Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment in debt

Reserve Bank of India (RBI) vide RBI/2018-19/135 A.P. (DIR Series) Circular No. 21 dated March 01, 2019 in consultation with Securities and Exchange Board of India (SEBI), introduces a separate channel, called the ‘Voluntary Retention Route’ (VRR), to enable FPIs to invest in debt markets in India. These investments will be free of the macro-prudential and other regulatory norms applicable to FPI investments in debt markets, provided FPIs voluntarily commit to retain a required minimum percentage of their investments in India for a period.

The brief gist of VRR Scheme is highlighted below:

1.      Definitions

     Committed Portfolio Size (CPS), General Investment Limit, Related FPIs, Retention Period, Repo and Reverse Repo, VRR-Corp and VRR-Govt have been defined under the scheme.

2.      Eligible investors

Any FPI registered with SEBI is eligible to participate through this Route. Participation through this Route shall be voluntary.

3.      Eligible instruments

·  For VRR-Govt- Any Government Securities i.e., Central Government dated Securities (G-Secs), Treasury Bills (T-bills) and State Development Loans (SDLs).

·    For VRR-Corp- Any instrument listed under Schedule 5 of FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 dated November 07, 2017, other than dated Government securities/ treasury bills and Units of domestic mutual funds.

·       Repo transactions and Reverse repo transactions 

4.     Features  

•   Investment through this Route shall be in addition to the General Investment Limit. 

•   Cap of Investment through this route for VRR-Govt is Rs.40,000 crore per annum and for VRR- Corp is Rs.35,000 crore per annum, or such higher amount, as may be decided by the Reserve Bank 

• The mode of allotment, allocation to VRR-Govt and VRR-Corp categories and the minimum retention period shall be announced by the Reserve Bank ahead of allotment.

• No FPI (including its related FPIs) shall be allotted an investment limit greater than 50% of the amount offered for each allotment by tap or auction in case there is a demand for more than 100% of amount offered.

• The minimum retention period shall be three years, or as decided by RBI for each allotment.

• FPIs shall invest the amount allocated, called the Committed Portfolio Size (CPS) in the relevant debt instruments and remain invested at all times during the voluntary retention period, subject to the certain  relaxations.

• The provisions for management of portfolio, other relaxations, hedging of exchange rate risk on account of investments made under the Voluntary Retention Route (VRR) have been provided in the circular

5.  The provisions for management of portfolio, other relaxations, hedging of exchange rate risk on account of investments made under the Voluntary Retention Route (VRR) have been provided in the circular[1].

---

[1] https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT1351FEEE1395FD24E55842D4968AA7EF9AE.PDF

   

An another step towards ease of business and Make in India – Amendment in incorporation Rules

Ministry of Corporate Affairs vide notification dated 6  March 2019 has amended the Incorporation Rules. The key highlights of this amendment are as follows :

1.  No incorporation fees (ROC fees) on the incorporation of the company if the Authorised capital is up to Rs.15 lakhs. (earlier it was up to Rs. 10 lakhs). It means that ROC fees on e-form INC-32 Spice will be Nil if the authorized capital is up to Rs. 15 lakhs. This amendment is effective from 18 March 2019

2.  In case of shifting of Registered Office from one state to another, a newspaper advertisement is to be given which has wide circulation. (Earlier widest circulation). This is effective from 6 March 2019

Banning of Unregulated Deposit Schemes Ordinance, 2019

Ministry of Law and Justice has promulgated the Banning of Unregulated Deposit Schemes Ordinance, 2019 (Hereinafter referred as the Ordinance). The objective of this ordinance is to have a central legislation to tackle the menace of illicit deposits taking activities in the country.

This Ordinance, therefore, ensures a comprehensive ban on unregulated deposit taking activity and for its effective enforcement. It aims to prevent such unregulated deposit schemes or arrangements at their inception and at the same time makes soliciting, inviting or accepting deposits pursuant to an unregulated deposited scheme as a punishable offence. The said Ordinance also seeks to put in place a mechanism by which the depositors can be repaid without delay by attaching the assets of the defaulting establishments.

