Corporate Compliance Calendar February, 2022 (Due Dates Trac

ABOUT ARTICLE:

This article contains various Compliance requirements for the Month
of February, 2022 under various Statutory Laws. Compliance means “adhering to rules and regulations.” Compliance is a
continuous process of following laws, policies, and regulations, rules to
meet all the necessary governance requirements without any failure.

If you think compliance is expensive, try non‐ compliance”


Compliance Requirement Under

  1. Income Tax Act, 1961
  2. Goods & Services Tax Act, 2017 (GST) and Important Updates / Circulars
  3. Companies Act, 2013 & LLP Compliance (MCA/ROC Compliance) and
    Notifications
  4. Foreign Exchange Management Act, 1999 (FEMA) and Important
    Notifications
  5. Other Statutory Laws and Updates
  6. SEBI (Listing Obligations & Disclosure Requirements) (LODR)
    Regulations, 2015
  7. SEBI Takeover Regulations 2011
  8. SEBI (Prohibition of Insider Trading) Regulations, 2015
  9. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
  10. SEBI (Buyback of Securities) Regulations, 2018
  11. SEBI (Depositories and Participants) Regulations 2018) and Circulars
  12. Insolvency and Bankruptcy Board of India (IBBI) Updates
  13. NBFC Compliance Overview
  14. NCLT & NCLAT Updates
  15. Competition Commission of India
  16. IRDAI – Insurance Sector Updates
  17. Cabinet Decisions / New Acts
  1. COMPLIANCE REQUIREMENT UNDER INCOME TAX ACT, 1961

❑ IMPORTATNT UPDATES – JANUARY, 2022:

  1. Income Tax Return for AY 2022-2023: Avoid flat 30% tax on
    cryptocurrency income till now – here’s how

The new crypto tax rule would apply from Assessment Year 2023-2024. That means
your income from crypto in Financial Year 2022-23 would be taxed at the rate of
30% (plus cess and surcharges).

How to avoid flat 30% tax on income from cryptocurrency? After the announcement
of proposed 30 percent tax rule on income from cryptocurrencies and other virtual
digital assets (VDAs) in Budget 2022, this may be the biggest question on the minds
of crypto investors and traders.

The new crypto tax rule would apply from Assessment Year 2023-2024. That means
your income from crypto in Financial Year 2022-23 would be taxed at the rate of 30%
(plus cess and surcharges).


For income in the current financial year (till 31st March 2022), 30% tax rule will not
apply. So if you sell your crypto holdings till March 31 and book profit, this income
will be taxed as per existing rules in Assessment Year 2022-2023.


According to Revenue Secretary Tarun Bajaj, crypto investors can show their income under some head in ITR and the Assessing Officer would do the assessment for them for transactions before April 1. (To know more: Click Here)

  1. Income tax slabs 2022: No changes in Income Tax, govt employees’
    tax deduction limit increased to 14%.

While presenting the Union Budget on Tuesday, Finance Minister Nirmala Sitharaman
proposed no change in income tax slabs. She, however, proposed that both Centre and
states government employees’ tax deduction limit be increased from 10% to 14%. The
move, she said, will help the social security benefits of state government employees
and bring them at par with the Central government employees.


The Finance Minister also proposed a reduction in corporate surcharge and said that
the transfer of any virtual digital asset shall be taxed at the rate of 30%. “Corporate
surcharge to be reduced from 12% to 7%. I propose to provide that any income from
transfer of any virtual digital asset shall be taxed at the rate of 30%. No deduction in
respect of any expenditure or allowance shall be allowed while computing such
income, except the cost of acquisition,” she said.


The Budget has also extended the timelines for benefits under the new corporate tax
regime. The government had announced a 15 per cent corporate tax rate for newly
incorporated manufacturing companies till March 31, 2023, which has now been

extended till March 31, 2024. The period of incorporation for startups to avail the tax
benefits has also been extended by a year to March 31, 2023.


(To know more: Click Here)

  1. Here’s how the new CBDT circular has impacted Ulip taxation benefits

Ahead of budget 2022 which will be presented by the finance minister in a few days, let me take you back to Budget 2021, when the Ulip (unit linked insurance policies) industry got a shock as the new provisos for claiming exemption of the sum received from Ulip were added.
There were still some grey areas with respect to the newly added provisos which are now clarified in more detail by CBDT (Central Board of Direct Taxes) in the ‘Guidelines under clause (10D) section 10 of the Income-Tax Act, 1961’ vide circular no. 2 of 2022, dated 19 January 2022.


