NBFC - audit of accounts

RBI has vide its circular dated 6th July, 2020 extended the timeline for finalisation of accounts of listed systemically important non deposit taking and deposit taking companies by such period as is allowed by SEBI. 

Hitherto, the time allowed for finalisation of accounts of systemically important deposit taking and non deposit taking companies is 3 months from the financial period closure i.e. by 30th June, in case the fianncial year closes on 31st March. But with this circular RBI has given relief only to listed such entities as they are also governed by SEBI regulations. 

Copy of the RBI circular can be found here

The Unquiet Sleep

The Unquiet Sleep by William Haggard is a British novel about a miracle drug gone wrong or potentially wrong. It is a drug manufactured by a pharma company in which the Junior Minister of Social Welfare or Parliamentary Secretary as he was called in the novel was working previous to his political career. The drug has some powers but not tested fully so is sent to the laboratory for full check. Meanwhile Greek Cypriot gangsters are interested in the drug to black market it and earn some money. The kingpin of the drug lords one Dick Asher ingratiates himself with the wife of this minister who is philandering. The junior minister's boss the senior minister Robert Seneschal is in trouble with the Prime Minister for the handling of this affair. Meanwhile Colonel Charles Russell heading a fictional Security Executive a kind of non official dirty works department and his lieutenant one Rachel Borrodaile who has previous experience in the French Resistance get into the act and try to sort things out. William Haggard a.k.a. Richard Henry Michael Clayton has written a lot of fictional thrillers set in the 1960s tto 1980s. His narrative in this novel becomes ponderous at times, when he goes on describing the procedures at Whitehall or when the characters go on a silent dialogue with their thoughts. Goodreads 3/5 

 

MSME - Udyam Registration

All MSME units as per the new definition of MSME (including those who are already registered in the Udyog Aadhar portal) are required to register/ re-register in the Udyam Registration portal (https://udyogaadhaar.gov.in/)

The classification of MSME units are as follows:

(i) a micro enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;
(ii) a small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees; and
(iii) a medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.

REGISTRATION PROCESS:

(1) Any person who intends to establish a micro, small or medium enterprise may file Udyam Registration online in the Udyam Registration portal, based on self-declaration with no requirement to upload documents, papers, certificates or proof.
(2) On registration, an enterprise (referred to as ―Udyam‖ in the Udyam Registration portal) will be assigned a permanent identity number to be known as ―Udyam Registration Number‖.
(3) An e-certificate, namely, ―Udyam Registration Certificate‖ shall be issued on completion of the registration process.

(4) Aadhaar number shall be required for Udyam Registration.
(5) The Aadhaar number shall be of the proprietor in the case of a proprietorship firm, of the managing partner in the case of a partnership firm and of a karta in the case of a Hindu Undivided Family (HUF).
(6) In case of a Company or a Limited Liability Partnership or a Cooperative Society or a Society or a Trust, the organisation or its authorised signatory shall provide its GSTIN and PAN along with its Aadhaar number.
(7) In case an enterprise is duly registered as an Udyam with PAN, any deficiency of information for previous years when it did not have PAN shall be filled up on self-declaration basis.
(8) No enterprise shall file more than one Udyam Registration:
Provided that any number of activities including manufacturing or service or both may be specified or added in one Udyam Registration.

(9) All existing enterprises registered under EM–Part-II or UAM shall register again on the Udyam Registration portal on or after the 1
st day of July, 2020.
(10) All enterprises registered till 30th June, 2020, shall be re-classified in accordance with this notification.
(11) The existing enterprises registered prior to 30th June, 2020, shall continue to be valid only for a period up to the 31stday of March, 2021.
(12) An enterprise registered with any other organisation under the Ministry of Micro, Small and Medium Enterprises shall register itself under Udyam Registration.

Copy of MSME notification in this regard can be found here

https://msme.gov.in/sites/default/files/IndianGazzate_0.pdf 

investment advisors

SEBI has notified certain amendments to SEBI (Investment Advisors) Regulations 2013.

Gist of these amendments are as follows

A. Segregation of Advisory & Distribution Activities
• Segregation of Advisory & Distribution Activities at client level to avoid conflict of interest.
• An individual shall have the option to register as an Investment Adviser or
provide distribution services as a distributor.
• A non-individual investment adviser shall have client level segregation at group level for investment advisory and distribution services and maintain an arm’s length relationship between its activities by providing advisory services through a separately identifiable department or division.
B. Implementation services
• Investment Advisers are allowed to provide implementation services (Execution) through direct schemes/ products in the securities market. However, no consideration can be received directly or indirectly, at investment adviser’s group or family level for these services.
C. Agreement between Investment Adviser and client
• Mandatory agreement to be entered between Investment Adviser and the client for ensuring greater transparency with reference to advisory activities.
D. Fees
• The fee charged by the Investment Adviser for providing Investment Advice from a client shall be in the manner as specified by SEBI.
E. Eligibility Criteria for IAs
• Enhanced eligibility criteria for registration as an Investment Adviser including net worth of Rs.50 lakhs for non-individuals and Rs. 5 lakhs for individuals.
• Individual investment adviser or a principal officer of a non-individual investment adviser to have enhanced professional or post-graduate qualification in relevant subjects and relevant experience of five years while grandfathering existing Individual Investment Advisers from complying with the enhanced qualification and experience as specified by SEBI.
• Individuals registered as investment advisers whose number of clients exceed 150 in total, shall apply for registration with SEBI as non-individual investment adviser.

