Banking · Risk Management and Compliance
A large infrastructure company seeks a Rs. 500-crore loan for a project. The documentation package includes: a 3-year-old Board Resolution, a Hypothecation Agreement for 'Future Assets', a foreign subsidiary guarantee, a mortgage deed for land under government acquisition, and Promissory Notes missing the required Common Seal. Stamping is done at 0.1% instead of the amended 0.2%. As a Senior Credit Officer, what is the most critical Documentation Risk assessment?
- 1All documents are perfectly valid because corporate project finance follows relaxed documentation norms.
- 2The Negative Lien and Letter of Comfort provide enough secondary security to ignore the flaws in the primary documents.
- 3The old Board Resolution and missing Common Seal make the execution 'Defective'; understamping makes the document 'Inadmissible'; the foreign guarantee requires 'FEMA' compliance; and the mortgage on land under acquisition is 'Void' due to lack of clear title.✓
- 4The missing Common Seal and understamping are minor clerical errors that can be rectified post-disbursement.
Correct answer
The old Board Resolution and missing Common Seal make the execution 'Defective'; understamping makes the document 'Inadmissible'; the foreign guarantee requires 'FEMA' compliance; and the mortgage on land under acquisition is 'Void' due to lack of clear title.
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