Stocks are traded on the stock exchange and their prices fluctuate very often. As share prices continue to fluctuate, the value of collateral is constantly changing. If stock prices fall, the value of collateral will also decrease. To repair the eroded value, the developer must either mortgage more shares, provide additional money, or put more assets as collateral. If the promoters are unable to recover the eroded value of the security, the lender may sell the shares on the open market in order to recover its money. The minimum value of the guarantee is agreed between the lender and the borrower. If the value of the shares is less than the minimum value, the lender can also sell the mortgaged shares and get the money back. In the worst case scenario, the promoter could also lose all of its stake in the business. Therefore, in many situations, a separate share guarantee agreement in a lender`s guarantee package can have a number of benefits. In order to protect the interests of existing shareholders, SEBI has adopted certain provisions. These provisions mainly concern the disclosure obligations of the pawnbroker and the commitments relating to subsecured shares. This occurs because the collateral of shares by project proponents could result in a change of ownership if the developer is unable to repay the loan.
The SAST regulations make it clear in Regulation 28 that the burden on the shares would include the collateral of the shares. Negative collateral and indirect control of corporate restructuring – the holding or control of shares means that the borrower cannot attempt to offer the shares as collateral to another lender. In addition, the lender can ensure that it is aware of and participates in all restructurings within the group of borrowers, since the borrower`s lawyers must recover the mortgaged shares for the issuance of new or replacement certificates as part of the restructuring. The shares of the promoter of more than 30% cannot be accepted as a pledge, because RBI orders the bank to hold shares in its own name if the shares are held by the bank as collateral or mortgage. If you abandon a stock foreclosure or an equity guarantee agreement, you commit shares that you hold as collateral for a debt. You can mortgage your actions orally, but a written instruction agreement is safer: if someone gets confused or forgets the conditions, it is easy to determine the facts. Added Pacts – A pawning agreement generally gives the lender the benefit of a number of specific equity obligations, including specific rights to vote on shares before and after filing a default, processing and entitlement to dividends received before and after a default, as well as stock-specific insurance and guarantees. To the extent that a shareholders` pact on shares contains restrictive agreements, these agreements may be repealed or reconciled with all necessary consents of other shareholders regarding the collateral of the share agreement reached in this document. These complementary sharing agreements are generally not included in a GSA that often addresses the attributes of specific guarantees submitted to the GSA in a very general way. The main agreement is between the borrower (usually the entity) and the lender (bank or NBFC). There is a security contract between the credit company and the project promoter.