those of its holding company;
• Necessary corporate authorisations to be procured; and
• Providing a corporate guarantee to a related party is generally treated as a related party transaction. Under corporate law, such transactions may require prior approval from the board of directors and, in certain cases, the company’s shareholders. These strict corporate approval requirements are typically not triggered if the guarantee is provided in the ordinary course of business and on an arm’s length basis.

Transfer pricing and tax implications

Under tax regulations, corporate guarantees issued to affiliated or group companies are treated as international or domestic controlled transactions subject to transfer pricing rules. If a company provides an interest-free or fee-free guarantee to an affiliate, the Indian tax authorities will impute a guarantee fee and tax the company on the deemed income.

Overseas guarantees under Foreign Exchange Management Act, 1999 (FEMA) 

Under the Indian foreign exchange regulatory framework, an Indian entity can provide an overseas corporate or performance guarantee to, or on behalf of, a foreign entity (including its step-down subsidiaries) in which it has made an overseas direct investment (ODI), subject to the following conditions:

• the Indian entity has acquired control over the foreign company
• the guarantee must be close-ended, with its maximum amount and validity period specified upfront
• the total financial commitment (including all equity, loans, guarantees and creation of charges) must remain within the prescribed limit of 400% of the Indian entity’s net worth (or USD 1 billion per financial year, whichever is lower), with any excess requiring prior approval from the RBI
• compliance with the prescribed reporting requirements.

A guarantee must be in writing, duly executed by authorised signatories pursuant to proper internal approvals (including board and, where required, shareholder approvals), and adequately stamped as per applicable laws to ensure enforceability. Any deficiency in stamping can delay enforcement and attract penalties.

In case of ODI, guarantees issued in favour of foreign entities must be routed through the designated authorised dealer bank and reported in the prescribed manner.

Yes, under Indian law a guarantee or security can validly secure future or contingent obligations; however, a variation to the underlying agreement to, for example, increase the guaranteed obligations, may discharge the guarantor’s liability. 

Further, an overseas guarantee is required to be close-ended, with its maximum amount and validity period specified upfront.

It is possible to secure future obligations under a guarantee or security document with careful drafting which will differ depending on the nature of the transaction.

Yes, the concept of indemnity is expressly recognised under the Indian Contract Act, 1872.

Yes, a guarantee can be continuing for as long as guaranteed or secured obligations remain outstanding. However, an overseas guarantee is required to be close-ended, with its maximum amount and validity period specified upfront.

Yes, a guarantee or security can be granted to a foreign creditor, subject to compliance with applicable foreign exchange regulations. Such arrangements are typically permitted in the context of external commercial borrowings or ODI, and may require adherence to prescribed conditions, including eligibility, permitted end use and reporting requirements. In certain cases, prior approval or routing through an authorised dealer bank may also be required.

Yes, guarantees and/or security can be validly structured through a trustee/agent, but the “parallel debt” construct (as used in English law) is highly uncommon, legally untested and generally avoided in India. 

The formalities required to maintain a guarantee/security package upon the transfer of liabilities depend entirely on the transaction structure and whether the transfer is executed as an assignment of rights or a novation (substitution of contractual relationships). 

If the guarantees/security are held by a security trustee (the market standard), the transfer of debt to a new creditor is seamless – the incoming creditor simply executes a deed of accession to the existing trust deed without this requiring a re-registration of charges or attracting fresh ad valorem stamp duty. 

However, if the guarantee/security is held directly by the lender, a transfer (whether full or partial assignment) requires executing a deed of assignment and registering a modification of charge with the Registrar of Companies (ROC), filing with Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI), registering with the depository for pledge (Depository) and registering with the Sub-Registrar of Assurances for mortgages, which may attract state-specific stamp duty on the assignment deed. 

Crucially, across both structures formal written notice of the transfer must be served to the borrower and the guarantor to legally bind them, direct future debt servicing to the new creditor and ensure they are not validly discharged by paying the original lender.