Ulip is one of the most common investment people make as it has dual benefits. Firstly, when the premium is paid it is claimed as deduction under Section 80C of the Income Tax Act. Secondly, the sum received from the Ulip is exempted under Section 10(10D) of the Income
Tax Act, subject to certain conditions

.
This amendment is applicable prospectively, i.e. for policies issued after 1 February 2021. When the exemption stands withdrawn, tax will be payable on the capital gains i.e. difference
between sum received (including withdrawals and bonus) and total premium paid. Also, if premium is payable for more than one Ulip, issued on or after 1 February 2021, the exemption of sum received under Section 10 (10D) shall be available only with respect to
such policies where the aggregate premium does not exceed ₹2.5 lakh for any of the previous years during the term of any of those policies. (To know more: Click Here)


❑ IMPORTANT NOTIFICATIONS – For the month of January – 2022:

2. COMPLIANCE REQUIREMENT UNDER GST, 2017

A. Filing of GSTR –3B

a) Taxpayers having aggregate turnover > Rs. 5 Cr. in preceding FY

b). Taxpayers having aggregate turnover upto Rs. 5 crores in preceding FY (Group A)

c). Taxpayers having aggregate turnover upto Rs. 5 crores in preceding FY (Group B)

B. Filing Form GSTR-1:

C. Non Resident Tax Payers, ISD, TDS & TCS Taxpayers

D. GSTR – 1 QRMP monthly / Quarterly return

E. GST Refund:

F. Annual Returns:

Major Update:


Taxpayers can now withdraw their application for cancellation of registration (filed in
Form REG-16) unless the tax officer has initiated action on it.
Aadhaar authentication of registered person is mandatory for filing of
Refund/Revocation of cancelled registration applications w. e. from 1.1.2022.


❑ KEY UPDATE(s) – January, 2022:

  1. Several textile cos’ stocks rallied in past 1 yr on GST hike deferment, PLI

The shares of Bhilwara Spinners, Nitin Spinners and Nahar Spinning Mills companies rose
252%, 316%, 711%, respectively, over the past one-year period


Shares in textile business have witnessed a consistent uptick in the recent months due to various policy measures and on hopes of a firm outlook for the sector going ahead

.
Besides, the GST council’s recent move to defer rate hike on textiles has buoyed investors’ sentiment. In its latest GST council meeting, it was unanimously decided to defer a hike in rates on textiles from 5 per cent to 12 per cent, which was to come into effect from January 1.


The decision by the Council gave a breathing space to the industry. Accordingly, stocks of several textile firms zoomed. Till date, shares of Bhilwara Spinners, Nitin Spinners and Nahar
Spinning Mills have seen a sharp rally. The shares of Bhilwara Spinners, Nitin Spinners and Nahar Spinning Mills companies rose 252 per cent, 316 per cent, 711 per cent, respectively, over the past one-year period.


Consequently, shares Of companies such as Alok Industries rose 40 per cent, Trident 333 per cent, KPR Mill 315 per cent, Arvind 195 per cent, Welspun India 134 per cent, Gokaldas Exports 344 per cent, Lux Industries 147 per cent, Filatex India 109 per cent, and Ambika Cotton Mills 105 per cent during the period. (To read more: Click Here)

  1. ‘Exempt all branded essential food prods under GST’

Madurai: The Agrofood chamber of commerce and industry (agrofood chamber) has urged the union government to exempt all branded essential food products under the Goods and
Services Tax (GST) at par with the same products such as unbranded. This has been stressed by the chamber in a pre-budget memorandum for the year 2022-23 submitted to the union finance minister Nirmala Sitharaman. In the representation on behalf of the trade and industry,
farming and agrofood sector, the agrofood chamber president S Rethinavelu said that this has been a long pending demand of the industry. “Unbranded essential food items such as rice, wheat and pulses are exempted from GST. But the same when branded attract 5% GST, making them expensive or forcing brands to disown the brand names with a disclaimer,” he
said. The chamber president said that the government should encourage companies and traders to go for branded essential food items by exempting them under GST. “By going with the brand name the companies have the responsibility of giving quality products to the
consumers and to promote the brand name. As brands disown their names with a disclaimer to avail tax exemption, there is a threat for misuse of their names by anyone,” he added.


They also sought one tax rate for all the products covered under one chapter for ease of doing business, deregulating the Cereals, Pulses and Staples from the Essential Commodities Act, 1955, abolition of cess levied on farm produce that are sold outside the Agricultural Produce
Marketing Committees and increasing the threshold limit for the service sector from Rs 20 lakh to Rs 40 lakh for the benefit of small service providers. (To read more – Click Here)

K’taka CM urges Centre to extend GST compensation period upto 2024-25

Karnataka Chief Minister Basavaraj Bommai on Monday requested the Centre to extend the GST compensation for a period up to 2024-25. Bommai presented the request when he called
on Union Finance minister Nirmala Sitharaman in New Delhi on Monday.