Key Highlights of Banning of Unregulated Deposit Schemes Ordinance, 2019

1. This ordinance is effective from 21 February 2019.
2. The Ordinance is applicable to all persons i.e. individuals, HUF, Private Trust (Registered or unregistered), Public Trust (Registered or unregistered), Company, society, Partnership Firm (Registered or unregistered), Proprietary Concern, LLP, association of persons…
3.  Pursuant to this ordinance following is banned:                                                                           The unregulated Deposit Scheme[1] in all forms  [Sec-3]
   Promotion or issue of any advertisement soliciting participation or enrolment in or accept deposits[2] in pursuance of an unregulated Deposit scheme.  [Sec-3]
   Any fraudulent default in the repayment or return of deposit on maturity or in rendering any specified service promised against deposit pursuant to a regulated Deposit scheme [Sec-4]
   making any statement promise or forecast which is false deceptive or misleading in material facts or deliberately concealing any material facts to induce another person in or become a member or participant of any unregulated deposit scheme [Sec-5]
   A prize chit or money circulation scheme banned under the provisions of the prize Chits and Money circulation scheme (Banning) Act, 1978 shall be deemed to be an unregulated deposit scheme [Sec-6]
4. The ban is not on taking deposit for personal use
5. The definition of Deposit as per Section 2(4) of the Ordinance has certain exclusions as provided above. If any money taken fits in those exclusions then it will not be considered as “deposit”. If it is not considered as “deposit” then there is no ban on accepting such money by any person.  
6. A Company and NBFC were always having the restrictions on acceptance of deposit as per their respective acts. Now, even LLPs, Individuals, HUFs, Firms etc. are also covered under the Ordinance.
7.  The Ordinance has given list of Regulated Deposit Schemes in the First Schedule under Column (3). [Refer Annexure 2]
8. The State Government shall appoint Competent Authority to monitor in each State/Union Territory [Section 7 of the Ordinance].
9. The Central Government may designate an authority which shall create, maintain and operate an online data base for information on deposit takers operating in India [Section 9(1) of the Ordinance].
10.  Every Deposit taker which commences or carries on its business as such on or after the commencement of this ordinance, shall intimate the authority referred to in Section 9(1) of the Ordinance in such form and manner as may be prescribed.
11.  Save as otherwise provided in SARFAESI[3] Act, 2002 and IBC, 2016[4], any amount due to depositors from deposit takers shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the appropriate Govt or local authority [Section 12 of the Ordinance].
12. Save as otherwise provided in SARFAESI Act, 2002 and IBC, 2016, any amount due to depositors from deposit takers, an order of provisional attachment passed by the Competent Authority shall have precedence of attachment [Section 13 of the Ordinance].
13.  Penalty:- Every offence punishable under this Ordinance are cognizable and non-bailable except in case of default in repayment and failure to give details of deposits as required  [Section 21 of the Ordinance]
14. Offences by deposit takers

Act	Imprisonment (min-max)	Penalty (min-max)
Solicits deposits in contravention to sec 3	1-5 years	Rs. 2-10 lacs
Accepts deposits in contravention to sec 3	2-7 years	Rs. 3-10 lacs
Accepts deposits & fraudulently defaults in refund,  in contravention to Sec 3	3-10 years	Rs. 5 lacs -2 times the amount collected
Deposit in contravention to Sec 4	< 7 years	Rs 5 lacs- 25 crore/ 3 times profit w.e. is higher.
Deposit in contravention to Sec 5	1-5 years	< Rs 10 lacs
Repeat offenders	< 5 years	Rs 10 lacs- 50 crore
Failing to give intimation under Sec 10		Rs 5 lacs

[1] Refer Annexure 1 for definition

[2] Refer Annexure 2 for FIRST SCHEDULE
[3]SARFAESI Act, 2002 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 

[4]IBC, 2016 - Insolvency and Bankruptcy Code, 2016

Additional Requirement - KYC of Company

MCA vide notification dated 21^st February, 2019 amended Companies (Incorporation) Rules, 2014 (Rules).  The amended rules are effective from 25^th February, 2019.

The key highlights of the same are as under:

Applicability

Applicable to – Every Company incorporated on or before 31^st December, 2017, except following companies

• Under process of striking off/struck off
• under process of liquidation
• Dissolved
• Amalgamated

Following Companies are restricted from filing return:

The companies which have defaulted in filing financial statements and Annual return or both (i.e. AOC-4/AOC-4 XBRL and/or MGT-7) shall be restricted from filing e-Form ACTIVE.

However Companies under Management dispute and Registrar has recorded the same on the register can file such form.

