The B&B Regulatory Updates #2: Companies (Amendment) Bill, 2016, RBI on revival of MSMEs & more

Starting this week, Bar & Bench will bring you the latest regulatory and policy updates from different ministries and regulatory authorities. In the second edition of the Bar & Bench Regulatory Updates, we analyse the latest RBI framework, SEBI circular, and the Companies Amendment Bill of 2016..Reserve Bank of India.Framework for revival and rehabilitation of MSMEs.The Reserve Bank of India (“RBI“) on 17 March 2016 issued the revised framework (“Framework”) for revival and rehabilitation of Micro, Small and Medium Enterprises (“MSMEs”). The Framework follows a May 2015 notification issued by the Ministry of MSMEs to provide a simple and fast mechanism to address stress in accounts of MSMEs. RBI has directed the banks to operationalize the Framework before 30 June 2016..The Framework shall be applicable only to MSMEs having loan limits up to Rs. 25 Crore, and for loans beyond Rs. 25 Crore, the extant guidelines on Corporate Debt Restructuring or Joint Lenders’ Form will be applicable..The stressed accounts have been placed into three categories depending on the duration for which the payment is overdue. Just like in case of large borrowers, RBI has asked banks to look for stress from an early stage by identifying loans of over Rs. 10 Lakh as special mention accounts, right from 30 days’ non-payment of principal and interest onwards following which a suitable Corrective Action Plan (“CAP”) will be mandatory. Such CAP could either be rectification or restructuring of the account which ‘may’ involve infusion of additional finance, failing which the recovery process may be resorted to..Committees for Stressed MSMEs.In what may be termed as the most important feature of the Framework, RBI has directed banks to establish committees for stressed MSMEs in order to enable faster resolution of stress in an MSME account..These will be district-level committees, which will resolve the stress in MSMEs under their jurisdictions. In case of a MSME banking with multiple lenders, the lead bank’s panel’s will deal with the issue. The said committees will comprise regional head of the bank as chairperson, and MSME loans in-charge as the convener and member. The banks are also directed to appoint an external expert nominated by the bank and a representative of the State Government..Securities Exchange Board of India.Inclusion of Commodity Derivatives in SEBI IFSC Guidelines.Securities Exchange Board of India (“SEBI“) last year began regulating thecommodity derivatives market and amended the Securities Contracts Regulation Act to include commodity derivatives as “securities”. In a circular dated 17 March 2016, SEBI permitted trading in commodity derivatives at stock exchanges operating in International Financial Services Centre (“IFSC”)..Under the IFSC regime, any recognized domestic or foreign stock exchange can set up a subsidiary, in the financial services centre, provided they hold at least 51 per cent stake in the venture. Gujarat International Finance Tec-City is the first such centre..The Companies (Amendment) Bill, 2016 introduced in the Lok Sabha.The government, as a part of its effort to address difficulties faced by stakeholders and to improve the ease of doing business in India, on 16 March 2016 introduced the Companies (Amendment) Bill, 2016 (“the Bill”) in the Lok Sabha to further amend the Companies Act, 2013 (“the Act”). The Bill has been introduced based on the suggestions received from various stakeholders on the Companies Law Committee Report, which was published last month suggesting certain reforms to the Act..The Bill, inter alia, seeks to simplify the private placement process, remove restrictions on layers of subsidiaries and investment companies , exempt certain classes of foreign companies from compliance requirements under the Act and amend provisions relating to Corporate Social Responsibility to bring in more clarity. The Bill further proposes to allow unrestricted object clause in the Memorandum of Association dispensing with ‘detailed listing of objects, self-declarations to replace affidavits from subscribers to memorandum and first directors’. Another important change involves replacing Central Government approval with special resolution approval of shareholders in case the managerial remuneration crosses the prescribed thresholds. The Government is also looking to omit provisions relating to forward dealing and insider trading from the Act..Other recommendations include introduction of test of materiality for pecuniary interest for testing independence of independent directors, removal of requirement for annual ratification of appointment or continuance of auditor, align prescription for companies to have audit committee and nomination and remuneration committee with that of independent directors..The full text of the Companies (Amendment) Bill, 2016 is provided below.