“The period of GST compensation, being paid by the Union government, is set to end in March 2022. But the states are facing a resource crunch due to the COVID-19 impact. In this background, the Union government should extend the GST compensation time limit up to
2024-25 to help the states,” said Bommai.


“The Union government had provided GST compensation for the last two years through loans. The same gesture should continue for three more years and the loans could be repaid through a collection of GST Cess,” he added. The meeting was also attended by Union Finance Minister Nirmala Sitharaman and Parliamentary Affairs Minister Pralhad Joshi.

❑ GST UPDATES – JANUARY, 2022:

  1. COMPLIANCE REQUIREMENT UNDER COMPANIES ACT, 2013
    AND RULES MADE THEREUNDER;

❑ Due dates of ROC Return Filings

KEY COMPLIANCES UNDER FEMA / RBI

Entities which are filing FLA return for the first time/ with revised UIN (Unique identification number) are required to register themselves first for generating login credentials and afterwards they can file FLA return. However, the entities which have already registered earlier may submit FLA-2021 using their earlier login credentials.

❑ IMPORTANT UPDATES, JANUARY-2022:

  1. NBFCs seek relaxation from RBI on asset classification, provisioning norms

  2. Non-banking finance companies (NBFC) are still hopeful of some relaxation by the Reserve
    Bank of India (RBI) on the norms of income recognition, asset classification, and
    provisioning for advances.
  3. “Industry associations have requested the RBI to have a re-look at the requirements and give
    us a little more time to make this alignment. The reason is that we have to communicate to
    customers across the country, and they will have to align their payments. We are hopeful that
    something should come from the RBI in terms of direction this month,” said the head of an
    NBFC. The RBI has however, not acceded to such requests till now.
    Highlighting the disruption from the pandemic, the FIDC in its representation had said that
    most of the borrowers of NBFCs are self employed or belong to the MSME segments and are
    economically vulnerable and would require more time to stabilise their operations.
    In a notification in November 2021, the RBI had clarified on prudential norms on income
    recognition, asset classification and provisioning pertaining to advances for all banks, NBFCs
    and all India financial institutions. It had said that NBFCs must recognise loans as NPAs if
    they are not serviced for over 90 days. The objective is to bring uniformity in the
    implementation of IRACP norms across all lending institutions. Further, upgradation of

accounts classified as NPA needs to be done only when the entire arrears of interest and
principal is paid by the borrower. (Source: Click Here).RBI may hike reverse repo rate by 20 bps outside MPC: SBI report

State Bank of India (SBI) Research Report stated that the Reserve Bank of India (RBI) is
likely to increase the reverse repo rate by 20 bps outside MPC. The report titled ‘20 bps hike
in reverse repo rate outside MPC’ is authored by Dr Soumya Kanti Ghosh, Group Chief
Economic Adviser, State Bank of India. “Given all this, we believe the time is now
appropriate to go for a 20 bps hike on reverse repo rate, but outside the MPC meeting as
enshrined in the RBI act that clearly lays down that reverse repo is more of liquidity
management. A hike in the reverse repo is also required as a larger corridor has resulted in
rate volatility.” the report said.


RBI is likely to maintain the status quo on key policy rates in its next bi-monthly economic
policy, which will be the first after the presentation of the Union Budget for 2022-23.
Experts, however, are of the opinion that RBI’s MPC may change the policy stance from
‘accommodative’ to ‘neutral’ and tinker with the reverse-repo rate as part of the liquidity
normalisation process. (To Read more Click Here)

3. NBFC May Get Permission From RBI To Issue Credit Cards, Says Report

For the first time, the Reserve Bank of India (RBI) is discussing with a few non-banking
financial companies (NBFCs) the possibility to allow them to issue credit cards on a
standalone basis, states a recent report by Business Standard. To date, NBFCs have the
permission to issue co-branded credit cards with banks.


NBFCs have been constrained from the credit card market due to several high-access barriers,
especially regarding the issuance of general credit cards. They could not even issue other
cards, like charge cards, debit cards, and stored-value cards.


The consumer credit landscape has now undergone several changes and authorities may need
to revisit this area. The circular of July 7, 2004, is being re-read along with the central bank’s
observations in the ‘Report of the Working Group on Digital Lending through Online
Platforms and Mobile Apps’ – which was put for public comments in November last year.


