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Information on Indian companies
INVESTMENT AND TURNOVER CALCULATION CRITERIA FOR MSMEs NOTIFIED

Ministry of Micro, Small, and Medium Enterprises on 26th June 2020 has officially notified the criteria for calculation of Investment and Turnover for MSMEs. The notification outlines the new classification of MSME that was introduced on 1st June 2020, which is as per the table below along with a detailed plan of registration and other requirements.

MSME investment

Msme Investment

Registration as an MSME:

  1. New registrations:
    1. The notification clarifies that in order to establish an MSME, Udyam Registration has to be filed online on the Udyam Registration Portal, based on self-declaration with no documentary requirements. No fee shall be applicable for registration.
    2. Aadhar number shall be required for registration:
      1. of the proprietor in case of Proprietorship
      2. of the managing partner in case of Partnership Firm
      3. of the karta in case of an HUF
    3.  For any other registered organisation like Company, LLP, Co-operative Society or Trust – GSTIN and PAN shall also be required along with the Aadhar Number
    4. Upon registration, the enterprise will be allotted an ‘Udyam Registration Number’.
    5. An e-certificate – ‘Udyam Registration Certificate’ shall be allotted to the enterprise on completion of the registration process.
    6. No enterprise shall file more than 1 (one) Udyam Registration, whether having one or more than one business activity i.e. complete disclosure of all the business activities to be specified in a single Udyam Registration.
  2.  Registration of existing enterprises:
    1. All existing enterprises registered under EM–Part-II or UAM shall register again on the Udyam Registration portal on or after the 1st July 2020.
    2. All enterprises registered till 30th June 2020, shall be re-classified in accordance with this notification.
    3.  The existing enterprises registered prior to 30th June 2020, shall continue to be valid only for a period up to the 31st March 2021.
    4. An enterprise registered with any other organisation under the Ministry of Micro, Small and Medium Enterprises shall register itself under Udyam Registration.

 

Composite criteria of investment and turnover for classification:

  1. The notification has clarified that a composite criterion of investment and turnover shall apply for classification of an enterprise as micro, small or medium i.e. if an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category. No enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.
  2. All units with GSTIN listed against the same PAN shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.

Calculation of INVESTMENT IN PLANT AND MACHINERY OR EQUIPMENT:

  1. The calculation of investment in plant and machinery or equipment will be linked to the ITR of the previous years filed under the Income Tax Act, 1961.
  2. In case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.
  3. The expression “plant and machinery or equipment” of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings).
  4. The purchase (invoice) value of a plant and machinery or equipment, whether purchased first-hand or second-hand, shall be taken into account excluding GST, on self-disclosure basis, if the enterprise is a new one without any ITR.
  5. The cost of certain items specified in the Explanation I to sub-section (1) of section 7 of the Act shall be excluded from the calculation of the amount of investment in plant and machinery.

Calculation of TURNOVER:

  1. Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise.
  2. Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act and the GSTIN.
  3. Turnover related figures of such enterprise which do not have PAN will be considered on self-declaration basis for a period up to 31st March 2021 and thereafter, PAN and GSTIN shall be mandatory.

Points to Note:

  1. Enterprises having Udyam Registration Number shall have to update its information online on Udyam Registration portal along with its ITR and GST Returns and other required details.
  2. Failure to update such information poses a threat of suspension of the enterprise status.
  3. Based on the submission of documents, the enterprise classification shall be updated.
  4. Any graduation or reverse graduation shall be communicated to the enterprise.
  5. Facilitation and Grievance Redressal measures have been outlined in the notification, refer link.

Link to the Circular

NEW SCHEME INTRODUCED FOR HELPING DISTRESSED MSMEs

Ministry of Micro, Small and Medium Enterprises (“MoSME”) on 24th June 2020 has launched another funding scheme to help the distressed MSME sector. The Scheme is named as ‘Distressed Assets Fund – Subordinate Debt for Stressed MSMEs’. The Scheme will be operationalized through a Trust called Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

Purpose: The purpose of the Scheme is to provide guarantee coverage to provide sub-debt support in respect of the restructuring of MSMEs. It shall provide personal loans through banks to the promoters of stressed MSMEs for infusion as equity/quasi-equity in the business eligible for restructuring.

Duration: The Scheme would be applicable for a maximum period of 10 years from the guarantee avail ment date or 31 March 2021, whichever is earlier; or till an amount of Rs. 20,000 crores of guarantee is approved.