https://www.sebi.gov.in/media/press-releases/jul-2020/sebi-notifies-amendments-to-sebi-investment-advisers-regulations-2013_47006.html

MSME sector

RBI circular dated 5th February, 2020 regarding interest subvention scheme for MSMEs.

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11803&Mode=0

As Government of India, on November 2, 2018, has announced ‘Interest Subvention Scheme for MSMEs 2018’.

Key points of the Scheme:

-          Prime Minister announced 2% interest subvention for all GST registered MSMEs, on fresh or incremental loans.

-          Eligibility

1.      All MSMEs who meet the following criteria shall be eligible as beneficiaries under the Scheme :

                               a. Valid Udyog Aadhar Number [UAN]

                          b. Valid GSTN Number

2.      Incremental term loan or fresh term loan or incremental or fresh working capital extended during the current FY viz. from 2nd November 2018 and next FY would be eligible for coverage.

3.      The term loan or working capital should have been extended by Scheduled Commercial Banks.

4.      In order to ensure maximum coverage and outreach, all working capital or term loan would be eligible for coverage to the extent of ₹100 lakh only during the period of the Scheme.

5.      Wherever both the facilities working capital and term loan are extended to a MSME by an eligible institution, interest subvention would be made available for a maximum financial assistance of ₹100 lakh.

6.      MSME exporters availing interest subvention for pre-shipment or post-shipment credit under Department of Commerce will not be eligible for assistance under Interest Subvention Scheme for Incremental credit to MSMEs 2018.

7.      MSMEs already availing interest subvention under any of the Schemes of the State / Central Govt. will not be eligible under the proposed Scheme.

Based on this Scheme RBI has vide its notification dated 5^th February, 2020, modified the operational guidelines:

1.      Submission of statutory auditor certificate by 30^th June, 2020 and in the meantime, settle claims based on internal / concurrent auditor certificate.

2.      Acceptance of claims in multiple lots for a given half year by eligible institutions.

3.      Requirement of Udyog Aadhar Number (UAN) may be dispensed with for units eligible for GST. Unit not required to obtain GST, may either submit Income Tax Permanent Account Number (PAN) or their loan account must be categorized as MSME by the concerned bank.

4.      Allow trading activities also without Udyog Aadhar Number (UAN)

5.      There is Revised Format of Certificate for claiming Subsidy i.e. Annex I, where Banks are advised to submit claims to SIDBI as per the revised format.

Alternative Investment Funds

SEBI circular dated 5th February, 2020 on streamlining disclosure standards for Alternative Investment Funds (AIFs)

·        The said circular is based on disclosure standards for AIF which is required to be followed by all AIF.

·        Since there is a significant growth in AIF in current scenario, SEBI has taken an initiative through a Consultation Paper dated on 04^th December 2019 for inviting public opinion on “Introduction of Performance Benchmarking” and “Standardization of Private Placement Memorandum (PPM) for AIF’s”.

·        After invitation of public opinion and also after consultation and deliberation with Alternate Investment Policy Advisory Committee (AIPAC) the SEBI has finally decided to introduce templates for PPM but it shall be subject to certain exemptions and also mandatory performance benchmarking for AIF’s.

·        PPM is a primary document in which all the necessary information about the AIF is disclosed to the investors for making investment decisions. Also in order to ensure that a minimum standard of disclosure is made available in the PPM, now it has been made mandatory to provide certain minimum level of information in a simple and comparable format in accordance with the template provided.

·        Such template consists of 2 parts namely:

o   Party A- Section for minimum disclosure and

o   Part B- Supplementary section to allow full flexibility to the Fund in order to provide any additional information, which it deems fit.

·        The template for PPM of AIFs raising funds under Category I and Category II is provided at Annexure 1.The template for PPM of AIFs raising funds under Category III is provided at Annexure 2.

·        SEBI has also specified that in order to ensure compliance with the terms of PPM, it will be mandatory for AIFs to carry out an annual audit of such compliance. The audit shall be carried out by either internal or external auditor/legal professional. However, audit of sections of PPM relating to ‘Risk Factors’, ‘Legal, Regulatory and Tax Considerations’ and ‘Track Record of First Time Managers’ shall be optional.

