Regulatory Updates

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 

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

Business Reforms and Enablers under Govt. Scheme – SELF RELIANT INDIA
Business Reforms & Enablers under Govt. Scheme – SELF RELIANT INDIA

Corporate Law measures to boost Ease of Doing Business:
 

  1. Timely Action during COVID–19 to reduce compliance burden under various provisions of the Companies Act, 2013 as well as enable companies to conduct Board Meetings, EGMs & AGMs, Rights issue by leveraging the strengths of Digital
  1. Decriminalization of Companies Act violations involving minor technical and procedural defaults (shortcomings in CSR reporting, inadequacies in board report, filing defaults, delay in holding AGM).
  1. Majority of the compoundable offenses sections to be shifted to internal adjudication mechanism (IAM) and powers of RD for compounding enhanced (58 sections to be dealt with under IAM as compared to 18 earlier).The Amendments will de-clog the criminal courts and
  1. 7 compoundable offenses altogether dropped and 5 to be dealt with under alternative (Details of such offenses not available yet)
  1. Withdrawal of more than 14,000 prosecutions under the Companies Act,
  1. Lower penalties for all defaults for Small Companies, One Person Companies, Producer Companies & Start

Enhancement of Ease of Doing business through IBC related measures:
 

  1. The minimum threshold to initiate insolvency proceedings raised to 1 crore (from Rs. 1 lakh, which largely insulates MSMEs).
  1. Special insolvency resolution framework for MSMEs under Section 240A of the Code to be notified
  1. Suspension of fresh initiation of insolvency proceedings up to one year depending upon the pandemic
  1. Empowering Central Government to exclude COVID 19 related debt from the definition of “default” under the Code for the purpose of triggering insolvency

Other Miscellaneous Key-Points:
 

  1. Direct listing of securities by Indian public companies impermissible foreign
  1. Private companies which list NCDs on stock exchanges not to be regarded as listed
  1. Power to create additional/specialized benches for NCLAT.