Key Highlights of the Scheme:

  • The Scheme seeks to extend support to the promoter(s) of the operational MSMEs which are stressed and have become NPA as on 30th April 2020.
  • Promoter(s) of the MSMEs will be given credit equal to 15% of their stake (equity plus debt) or Rs. 75 lakh whichever is lower.
  • Any guarantee approved under this Scheme shall be over and above the existing loan or guarantee sanctioned.
  • Promoter(s) in turn will infuse this amount in the MSME unit as equity and thereby enhance the liquidity and maintain the debt-equity ratio.
  • Lending institutions to undertake due diligence to assess the viability, need, and requirement of the sub-debt facility and shall also ensure that the sub-debt/credit given to the promoters are infused into the MSME unit.
  • The sub-debt shall have a repayment schedule as defined by the lender, subject to a maximum of 10 years from the guarantee availment date or 31 March 2021, whichever is earlier.
  • There will be a moratorium of 7 years on payment of principal whereas maximum tenor for repayment will be 10 years; where the principal has to be repaid within a maximum of 3 years after completion of the moratorium and the interest shall be serviced monthly.
  • The sub-debt will have a second charge on the assets.
  • A non-refundable guarantee fee of 1.50% per annum on the outstanding guarantee amount shall be borne by the borrowers.
  • 90% guarantee coverage for this sub-debt will be given under the Scheme and 10% would come from the concerned promoters.

Points to Note:

  1. Exceptions – Fraud and Wilful Defaulter accounts will not be considered under this Scheme.
  2. MSME can be a Proprietorship, Partnership, Private or any other Registered company, etc.
  3. Responsibilities of the lending institutions, returns, and inspections have all been covered by the Ministry, refer link for details.

 Link to the Circular

RBI Circular On Digital Lending

RBI CIRCULAR ON ADHERENCE TO FAIR PRACTICE CODES AND OUTSOURCING GUIDELINES FOR DIGITAL LENDING

The Reserve Bank of India (“RBI”) on 25th June 2020 issued a circular directed to all Banks and NBFCs regarding Digital Lending Platforms, wherein RBI has emphasized adherence to Fair Practices Code and Outsourcing Guidelines.

The circular points out the existence of “digital-only” lending institutions registered with the RBI along with the ones having a “brick and mortar” presence. The borrowers securing loans from such “digital-only” platforms have been dealing with grievance redressal issues due to undisclosed names of such Banks/NBFCs on the lending platforms, non-transparent methods of interest calculation, exorbitant interest rates, harsh recovery methods, unauthorized use of personal data, etc., by such platforms.

In order to curb such uninvited practices by the lending institutions, RBI has issued the circular re-emphasizing the importance of adherence to Fair Practices Code and Outsourcing Guidelines issued to Banks and NBFCs, whether they lend directly through their own digital lending platform or through an outsourced lending platform, as applicable. The Banks and NBFCs have also been advised to meticulously follow regulatory instructions on the outsourcing of financial services and IT services.

Attention has also been drawn to the fact that outsourcing of any activity does not relieve the Banks/NBFCs of their compliance obligations i.e. the onus of compliance with regulatory instructions still rests in them.

 

Through the circular, the Banks and NBFCs have also been advised to follow a set of specific instructions while engaging digital lending platforms as their agents to source borrowers and/or to recover dues, which are as follow:

  1. Names of digital lending platforms engaged as agents shall be disclosed on the website of Banks/NBFCs.
  2. Digital lending platforms engaged as agents shall be directed to disclose upfront to the customer, the name of the Bank/NBFC on whose behalf they are interacting with him.
  3. Immediately after sanction but before the execution of the loan agreement, the sanction letter shall be issued to the borrower on the letterhead of the Bank/NBFC concerned.
  4. A copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement shall be furnished to all borrowers at the time of sanction/disbursement of loans.
  5. Effective oversight and monitoring shall be ensured over the digital lending platforms engaged by the Banks/NBFCs.
  6. Adequate efforts shall be made towards the creation of awareness about the grievance redressal mechanism.

It has also been specified that any violations to the above, by the Banks and NBFCs, shall be viewed seriously by the RBI.

Points to Note

  1. Applicability – The circular shall be applicable to all the Scheduled Commercial Banks and all the Non-Banking Finance Companies (including Housing Finance Companies).
  2. ExceptionsThe circular shall not be applicable to Regional Rural Banks.

 Link to the Circular 

Understanding Neo Banking In India

We keep hearing about Neo Banks these days. Here is a small write on what they do and their current landscape.

Neo Bank is a new type of digital bank that exists without any branches. They are primarily fintech firms providing digital and mobile-first financial solutions services to modern tech-savvy customers. These include payments and money transfers as well as lending through online platforms and apps. Neo banks are reinventing the practices and processes associated with traditional banking.

This new-age banking emerged about 5 years ago, namely in the UK through FinTech players such as Monzo and Atom Bank.

Neobanks don’t have a bank license of their own but count on bank partners to provide bank licensed services. For example – Niyo solution tied up with Yes Bank.

Difference between Digital Bank vs Neo Banks

Digital banking usually refers to a bigger player in the banking industry providing financial services in a traditional way. Neo banks are 100% digital and do not relate to any traditional banking names, big or small.

Advantages of Neobank:-

  1. Easy account creation
  2. Seamless international payments
  3. Customer friendly interface
  4. Value added services like bookkeeping, financial management etc

Challenges faced by the Neobank:-

  1. Targeting customer segments
  2. Arriving at best market-fit product for the customer segment
  3. Partnership with traditional bank
  4. Technology challenges – core banking systems used by most banks do not meet some of the expectations for modern digital services

Regulatory norms for Neobank: –

In India, RBI is still not granting Banking licenses to virtual banks. Currently, Neo Banks are outsourcing their banking responsibilities to those with licencesiecreating strategic partnerships with traditional banks.