Moreover, with the growing practice of buy now pay later (BNPL), more people have started
using a credit card. As Redseer, a research firm, estimates, India’s BNPL market is likely to
rocket to $45-50 billion by 2026 from $3-3.5 billion now, with the growing number of BNPL
users in the country. (To Read more Click Here

  1. Digital rupee: RBI must proceed cautiously, remain mindful of design considerations,
    wider implications, challenges

In the Union budget 2022-23, Finance Minister Nirmala Sitharaman proposed the
introduction of a digital currency to be issued by the Reserve Bank of India (RBI) in the

coming financial year. The announcement follows reports of central bank officials informing
the central board of the RBI of a pilot project for the introduction of a Central Bank Digital
Currency (CBDC). Some countries have already introduced CBDCs in some form or the
other. For instance, in 2020, the central bank of Bahamas issued a digital currency. More and
more central banks across the world are beginning to explore the viability, usefulness and
value of digital currencies. Countries like Japan, China, Singapore, Sweden are currently
examining the various facets of such a transition. A few days ago, the US Federal Reserve
also released a report outlining the costs and benefits of issuing a central bank backed digital
dollar.


CBDCs are essentially fiat currencies issued in the virtual/electronic form. Their appeal or the
interest in issuing them has gained traction with the rapid surge of cryptocurrencies, the
increasing popularity of blockchain technology, and the benefits that many argue stem from
its adoption. Among the likely benefits claimed by advocates of CBDCs are the acceleration
of financial inclusion, lower costs for financial transactions, especially in the case of cross-
border transactions, the advantages of an alternate payments system, the creation of another
instrument in the monetary policy arsenal of central banks, the likely adverse impacts on
corruption and money laundering, among others. However, to what extent these benefits
actually materialise will vary from country to country depending on its specific economic
scenario. On the flip side, though, there are several possible risks associated with the
introduction of CDBCs. In the case that retail CBDC accounts are interest bearing, there are
obviously implications for the banking system. It is also possible that during periods of
extreme uncertainty, depositors may choose to migrate away from commercial banks, causing
financial upheaval. Then there is also the question of whether CBDCs will offer the same
degree of anonymity as cash does. (Read more- Click Here)

 RBI CIRCULARS / NOTIFICATIONS: JANUARY,2022

COMPLIANCE UNDER OTHER STATUTORY LAWS

1. HC stays Haryana govt’s law providing 75% reservation for locals

The court, while staying the Haryana law, said “the core issue is whether any state can restrict
employment (even in the private sector) on the basis of domicile”.


In a relief to industry groups in Haryana, the Punjab and Haryana High Court on Thursday
granted an interim stay on a law providing 75 per cent reservation in the private sector for
those who have a domicile in the state. The high court released the detailed order on Friday.


A bench of Justices Ajay Tewari and Pankaj Jain passed the order on a petition filed by the
Faridabad Industries Association and other associations from Haryana. Staying the Haryana
law mandating 75 per cent reservation in the private sector for people domiciled in the state,

The court said “The core issue is whether any state can restrict employment (even in the
private sector) on the basis of domicile”.


The Haryana State Employment of Local Candidates Act, 2020, which came into force on
January 15, provides for 75 per cent reservation in the private sector to jobseekers “domiciled
in the state of Haryana”. The law covers private companies, societies, trusts and partnership
firms and applies to jobs that offer a maximum gross monthly salary or wages of up to Rs
30,000. Central or state governments and any organisation owned by these governments are
outside the ambit of the Act.


The law was passed by the Haryana Vidhan Sabha on March 2, 2021. It came into effect in
the state on January 15, 2022. As per the law, eligible candidates are required to register on a
designated online portal. Companies can make recruitments only through this portal.

  1. 17 states have pre-published draft rules for labour reforms

Labour reforms are progressing steadily as at least 17 states have pre-published draft rules for
four labour codes on wages, social security, industrial relations and occupational safety,
health and working conditions (OSH), according to the Economic Survey 2021-22, tabled in
Parliament.
“As on January 11, 2022, 26 states/UTs have also pre-published the draft rules under the Code
on Wages, 22 states/UTs under Industrial Relations Code, 20 states/UTs under Code on Social
Security, and 17 states/UTs under OSH & WC Code,” it said.


In 2019 and 2020, 29 central labour laws were amalgamated, rationalised and simplified into
four labour codes, which included the Code on Wages, 2019, the Industrial Relations Code,
2020, the Code on Social Security, 2020, and the Occupational Safety, Health & Working
Conditions Code, 2020.