Any material alteration to the underlying debt contract, such as changing or adding a principal debtor without the guarantor or security provider’s consent, automatically discharges the guarantor and releases the security, respectively.

To ensure the guarantee/security package is successfully maintained, the following formalities must be completed:

• execution of a duly stamped novation agreement with the consent of all concerned parties
• the guarantor/security provider must execute a duly stamped amendment agreement or a confirmation deed, explicitly consenting to the change and confirming that the guarantee and security remain absolute, continuing and enforceable for the new or modified obligations

charge modifications must be registered with appropriate authorities such as the CERSAI portal, ROC and depository and Sub-Registrar of Assurances, as the case may be.

Parties are generally free to choose a foreign governing law for guarantees, subject to such choice being bona fide and not contrary to Indian public policy or mandatory provisions of Indian law. However, security documents relating to assets situated in India are typically governed by Indian law, as issues relating to creation, perfection, registration and enforcement of security interests are governed by Indian statutory frameworks and regulatory requirements. 

On cross‑border transactions, local law advice will be required in determining the appropriate governing law of documents being entered into by foreign obligors and/or in relation to foreign assets. 

Parties may generally submit disputes arising under guarantees or security documents to the jurisdiction of foreign courts or to foreign-seated arbitration, subject to compliance with Indian public policy and mandatory provisions of Indian law. However, disputes relating to enforcement of security interests over assets situated in India, particularly immovable property, shares in Indian companies or bank accounts or enforcement actions under Indian statutory regimes, may be subject to the exclusive or practical jurisdiction of Indian courts, tribunals or authorities. 

As a result, even if the merits of a dispute are governed by a foreign court clause, enforcement of security in India will still require compliance with Indian legal processes.

Arbitration clauses are widely accepted in Indian cross-border financing structures, and Indian law strongly supports arbitration under the Arbitration and Conciliation Act, 1996. Parties may choose either India-seated arbitration or foreign-seated arbitration (such as London or Singapore), and disputes arising from guarantees are generally considered arbitrable in principle.

However, arbitration is subject to important statutory carve-outs. Certain matters are considered non-arbitrable in India. Given these complexities, transaction-specific legal advice and local counsel’s opinion must be obtained to properly structure governing law, jurisdiction and arbitration clauses before execution.

Yes, there are strict currency control and capital movement restrictions under the FEMA regarding cross-border loans, guarantees and security, categorising them as capital account transactions.

Transactions involving the creation of guarantees or security interests may be subject to a “hardening period” or avoidance provisions under the IBC. In particular, a guarantee or security created during the relevant look-back period prior to commencement of insolvency proceedings may be challenged as a preferential, undervalued, extortionate or fraudulent transaction. The look-back period for preferential transactions is generally 2 years for related parties and 1 year for unrelated parties preceding the insolvency commencement date.

Creation of any cross-border security involving an Indian asset or shares of an Indian entity shall be subject to compliance with applicable foreign exchange laws and regulations issued by the RBI.

Yes, it is generally possible to create security over multiple assets pursuant to a single security document, provided that the secured assets are adequately identified and the applicable perfection and registration requirements are complied with. Indian law also recognises floating charges over certain classes of movable assets, such as stock-in-trade, receivables and other circulating assets, which permit the chargor to deal with such assets in the ordinary course of business until the occurrence of a crystallisation event.

Yes, subject to the regulatory considerations as discussed in the answers to Q‎4 above.

No. 

Registration or perfection requirements apply to certain types of security interests in order to preserve enforceability and priority against third parties. 

In particular, charges created by Indian companies are generally required to be registered with the ROC within the prescribed timelines under the Companies Act.

Further, depending on the nature of the asset, additional registrations or filings may also be required, including with CERSAI, land registries or depositories. 

Security over IP, ships and aircraft must also be registered with the relevant government authority.

No. 

Notifications:

Yes.

The priority or ranking of a security interest is generally established based on the: 

1. contractual arrangement between the secured creditors and the borrower/inter-creditor arrangements
2. nature of the charge created
3. timing and perfection of the security interest.