Focus Business Segment for Neo Banks in India: –

Neo Banks main focus are especially young generation who are digitally savvy consumers and who don’t want to deal with traditional banks due to lack of flexibility. This generation wants to compare online loans, submit their application with a few clicks, and receive approval in a matter of minutes. And this is exactly what neo-banks offer them: speed, friendly customer support, and relevant services. Neo-banks are all about convenience and respect for the customer’s time. Some of the players are available in both B2B and B2C segments.  In terms of customer base Niyo – one of the leading Neo bank has ~ 1 Million customers and B2B leading player Open has ~ 0.4 Million customers. Below are the details of some B2B and B2C players.

B2B companies Product feature offering

Retail companies Product Feature Offering

Funding Details of Indian Neo Banks: –

During the period of Q1’20, India fintech companies has raised $421 M. New-born Neo Bank – Jupiter which is founded by Citrus pay co-founder raised $ 2 M on Apr-20. Below are the more details of Neo Banks funding: –

Neo Banks and their Banking Partners

Neo-Banking Future Prospects: –

Credit to GDP Ratio in India is 50% where as it is north of 100% for developed countries. Credit reach definitely needs to improve in India. More bank licenses is surely one way but a thought on giving a systematic push towards digital channels of fulfilling the credit need of the country may go a long way. Moreover, the recent Covid situation has underscored the imperative of quickly scaling banking and credit services to consumers and small businesses.

According to a report published by Allied Market Research, the global neo bank market is growing at a CAGR of 50.6% during the period 2017-2020. Thus, e can confidently say that they are here to stay and grow the pie of the borrowing customers.

Relaxation Of Time & Fees For Filing Charge Forms

Introduction: MCA has via its circular dated 17 June, 2020 issued a ‘Scheme for relaxation of time for filing forms related to creation or modification of charges under the Companies Act, 2013’ (“Scheme”) for the purpose of condoning the delay in filing certain forms related to creation/modification of charges. This circular is an extended clarification to the Companies Fresh Start Scheme as laid out in the MCA General Circular No.12/2020 dated 30 March 2020, where the benefit of waiver of additional fees was not extended to charge forms. The benefit is now being extended to charge creation and modification forms with effect from 17 June 2020.

Existing Regulations: Companies are required to file charge creation or modification forms within the timelines specified in Section 77 of the Companies Act, 2013 (“Act”) i.e. within a total of 120 days from the date of creation or modification of the charge, after paying all the additional and advalorem fees prescribed under the Act.

Detail of Relaxations Announced:

  1. Relaxation in Timeline: This Scheme shall be applicable in respect of the filing of Form No.CHG-1 and Form No.CHG-9 by a company or a charge holder, where the date of creation/modification of charge
    • is before 01 March 2020, but the timeline for filing such form had not expired under Section 77 of the Act as on 01 March 2020 – in this case, the period from 01 March 2020 to 30 September 2020 shall not be counted for the purpose of calculating the number of days within which form is required to be filed under Section 77 of the Act i.e. the first day to be counted after 29 February 2020 shall be 01 October 2020.

Or

    •  falls on any date between 01 March 2020 to 30 September 2020 (both dates inclusive) – in this case the period beginning the date of creation/modification of charge till the 30 September 2020 shall not be counted for the purpose of calculating the number of days within which form is required to be filed under Section 77 of the Act i.e. the first day to be counted after the date of creation/modification shall be 01 October 2020.
  1. Relaxation in Fee: The relaxation in fee for both the above scenarios is as below, respectively for Clauses Ia. and Ib.:
    1.  in this case :
      1.  if the form is filed on or before 30 September 2020, the normal fees payable as on 29 February 2020 shall be applicable.
      2. if the form is filed after 30 September 2020, the fees shall be charged after adding up the number of days beginning 01 October 2020 and ending on the date of filing of form plus the time period lapsed from the date of creation of charge till 29 February 2020
    2.  in this case:
      1. if the form is filed before 30 September 2020, normal fees shall be payable
      2. if the form is filed after 30 September 2020, the fees shall be charged for the period counted from the 01 October 2020 till the date of filing the form.

Exception to the Scheme: This Scheme shall not be applicable in the following cases:

  1. where the forms have already been filed before 17 June 2020 i.e. date of the circular
  2. where the timeline for filing the forms have already expired prior to 01 March 2020
  3. where the timeline for filing the form expires at a future date
  4. for filing charge satisfaction form i.e. Form CHG-4

Points to Note:

  1. This Scheme shall be applicable from the date of issue of the MCA General Circular No.23/2020 i.e. 17 June 2020
  2. This Scheme is applicable only to charge creation forms i.e. Form CHG-1 and Form CHG-9.

Link to Circular:

http://www.mca.gov.in/Ministry/pdf/Circular23_17062020.pdf