“The new laws were in tune with the changing labour market trends and at the same time
accommodating the minimum wage requirement and welfare needs of the unorganised sector
workers, including the self-employed and migrant workers, within the framework of
legislation,” the Survey said, adding that while the Centre has pre-published draft rules for all
four codes. The states are now required to frame regulations on their part as labour is a
concurrent subject, it added. (To read more: Click Here)

  1. PF Update: Will Govt Allow a Non-Refundable Advance from EPFO Account forThird Time?


To face this, the government had in 2020 during the first wave allowed Employees’ Provident
Fund (EPF) members a Covid-19 advance. This was a completely tax free and non refundable
option for the employees who had lost jobs or were facing a financial crisis due to the
pandemic. Under the Pradhan Mantri Garib Kalyan Yojana (PMGKY), the EPFO had in
March 2020 allowed its subscribers to withdraw up to 75 per cent of the balance standing as
credit in their account or a sum up to three months of basic salary plus DA, whichever was
lower.

“Under this provision, non-refundable withdrawal to the extent of the basic wages and
dearness allowances for three months or up to 75% of the amount standing to member’s
credit in the EPF account, whichever is less, is provided. Members can apply for lesser
amount also,” the labour ministry said.


You can avail this service online using your Universal Account Number (UAN), bank details
and specifying the reason for your withdrawal of the money.


With the third wave already settling in, there is a chance that the government might again
extend this scheme to withdraw Covid-19 advance from EPF. The Omicron variant of Covid-
19 has created a medical emergency across the country again, with deaths and
hospitalisations going up. As per latest data, between April 1, 2021 and November 30 2021,
the EPFO had settled a total of 68.10 lakh Covid-19 advance claims, disbursing an amount of
Rs. 14,242 crore to PF members. (To read more Click Here)

❑ UPDATES TRACKER UNDER LABOUR LAWS – JANUARY,
2022:

SEBI – SECURITIES EXCHANGE BOARD OF INDIA

COMPLIANCE REQUIREMENT UNDER SEBI (LISTING OBLIGATIONS AND
DISCLOSURE REQUIREMENTS) (LODR) REGULATIONS, 2015

A. Quarterly Compliances:

B. Half Yearly Compliances:

C. Regular / Annual Compliances:

D. Other Quarterly compliance which included half year compliance except
Financial Result (FR)

E. Event based Compliances

  1. SEBI (Substantial Acquisition of Shares and Takeovers)
    Regulations, 2011

Securities and Exchange Board of India (SEBI) vide notification / Circular No.
SEBI/HO/CFD/DCR1/CIR/P/2020/49 issued and publish dated 27th March 2020, has
published Relaxation from compliance with certain provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 due to the COVID-19 pandemic.”.

SEBI (Prohibition of Insider Trading) Regulations, 2015

  1. SEBI (Issue of Capital and Disclosure Requirements)
    Regulations, 2018
  1. SEBI (Buyback of Securities) Regulations, 2018 (Buyback
    Regulations)

SEBI (Depositories and Participants) Regulations 2018)

❑ SEBI Circulars Tracker: January, 2022

  1. IBBI UPDATES {INSOLVENCY AND BANKRUPTCY
    BOARD OF INDIA}

❑ Budget 2022 | FM announces plan for strengthening IBC

Finance Minister Nirmala Sitharaman said while presenting the Union Budget 2022 on February 1 that changes have been proposed in the Insolvency and Bankruptcy Code (IBC) to enable
seamless cross-border insolvency as well as quicker dispute resolution.


She said: “Necessary amendments will be made in the IBC for more efficient dispute resolution and enable cross-border insolvency resolution.” The changes will come about six years after the
IBC was legislated that promised to institutionalise corporate restructuring through a modern, contemporary mechanism.


The proposed legislative changes, which will likely come through a series of amendments in the existing law, could also include a code of conduct for the committee of creditors (CoC), the group that is empowered to decide on insolvency resolution proposals.


The new rules on IBC related to cross-border insolvency will be broadly framed on the lines of United Nations Commission on International Trade Law (Uncitral). In an increasingly economically interdependent world, the importance of developing and maintaining a robust
cross-border legal framework for the facilitation of international trade and investment is widely acknowledged.


To implement its mandate and to facilitate the exchange of ideas and information, Uncitral maintains close links with international and regional organisations, both inter-governmental and
non-governmental, that are active participants in the work programme of Uncitral and in the field of international trade and commercial law. (To read more Click Here)

❑ Income tax cannot raise fresh claims after resolution plan approved
under IBC: Bombay High Cour

In what might give reduction to a number of corporations under the Insolvency and Bankruptcy Code (IBC), Bombay High Court has dominated that the tax department cannot raise fresh
claims after a resolution plan is approved.