·        In case any defect or query arises during the findings of the audit then the same shall be communicated with the Trustee or Board or Designated Partners of the AIF and SEBI.

·        It is to be noted that the terms and conditions pertaining to contribution and subscription agreement shall be in accordance with the terms and conditions of the PPM and it shall not contradict the same.

·        The requirements as mentioned above shall not be applicable to Angel Fund as defined in SEBI (AIF) Regulations 2012 and to AIF’s/Schemes in which each investor commits to a minimum capital contribution of Rs70 crores and also provides a waiver to the fund from the requirement of PPM in the SEBI prescribed template and annual audit of terms of PPM, in the manner provided at Annexure 3.

·        All the above specified requirements shall come into force with effect from 01^stMarch 2020.

·        Secondly the SEBI on receipt of industry request a proposal for performance benchmarking of AIF’s was incorporated in the above mentioned Consultation Paper.

·        Also the industry demands flexibility to showcase the performance of AIF’s based on different criteria so it has been finally decided to introduce:

o   Mandatory benchmarking of the performance of AIFs (including Venture Capital Funds) and the AIF industry.

o   A framework for facilitating the use of data collected by Benchmarking Agencies to provide customized performance reports.

·      As a result of this the following things is mandated:

o   Any association of AIFs(“Association”),which in terms of  membership, represent  at  least  51%  of  the number  of AIFs,  may notify one  or  more Benchmarking Agencies, with whom each AIF shall enter into an agreement for carrying out the benchmarking process.

o   The agreement entered between the Benchmarking Agencies and AIF’s shall cover the mode and manner of data reporting and other confidential information and etc.

o   AIFs, for all their schemes which have completed at least one year from the date of ‘First Close’, shall report all the necessary information including scheme-wise valuation and cash flow data to the Benchmarking Agencies in a timely manner.

o   Also the form and format of reporting shall be mutually decided by the Association and the Benchmarking Agencies.

o   If an applicant claims a track-record on the basis of India performance of funds incorporated overseas, it shall also provide the data of the investments of the said funds in Indian companies to the Benchmarking Agencies, when they seek registration as AIF.

o   In  the  PPM, as  well  as in any  marketing  or  promotional or  other material, where past performance of the AIF is mentioned, the  performance versus benchmark report provided by the  benchmarking   agencies for such AIF/Scheme shall also be provided.

o   In any reporting to the existing investors, if performance of the AIF/Scheme is compared to any benchmark, a copy of the performance versus benchmark report provided by the Benchmarking Agency shall also be provided for such AIF/scheme.

o   In the first step Association will appoint Benchmarking Agencies and thereafter will set timeline for reporting of requisite data to Benchmarking Agencies by all the registered AIFs. In this regard, Association and  Benchmarking Agencies  will  ensure  that  the  first  industry  benchmark  and  AIF  level performance versus Benchmark Reports are available latest by July 01, 2020, for the performance up to September 30, 2019. Further the Association shall submit  a  progress  report  in  this  regard  to  SEBI  on  a  monthly  basis  till  the creation of first industry benchmark.

·        It is to be noted that all the operational guidelines in respect of performance benchmarking are provided in Annexure 4 which is divided into 2 parts i.e. Part A and Part B.

·        In case any AIF seeks customized performance report in a particular manner other than as it was decided earlier then the same may be generated by the Benchmarking Agencies and it shall be subject to the following:

o  Consent of the AIFs, whose data needs to be considered for generation of       the customized performance report.

o  Terms and conditions, including fees, decided mutually between the Benchmarking Agencies and the AIF.

·        It is to be noted that the above mentioned requirements is not applicable in case of Angel Funds registered under sub category of Venture Capital Fund under Category I-AIF.

·           The said circular is been issued in exercise of powers mentioned under section 11(1) of SEBI Act , 1992 and also the main object behind this is to protect the interest of investors in securities and to promote and developed the securities market. 

TDS on mutual fund

PIB press release dated 4th feb 2020

The Finance Bill, 2020 proposed to remove Dividend Distribution Tax (DDT) at the level of Company/ Mutual Fund and proposed to tax the same in the hands of share/unit holder. It was also proposed to levy TDS at the rate of 10% on the dividend/ income paid by the Company/Mutual Fund to its share/unit holder if the amount of such dividend/ income exceeds five thousand rupees in a Financial Year.

Queries have been received to the effect that whether under the proposed section 194K, the Mutual Fund would be required to deduct TDS also on the capital gains arising on redemption of units. It is hereby clarified that under the proposed section, a Mutual Fund shall be required to deduct TDS @ 10% only on dividend payment and no tax shall be required to be deducted by the Mutual Fund on income which is in the nature of capital gains. Necessary clarification, if required, shall be proposed in the relevant provision of the law.