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Creation of charge on guarantee

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Rk Gupta

69 Points Posted on 16 November 2021

indian company AEE incorporated wholly owned subsidiary overseas and taking a loan from overseas Bank which is Indian bank has asked for corporate guarantee of Indian promoter companies now bank is asking to create charge on guarantee by Indian company section 77 of companies act 2013 does not clarify charge on guarantee can anybody elaborate about the issue
normally charge is created on assets which cannot be hypothecated but the AC has not clarified the issue
R K Gupta

Replies (2)

Quick Summary

This discussion explores the complexities of creating a charge on a corporate guarantee for loans taken by an overseas subsidiary of an Indian company. While Section 77 of the Companies Act 2013 doesn't explicitly clarify charges on guarantees, banks often require them. Participants debate whether a guarantee, being contingent, constitutes an asset on which a charge can be created, noting that banks typically insist on registration under Section 77 regardless.

Chirag

Professional

1149 Points Posted on 17 November 2021

Charge is required to be created ,if Indian company has provided any asset in form of guarantee, whether situated in India or out of India, just promising for loan taken by WOS is contingent in nature for which no assets as security is committed by Indian holding company ...but in practice banks/FI required it and you can't do nothing than registering charge u/s77 ,even if it's a personal guarantee of promoter you have to register it...

Rk Gupta

69 Points Posted on 20 November 2021

Thanks . You are right . Primarily charge under act was to be created on immovable property and moveable assets can be hypothecated under lock and key of lender. and there was seperate proceedures to deal with goods hypothecated. but now act drafted has wording which many time is misinterpreted. No charge can be created on guarantee.