Return Filing

Every company shall file the particulars of company and its registered office in e- form ACTIVE (INC-22A) (Active Company Tagging Identities and Verification) on or before 25^th April, 2019. The following particulars are required to be provided in the form:

• Latitude and Longitude details of Registered Office of the Company
• E-mail ID of Company and verification by OTP
• Details of Statutory Auditor and Cost Auditor
• Details of Directors and KMPs of the company
• Details of Annual filing for F.Y.- 2017-18
• Photograph of Registered Office (both Exterior and Interior) along with KMP/Director who is affixing DSC

Consequences of non- filing

If the company does not file e- Form ACTIVE, the said company will face following consequences 

• Company will be marked as ACTIVE – Non compliant
• Company will be liable for action under Sec. 12(9) i.e. physical verification of registered office of the company by ROC
• The ACTIVE-Non Compliant companies won’t be able to file following forms:
• SH-7 (Change in Authorised Capital)
• PAS-3 (Change in paid up capiital)
• DIR-12 (Change in Director except cessation)
• INC-22 (Change in Regd. office)
• INC-28 (Amalgamation/Demerger) 

Late filing Fees

 If a company files e- Form ACTIVE on or after 26^th April, 2019, the late filing fees will be ₹ 10,000. There are no filing fees for e- form ACTIVE filed on or before 25^th April, 2019.

Only Registered Valuer can do Valuation from 1st February, 2019 onwards…

The Companies (Registered Valuers and Valuation) Rules, 2017 (the rules) were notified on 18^th October, 2017

The valuation rules provides for the transitional period which has ended on 31^st January, 2019. Hence, from 1^st February, 2019 onwards the valuation report under the Companies Act, 2013 is required from the registered valuer.

The Registered valuer means a person registered with the IBBI in accordance with the rules prescribed.

As the transition period [1]is ended, entities listed as Registered Valuers with the Insolvency and Bankruptcy Board of India (IBBI) can carry out valuation required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its liabilities under the provision of Companies Act, 2013 as well as under Insolvency and Bankruptcy Code

However, in case company has appointed any valuer before 31^st January, 2019 and the valuation has not been completed before such date, the valuer shall complete such valuation within 3 months i.e. by 30^th April, 2019.

Provisions under the Companies Act, 2013 which requires valuation report from a registered valuer are as follows:

Sr. No.	Provision of Companies Act, 2013	Particulars
1.	Section 42 read with rule 14 of Chapter III	For issue of securities through Private placement of securities
2.	Section 54 read with rule 8 of Chapter IV	For issue of Sweat Equity shares
3.	Section 62 read with rule 13 of Chapter IV	For issue of shares on Preferential Allotment
4.	Section 73 read with Rule 2(1)(c)(ix)	Valuation of assets to determine their market value to check whether the amount of secured debentures with a charge on the company exceeds such market value.
5.	Section 192(2)	For valuing assets involved in arrangement of non-cash transactions involving directors
6.	230(2)(c)(v)	Valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company under the scheme of Corporate debt Restructuring
7.	230(3) & 232(2)(d)	In case of a compromise or arrangement between members or with creditors, a valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable of the company, or a swap ratio report
8.	232(2)(h)	Under the scheme of Compromise/ Arrangement in case the Transferor company is Listed Company and the Transferee- company is an unlisted Company - Valuation report is required to be made by the tribunal for exit opportunity to the shareholders of transferor Company –
9.	236(2)	For valuing equity shares held by Minority Shareholders
10.	281(1)(a)	For valuing assets for submission of report by Company liquidator
11.	305(2)(d)	For report on the assets of the Company for preparation of declaration of solvency under voluntary winding up
12.	319(3)(b)	For valuing the interest of any dissenting members of the transferor company in case of liquidation

 

Under Insolvency Code and Insolvency and Bankruptcy Board of India Regulations, 2016

Sr. No.	Provision of The Insolvency And Bankruptcy Code, 2016	Particulars
1.	Regulation 27 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016	Resolution professional shall appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with Regulation 35
2.	Regulation 35 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016	In cases not covered under Reg 35 (1), the liquidator shall appoint two registered valuers to determine the realizable value of the assets or businesses under clauses (a) to (f) of regulation 32 of the corporate debtor
3.	Regulation 26 and Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017	The interim resolution professional appoint one registered valuer to determine the liquidation value of the corporate debtor in accordance with Regulation 34
4.	Section 59 read with regulation 3 of Insolvency And Bankruptcy Board Of India (Voluntary Liquidation Process) Regulations, 2017	In case of voluntary liquidation proceedings Corporate Debtor have to file a report of the valuation of the assets of the company prepared by a registered valuer

Conclusion:

Where a valuation is required to be made in respect of any property, stock, shares, debentures, securities or goodwill or any other assets or net worth of the company or liabilities under the provision of Companies Act, 2013, the valuation shall be made by Registered valuer appointed by audit committee or Board of directors of the company as the case may be. 

---

[1] Rule 11 of the Companies (Registered Valuers and Valuation) Rules, 2017