The tax division had issued fresh notices to the company debtor after a resolution plan was approved. There remains to be ambiguity over what would occur to pending tax demand for the
corporate under IBC. And what would occur if the corporate had been to get a refund from the
tax division after the brand new consumers take over, say business trackers.


Though the recent ruling deals with the demands raised by the income-tax authorities from the assessments for the financial years prior to the IBC order, an open issue arises in the case where
the corporate debtor gets such assessments in their favour and there is a claim of refund or loss carry forward. Technically, the income tax laws are silent on this aspect and since IBC does not
per se deal in relation to tax matters, it could be said that there is no conflict between the IBC and tax laws,” stated Yashesh Ashar, accomplice at tax advisory agency Bhuta Shah & Co.

“The income tax authorities…ought to have been diligent to verify the previous years’ assessment of the corporate debtor as permissible under the law and to raise the claim in the prescribed form within time before the resolution professional. In the present case, the income tax authorities failed to do so and therefore, the claim stood extinguished,” the court docket dominated. (To read more Click Here)

❑ Reliance-ACRE seeks competition panel’s nod to buy Sintex under IBC

Reliance Industries Limited (RIL) in partnership with Assets Care & Reconstruction Enterprises (ACRE) has sought approval from the Competition Commission of India (CCI) to
acquire Sintex Industries.


According to a report, RIL and ACRE have made bid to acquire Sintex Industries which is under insolvency proceedings. The report said that an approval from CCI is required before the resolution plan can receive the lenders’ nod. At present, RIL, ARES Capital-backed ACRE, Welspun Group company Easygo Textiles, Trident, Himatsingka Ventures and
GHFC have shown interest in Sintex Industries.


The Gujarat-based textile company is currently undergoing a corporate insolvency and resolution process in the National Company Law Tribunal (NCLT).

❑ Important Notifications and Circulars Tracker (January, 2022)

NBFC Compliance Overview

Non-Banking Financial Companies (NBFCs) is a Company registered under the Companies Act 2013 engaged in the businesses of providing financial services including loans & advances, leasing, hire purchase etc. They provide loans and advances and other credit facilities to business people or budding entrepreneur where Bank/Financial Institution are not
comfortable, or say it is an alternative source of finance to businessman.


NBFCs are regulated by the Reserve Bank of India (RBI) within the framework of the
Chapter IIIB of the Reserve Bank of India Act, 1934 and any rules made thereunder or any directions issued by it under the Act.

A. NBFC MONTHLY COMPLIANCES SUBMITTED BY ALL NON-DEPOSIT
TAKING NBFCS

B. NBFC COMPLIANCE UNDER COMPANIES ACT, 2013

C. NBFC Compliance Checklist for Non-Deposit & Deposit-taking Company

• NBFC Updates – January, 2022

1. Apollo Management to invest $125 mn in Indian NBFC

US-based private equity major Apollo Management has agreed to invest around Rs 940 crore ($125 million) as growth capital to pick up minority stake into Hero Fincorp, the lending unit of the Hero Group.


The investment will be made through Apollo’s investment affiliate AHVF II Holdings Singapore II Pte. Ltd, according to a public disclosure viewed by VCCircle.


Apollo will acquire around 9-11% stake in the non-banking financial company (NBFC) on a fully diluted basis along with a board seat. This is likely to be Apollo’s third investment in India after its breakup with ICICI Venture in 2020. In 2021, they invested around $200 million (~Rs 1,500 crore) into JSW Cement. As per reports, it has in 2020 invested $500 million into Piramal Finance’s AIF. Apollo’s India team is led by Utsav Baijal, who oversees
their private equity and credit businesses. Last month, Hero MotoCorp said its board has approved investing up to Rs 700 crore in the NBFC arm.

  1. RBI simplifies rules for factoring business; move to increase NBFC
    numbers from 7 to 182

Reserve Bank of India (RBI) has simplified rules for the Non Banking Finance Companies or
NBFCs. The banking regulator has simplified rules for the factoring business. NBFC-
Investment and Credit Companies (NBFC-ICCs) with asset size of Rs 1,000 crore and above
will be permitted to undertake factoring business

.
RBI Issues Guidelines on NBFC: India’s central bank Reserve Bank of India, or RBI, has
eased guidelines for the Non Banking Finance Companies, or NBFCs. In a recent
notification, the banking regulator said that it had allowed select NBFCs to undertake
factoring business subject to satisfaction of certain conditions. With this, the guidelines laid
for factoring businesses have been simplified by the RBI. This comes close in heels with
analysts revising the growth outlook of retail to NBFCs to 5-7 per cent for the fiscal 2022
from an earlier expectation of 8 to 10 per cent. In the first half of FY2022, retail NBFCs grew
by less than one per cent.


