Project finance thru english mortgage
Santosh Nair
(Querist) 27 March 2012
This query is : Resolved
Hi
We are one of the consultants for a emerging well known IT company looking for a finance of 150cr in 2 yrs expansion plan. The company is running successfully more than 8 yrs. Company is ready to offer a 15% stake for the investment made.
We have a pvt. financier who can fund the project at 10% fix interest against English Mortgage.
I want to know as a Mortagage is it safe for our client to English Mortgage their company papers. This way client can save a good amount of funds by paying the interest for 3 years rather giving stake of 15% which will be 3 times of interest amount.
Pls advice.
Thanks
Anirudh
(Expert) 27 March 2012
Dear Mr. Nair,
As per Section 58(e) of Transfer of Property Act, "English mortgage" means where the mortgagor binds himself to repay the mortgage-money on a certain date, AND TRANSFERS THE MORTGAGED PROPERTY ABSOLUTELY TO THE MORTGAGEE, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage.
Therefore, under the ENGLISH MORTGAGE, your company has to transfer absolutely its property to the mortgagee. IT IS NOT SIMPLY MORTGAGING THE COMPANY PAPERS! Thus, if your company absolutely transfers it property to the mortgagee, on what it will work on?
In fact, you have to consult a good financial consultant and take things forward instead of getting into such seemingly quick solutions!
Santosh Nair
(Querist) 27 March 2012
Thanks for your advice.