Typically, a first ranking charge holder has priority over the secured asset and is entitled to recover its dues from enforcement proceeds before subordinate charge holders. A second or subordinate charge holder is entitled to recover only after satisfaction of the first ranking debt.

Where multiple lenders share security on an equal basis, a pari passu charge may be created, pursuant to which the secured creditors rank equally and share enforcement proceeds proportionately in accordance with their respective exposure or as contractually agreed. 

The rights and relative priorities of lenders sharing common security are generally governed through an intercreditor agreement or security sharing agreement, which sets out matters such as enforcement rights, distribution waterfall, voting thresholds and standstill arrangements.

Certain statutory dues and insolvency-related provisions may override contractual security priorities. In insolvency proceedings, the distribution waterfall prescribed under the IBC would apply.

Establishment of security and level of security regulation is generally:

Security easily established and encumbrances easily checked.

Yes, guarantee/security documents may generally be executed electronically using electronic signatures, subject to compliance with the Information Technology Act, 2000 and applicable stamping and registration requirements. 

Electronic signatures recognised under the Information Technology Act, 2000 (including Aadhaar-based e-signatures and digital signatures supported by a valid digital signature certificate) are generally enforceable and admissible as evidence. 

However, certain categories of documents are excluded from electronic execution under the Information Technology Act, 2000, including powers of attorney, trusts, wills and certain negotiable instruments. In addition, documents that are required to be compulsorily stamped or registered (including certain mortgage or security documents relating to immovable property) may still require physical execution and registration before the relevant authority, depending on the nature of the document and applicable state laws.

In practice, guarantees, hypothecation agreements and certain movable asset security documents are commonly executed electronically, provided applicable stamp duty and execution formalities are duly complied with.

Yes, registers of encumbrances and security interests over both movable and immovable assets in India are publicly available and accessible online through designated statutory portals. 

Depending on the type of asset and the nature of the transaction, these records can be tracked across three primary online platforms:

• MCA portal(ROC): if the borrower or security provider is a corporate entity (an Indian company), charges registered under the Companies Act are publicly available on the MCA portal
• CERSAI: serves as a central registry and provides a comprehensive public database for security interests over various asset types, particularly for loans from banks and financial institutions
• State-specific Integrated Grievance Redressal System (IGRS) portals: allow the public to search property records and download an Encumbrance Certificate (EC). These databases track all registered transactions, ownership history and registered mortgages against a specific property, subject to state-specific search fees. However, the extent of digitisation and online accessibility of historical records varies significantly across states, and physical searches may still be required in certain jurisdictions.

Guarantee details are generally not maintained in public registries in India. In practice, guarantees are mostly identified through due diligences, disclosure schedules and financial statements.

1. The responsibility of registration of security interest depends on the nature of the security and the relevant registry.

• ROC registration: the security provider is required to file Form CHG-1 within the prescribed period; if the security provider fails to file, the charge holder (lender) may file charge after giving notice to the company
• CERSAI registration: the obligation lies exclusively with the secured creditor (lender/trustee)
• Sub-Registrar registration (mortgage deed): either party may present the document for registration. In commercial practice, parties to the instrument (or their duly authorised representatives) present the document for registration before the relevant Sub-Registrar’s office.
• pledge over dematerialised shares: both the pledgor and pledgee must act through their respective depository participants (DP). The pledgor initiates the pledge request and the pledgee confirms it

information utility: a secured creditor (including a lender or security trustee) is required to file particulars of the credit facilities with the information utility, and such filing must be duly acknowledged by the company.  

ROC searches (via MCA portal) and CERSAI searches are instantaneous, available online 24/7 on payment of a nominal fee of approximately € 0.91 (for ROC) and INR € 0.10 (for CERSAI). 

Encumbrances over immovable property may be ascertained by checking the EC or equivalent extract from the Sub-Registrar of Assurances where such immovable property is situated. Most states have introduced online portals for EC applications and such applications are typically processed within 2-3 working days.