Following this, the RBI said that it had introduced some regulations. “Under the provisions of
the regulations mentioned above, all existing non-deposit taking NBFC-Investment and
Credit Companies (NBFC-ICCs) with asset size of Rs 1,000 crore and above will be
permitted to undertake factoring business subject to satisfaction of certain conditions,” the
central bank said in the notification.

3. RBI seeks details of NBFCs’ ‘buy now, pay later’ deals with e-tailers

It may be recalled that the RBI’s Financial Stability Report of December 2021 had called attention to the retail credit growth model confronting headwinds.

The ‘buy now, pay later’ (BNPL) game is set for a big change. The Reserve Bank of India
(RBI) has sought details of shadow banks’ BNPL arrangements with e-commerce (e-com)
players. The central bank has also asked for information on their roles as transferor or
transferee for loans under its “Master Direction on Transfer of Loan Exposures”, issued on
September 24, 2021. The urgency of the issue was evidenced in the RBI’s email to non-
banking financial companies (NBFCs) on Monday: That the data is to be submitted by the
end of the day.


The aggregate loans given via the BNPL route are not known though the “Report of the
Working Group on Digital Lending including Lending through Online Platforms and Mobile
Apps” in November last year gave a sense of it.


It noted that “even though the amount disbursed under BNPL schemes is only 0.73 per cent
(banks) and 2.07 per cent (NBFCs) of the total loans disbursed, the volumes (number of
loans) are quite significant”. In digital lending (and not restricted to BNPL), disbursements
by RBI-sampled entities exhibited a more than 12-fold increase to Rs1,41,821 crore in FY20
from Rs 11,671 crore in FY17.


It may be recalled that the RBI’s Financial Stability Report of December 2021 had called
attention to the retail credit growth model confronting headwinds: Delinquencies have risen;
and the new-to-credit segment is showing a dip in originations. It referred to the Bank for
International Settlements’ observation that in emerging markets, bad loans “typically peak six
to eight quarters after the onset of a severe recession”.

14. NCLT & NCLAT UPDATES (Updates- January, 2022)

1. Larsen & Toubro receives NCLT approval for scheme of amalgamation

Larsen & Toubro announced that the Hon’ble National Company Law Tribunal, Mumbai
Bench (NCLT) vide its order dated 28 January 2022 has approved the said Scheme of
Amalgamation of L& T Hydrocarbon Engineering with the company.


The appointed date for scheme is 01 April 2021. The Scheme shall be effective after the
receipt of the certified copy of the order from NCLT and its consequent filing with the
Registrar of Companies.

2. NCLT sends Prajay Ltd dispute to International Arbitration and Mediation Centre
The National Company Law Tribunal (NCLT), Hyderabad bench referred one other batch
cases between Belcare Ltd, Vs. Prajay Properties Pvt. Ltd & others and Whitestock Ltd Vs.
Prajay Properties Pvt. Ltd & others to the International Arbitration and Mediation Centre
(IAMC) Hyderabad

The petitioners Belcale Ltd invested certain amounts to hold 21.45% equity shareholding and
Whitestock Ltd invested 22% equity in Prajay Properties. The matter has been going on for
more than three years. The NCLT bench comprising Justice Ramalingam Sudhakar and
Veera Brahma Rao Arekapudi, while going through the counters with the consent of the
counsels referred the disputes for negotiations to the newly inaugurated IAMC, Hyderabad.
The NCLT bench recently referred its first batch of disputes between Sanghi brothers to
IAMC

3. SC: NCLT has no authority to ask creditors to settle with defaulter

In an important verdict concerning the Insolvency and Bankruptcy Code (IBC), the Supreme
Court on Tuesday ruled that the National Company Law Tribunal (NCLT) has no authority to
ask creditors to settle with a defaulter though it has the power to either summarily reject or
entertain pleas for initiation of insolvency proceedings.


