The Factoring Regulation (Amendment) Act, 2021 received the assent of the President on 7th August, 2021 and got published in the Official Gazette on 9th August, 2021.

The Amendment Act shall come into force on 23rd August, 2021. (Effective date got notified vide Notification No. S.O. 3406(E) dtd. 19th August, 2021)

Factoring Regulation (Amendment) Act, 2021

Sr. No. Amendment Comments
1 Substitution: Section 2(a)

for the words commencing with “transfer by agreement” and ending with “outside India”, the words “transfer by agreement to a factor of an undivided interest, in whole or in part, in the receivables of an assignor due from a debtor and includes such transfer where either the assignor or the debtor is situated or established outside India” shall be substituted.

Self-explanatory.

Amended provision:

“assignment” means transfer by agreement, of undivided interest of any assignor in any receivable due from any debtor in favour of a factor and includes an assignment where either the assignor or the debtor, are situated or established outside India. transfer by agreement to a factor of an undivided interest, in whole or in part, in the receivables of an assignor due from a debtor and includes such transfer where either the assignor or the debtor is situated or established outside India.

2 Substitution: Section 2(j)

in the opening portion, for the words commencing with “acquisition of receivables” and ending with “any receivables but”, the words “acquisition by way of assignment of receivables of assignor for a consideration for the purpose of collection of such receivables or for financing, whether by way of making loans or advances or otherwise, against such assignment, but” shall be substituted.

 

Self-explanatory.

Amended provision:

“factoring business” means the business of acquisition of receivables of assignor by accepting assignment of such receivables or financing, whether by way of making loans or advances or otherwise against the security interest over any receivables but acquisition by way of assignment of receivables of assignor for a consideration for the purpose of collection of such receivables or for financing, whether by way of making loans or advances or otherwise, against such assignment, but does not include:

(i) credit facilities provided by a bank or a non-banking financial company in its ordinary course of business against security of receivables;

(ii) any activity as commission agent or otherwise for sale of agricultural produce or goods of any kind whatsoever or any activity relating to the production, storage, supply, distribution, acquisition or control of such produce or goods or provision of any services.

3 Insertion: Section 2(j)(i)

in sub-clause (i), after the word “bank”, the words “or a non-banking financial company” shall be inserted;

4 Substitution: Section 2(p)

“receivables” means the money owed by a debtor and not yet paid to the assignor for goods or services and includes payment of any sum, by whatever name called, required to be paid for the toll or for the use of any infrastructure facility or services.

The definition is simplified.

Existing definition:

“receivables” mean all or part of or undivided interest in any right of any person under a contract including an international contract where either the assignor or the debtor or the assignee is situated or established in a State outside India; to payment of a monetary sum whether such right is existing, future, accruing, conditional or contingent arising from and includes, any arrangement requiring payment of toll or any other sum, by whatever name called, for the use of any infrastructure facility or services.

5 Insertion: Section 2(pa)

(pa) “regulations” means regulations made by the Reserve Bank under this Act.

Definition added.
6 Insertion: Section 2(sa)

(sa) “Trade Receivables Discounting System” means a payment system authorised by the Reserve Bank under section 7 of the Payment and Settlement Systems Act, 2007 for the purpose of facilitating financing of trade receivables.

Definition added.
7 Omission: Section 3(2) proviso & Explanation Self-explanatory.

Amended provision:

(2) Every factor shall make an application for registration to the Reserve Bank in such form and manner as it may specify:

Provided that a company registered as a non-banking financial company and existing on the commencement of this Act and engaged in factoring business as its principal business before such commencement shall make an application for registration as a factor to the Reserve Bank before the expiry of the period of six months from such commencement and, notwithstanding anything contained in sub-section (1), may continue to carry on the factoring business until a certificate of registration is issued to it or rejection of application for registration is communicated to it.

Explanation. For the removal of doubts, it is hereby clarified that a non-banking financial company engaged in factoring business shall be treated as engaged in factoring business as its principal business if it fulfils the following conditions, namely:

(a) if its financial assets in the factoring business are more than fifty per cent. of its total assets or such per cent. as may be stipulated by the Reserve Bank; and

(b) if its income from factoring business is more than fifty per cent. of the gross income or such per cent. as may be stipulated by the Reserve Bank.

8 Substitution: Section 3(4)

(4) The Reserve Bank may grant the certificate of registration in such manner as may be specified by regulations.

To bring in line with the amendments as made in the previous sub-section.

Existing provision:

(4) In the case of existing non-banking financial company, the Reserve Bank may issue a fresh certificate of registration as a factor, if the principal business of the non-banking financial company is the factoring business.

9 Substitution: Section 19(1)

(1) Every factor shall register the particulars of every transaction of assignment of receivables in his favour with the Central Registry set-up under section 20 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, within such time from the date of such assignment, in such manner and subject to payment of such fee, as may be prescribed.

In the existing provisions, a timeline of 30 days from the date of such assignment or from the date of establishment of such registry was provided for registering the particulars of transactions which is now removed.
10 Insertion: after Section 19(1)

(1A) Where any trade receivables are financed through a Trade Receivables Discounting System, the particulars specified in sub-section (1) and sub-section (3) shall be filed with the Central Registry on behalf of the factor by the Trade Receivables Discounting System concerned, in such manner as may be specified by regulations.

Self-explanatory.
11 Insertion: after Section 31

31A. (1) The Reserve Bank may, by notification, make regulations consistent with this Act to carry out the provisions of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely:

(a) the manner of granting certificate of registration under sub-section (4) of section 3;

(b) the manner of filing of particulars of transactions with the Central Registry on behalf of factors under sub-section (1A) of section 19;

(c) any other matter which is required to be, or may be, specified by regulations.

(3) Every regulation shall, as soon as may be after it is made by the Reserve Bank, be forwarded to the Central Government and that Central Government shall cause a copy of the same to be laid before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the regulation, or both Houses agree that the regulation should not be made, the regulation shall, thereafter, have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that regulation.

This amendment is made to grant powers to the RBI to make regulations consistent with this Act to carry out the provisions of this Act.
12 Substitution: Section 32(2)(a)

for the words “the form and manner”, the words “the time within which, the form and manner” shall be substituted.

Self-explanatory.

Amended provision:

Section 32: Power of Central Government to make rules

(2) In particular and without prejudice to the generality of the foregoing power such rules may provide for all or any of the following matters, namely:

(a) the time within which, the form and manner in which the transactions of assignment of receivables in favour of a factor shall be filed and the fee for filing such transaction under sub-section (1) of section 19.

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Disclaimer: The author is based in Jabalpur and is a Practicing Company Secretary dealing in Corporate, Legal & Taxation services. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Author recommends that professional advice is sought before taking any action on specific issues.

The author can also be reached at [email protected].

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