Where the relevant records are not digitised, or where an online portal is not available, the application must be submitted in person at the Sub-Registrar’s office. Processing time for offline applications typically ranges from 5-20 working days.

The charges for getting the EC may vary from one state to another, but generally range between €1.81– €4.53.

• Modification of Charge (ROC): the company must file particulars of the modified charge in Form CHG-1 (or Form CHG-9 for debentures) within 30 days of execution of the modifying instrument; the amendment or supplemental deed must be attached
• Satisfaction of Charge (ROC): upon full repayment or discharge, the company must file Form CHG-4 with the ROC within 30 days for satisfaction of charge. Filing is supported by a no objection certificate or confirmation of satisfaction from the charge holder; once satisfied, the ROC records the satisfaction and issues a certificate in Form CHG-5
• CERSAI: upon discharge of the facility or loan, the secured creditor must record the satisfaction/removal of the security interest on the CERSAI portal so that the encumbrance no longer appears as subsisting

Sub-Registrar (Immovable Property Mortgage): satisfaction or release of the mortgage is evidenced by registration of a separate release deed with the jurisdictional Sub-Registrar. Once registered, the public record reflects that the prior mortgage has been satisfied, and a subsequent EC will show both the original mortgage and the registered release/discharge entry.

Timeline: if required, notarisation is completed on the same day.

Cost: typically ranges between €0.45 –€1.81 per document or as per the notarial act. 

The security document must be duly stamped in accordance with applicable state stamp laws at the time of execution. Stamp duty implications vary materially depending on the nature of the asset and the state in which the document is executed.

For a pledge over dematerialised shares of a listed entity, creation of the pledge requires compliance with applicable depository business rules, including filing of Annexure W and obtaining the approval of the compliance officer of the listed entity. A pledge master report issued by the relevant DP should be obtained and reviewed as evidence that the pledge has been duly created and recorded in the depository system.

Yes.

Yes, if explicitly agreed between the parties under the relevant finance agreement.

Yes, if explicitly agreed between the parties under the relevant finance agreement.

Yes, a claim can be filed with the resolution professional under the IBC.

Yes, if explicitly agreed between the parties under the relevant finance agreement.

Yes, under SARFAESI, certain lenders can enforce mortgage, hypothecation etc., without intervention of a court. However, in practice, this may be difficult, given that possession of the hypothecated property remains with the security provider.

Also, pursuant to an English mortgage, the mortgagee can attempt to sell the mortgaged property without court intervention if this has been contractually provided under the mortgage deed.

A pledgee may enforce the pledge by selling the pledged shares by providing notice.

No additional instrument is required for direct enforcement.

Yes, for certain types of security. Out-of-court enforcement is available for real estate fiduciary alienation, fiduciary assignment of receivables and bank account rights, certain movable fiduciary arrangements, financial collateral and, following Law No. 14,711/2023, mortgages through an extrajudicial procedure, subject to statutory requirements.

Traditional pledges and some asset classes may still require judicial enforcement or a court-supervised auction unless a valid contractual sale mechanism and applicable law permit otherwise. For shares, a pledge may be enforced judicially or extrajudicially if the security agreement properly provides for out-of-court sale; fiduciary transfer generally supports out-of-court sale more readily. Additional instruments such as account control agreements, escrow agreements, custodian agreements, POA, transfer forms, notices and registry applications are often required or recommended to make out-of-court enforcement workable.

No.

Yes.

No.

No.

Generally, a power of attorney (POA) is obtained in transactions involving hypothecation of movable assets and assignment of receivables, to enable the secured creditor to effectively exercise its rights upon default. 

It is also specifically recommended in the context of pledged shares and other securities, as it facilitates prompt enforcement, including transfer or sale of the securities, without requiring further intervention or cooperation from the pledgor at the time of enforcement.

None of the above are mandatory. POA is highly recommended. 

Enforcement by court, i.e. judicial procedure, is slower and may take several months.

Fairly easy, but long in terms of timing. 

No.