Agreeing with the contention of advocate Srijan Sinha, who appeared for a number of
investors who had moved for bankruptcy proceedings against realtor Bharath Hitech
Builders, a bench of Justices D Y Chandrachud and A S Bopanna said, “The IBC is a
complete code in itself. The adjudicating authority (NCLT) and the appellate authority
(NCLAT) are creatures of the statute. Their jurisdiction is statutorily conferred. The statute
which confers jurisdiction also structures, channelises and circumscribes the ambit of such
jurisdiction. Thus, while the adjudicating authority and appellate authority can encourage
settlements, they cannot direct them by acting as courts of equity.” (

Competition Commission of India

Competition Commission of India is a statutory body of the Government of India, established
on 14 October 2003, responsible for enforcing The Competition Act, 2002 and promoting
competition throughout India and to prevent activities that have an appreciable adverse effect
on competition in India.

❑ Key Updates – for the month of January – 2022

IRDAI – Insurance Sector Updates

❑ Insurance sector waiting for ‘Annaatthe’ for IRDAI

Is there a need for a Chairman for Insurance Regulatory and Development Authority of India
(IRDAI) is the question that has started popping up. The sectoral regulator has been
functioning without a Chairman since May 2021 and it is business as usual at the Hyderabad
headquartered office with the savings of over Rs 4 lakh per month as salary per month.


A senior industry official preferring anonymity told IANS: “Perhaps the government can give
the necessary powers to the IRDAI Members and abolish the Chairman’s post. The other
option is to have IRDAI as one more wing of the Reserve Bank of India (RBI).”


“Globally in the insurance sector, many things are changing focussed on safeguarding the
policyholder’s interest, growing the industry and making the players remain solvent,” a head
of a large non-life insurer had told IANS on the condition of anonymity.


“Ease of doing insurance business in India? You must be joking. One should ask the
industry players on how IRDAI is a control freak. The licence permit raj is in full
force in the insurance sector,” a senior industry official preferring anonymity told
IANS. The IRDAI not only licences the insurers, intermediaries but also the
outsourcing agencies like the healthcare claim processing companies

❑ Discussions ongoing with IRDAI over license: Paytm

Fintech major Paytm on Saturday said that they are in discussion with the insurance
regulator, Insurance Regulatory and Development Authority of India (IRDAI) on getting
approval for the insurance license.

“It is an ongoing discussion with the regulator. There have been some rumours that the
license got rejected but there have been no official, unofficial, formal or informal indications
from the regulator that they want to reject our license,” said Paytm CFO Madhur Deora.


In July 2020, Paytm had announced that it was acquiring Raheja QBE, a Mumbai-based
general insurance company, from QBE Australia and its 51% domestic partner Prism Johnson
of the S Raheja Group. The strategic acquisition was to be done through QorQl, a technology
company with majority shareholding with Paytm CEO Vijay Shekhar Sharma and the
remaining held by Paytm. In October 2021, the firm announced that Switzerland-based
reinsurance company Swiss Re will invest Rs 920 crore in Paytm’s general insurance
business for a 23% stake.

❑ IRDAI reduces obligatory cession of premiums to GIC Re to 4%
from FY23

The insurance regulator has lowered the obligatory cession of sum insured on each general
insurance policy that is to be reinsured with state-owned reinsurer GIC Re to 4 per cent,
beginning financial year 2022-23 (FY23), from 5 per cent earlier. The move could result in
GIC Re losing about Rs 1,500-2,000 crore of premiums, said industry experts.


In a gazette notification, the Insurance Regulatory and Development Authority of India
(Irdai) said: “The percentage cession of the sum insured on each general insurance policy to
be reinsured with the Indian re-insurer(s) shall be 4 per cent in respect of insurance attaching
during the financial year beginning from 1st April, 2022 to 31st March, 2023, except the
terrorism premium and premium ceded to nuclear pool, wherein it would be made nil”.


Irdai has been reducing the obligatory cession over time — from as much as 20 per cent, to
15 per cent, and then to 5 per cent, and 4 per cent now. Slowly the regulator is making sure
that more re-insurers get into the market to develop India as a hub, he added.


According to regulations, the reinsurer, in this case GIC Re, has to share the profit
commission on a 50:50 basis with the ceding insurer based on the performance and surplus of
the total obligatory portfolio of the ceding insurer. However, no profit commission is payable
if the loss ratio exceeds 78 per cent and profit commission shall not exceed 14 per cent, the
regulator said.

❑ Key Updates – January, 2022

Cabinet Decisions / New Acts

This article is updated till 31st January, 2022 with all Laws / Regulations and their
respective amendments.

Disclaimer: Every effort has been made to avoid errors or omissions in this material. In
spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to
our notice which shall be taken care of in the next edition. In no event the author shall be
liable for any direct, indirect, special or incidental damage resulting from or arising out of or
in connection with the use of this information. Many sources have been considered including
newspapers (ET, BS & HT etc.).