A Cash Credit Agreement is extensively used in Indian banking for providing working capital finance to businesses. It is particularly suitable when a business needs regular access to funds against fluctuating current assets like inventory and receivables. The agreement, structured under Indian banking regulations and contract law, establishes a revolving credit facility where the borrower can repeatedly withdraw funds up to an approved limit. The document typically includes comprehensive details about facility limits, interest rates, security arrangements, operational procedures, compliance requirements, and default consequences. This type of agreement is commonly used by manufacturers, traders, and other businesses requiring regular working capital support, with the credit limit typically being determined based on the value of current assets provided as security.
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1. Parties: Identifies the lending bank and the borrower with their complete legal names, addresses, and registration details
2. Background: Sets out the context of the agreement, including the borrower's request for the facility and the bank's agreement to provide it
3. Definitions: Defines key terms used throughout the agreement for clarity and consistency
4. Facility Details: Specifies the credit limit, purpose, tenure, and nature of the cash credit facility
5. Interest and Fees: Details the interest rate, calculation method, review periods, and all applicable fees and charges
6. Security: Describes the primary security arrangements, including hypothecation of stock, book debts, or other assets
7. Drawing Power and Operations: Outlines how drawing power is calculated and the operational mechanics of the account
8. Representations and Warranties: States the borrower's representations regarding their legal status, authority, and financial condition
9. Covenants: Lists positive and negative covenants binding the borrower
10. Events of Default: Enumerates circumstances constituting default and their consequences
11. Bank's Rights and Remedies: Details the bank's rights upon default or breach
12. Governing Law and Jurisdiction: Specifies Indian law as governing law and defines jurisdiction for disputes
13. Notices: Provides the mechanism for formal communications between parties
14. Miscellaneous: Includes standard boilerplate provisions like amendments, waivers, and severability
1. Additional Security: Required when multiple forms of security or collateral are involved, such as personal guarantees or corporate guarantees
2. Insurance: Needed when specific insurance requirements are imposed on the secured assets
3. Stock Statements: Include when the facility is backed by inventory and requires periodic stock statements
4. Trust and Retention Account: Required for structured cash flow arrangements
5. Cross Default: Include when the borrower has multiple facilities with the same bank or other lenders
6. Assignment and Transfer: Include when the bank wants the right to assign or transfer the facility
7. Force Majeure: Optional clause for unforeseen circumstances affecting facility operation
1. Facility Terms: Detailed terms of the cash credit facility including limits, sublimits, and margin requirements
2. Security Details: Comprehensive description of all security offered, including asset details and values
3. Fee Schedule: Detailed breakdown of all fees, charges, and their calculation methods
4. Drawing Power Calculation: Formula and methodology for calculating drawing power against security
5. Condition Precedents: List of documents and conditions to be satisfied before facility activation
6. Compliance Requirements: Periodic reporting and compliance requirements
7. Operating Guidelines: Detailed procedures for operation of the cash credit account
8. Form of Stock Statement: Template for periodic stock statements to be submitted by borrower
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