CS Vinita Nair

Budget 2015 has proposed lots of regulatory reforms with varied objectives. Some of the reforms have been incorporated by way of amendment of respective Acts under the Finance Bill 2015. For few, Hon’ble Finance Minister (FM) has proposed to present a Bill soon before Parliament. Mentioned hereunder is a gist of the same.

1. Micro Units Development Refinance Agency (MUDRA) Bank

In order to ensure that the un-funded are adequately funded, FM has proposed to create Mudra Bank with a corpus of INR 20,000 crores and credit guarantee corpus of INR 3000 crore. MUDRA Bank will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana. In lending, priority will be given to SC/ST enterprises.

2. Electronic Trade Receivables Discounting System (TReDS)

TReDS will be established for financing of trade receivables of MSMEs, from corporate and other buyers, through multiple financiers thereby improving the liquidity in the MSME sector significantly.

3. Bankruptcy Code

In order to achieve what BIFR and SICA failed to achieve, Bankruptcy law reform is expected. FM has proposed to bring the comprehensive Bankruptcy Code in fiscal 2015-16 meeting global standard and providing necessary judicial capacity.

4. Draft legislation for single window clearance

FM has proposed to appoint an Expert Committee to examine the possibility and prepare a draft legislation where the need for multiple prior permissions can be replaced with a pre-existing regulatory mechanism. Some sort of guidelines may be followed to commence work instead of waiting for multiple permissions.

5. Public Debt Management Agency (PDMA)

In order to deepen Indian Bond market, PDMA is proposed to be set up this year, with an objective of minimising the cost of raising and servicing public debt over the long term within an acceptable level of risk at all times, which will bring bring both India’s external borrowings and domestic debt under one roof.

Highlights of PDMA as provide in the Finance Bill 2015

  • Applicable to whole of India except Jammu and Kashmir from the date of notification in Official Gazette.
  • Public debt means obligation arising from borrowings, whether internal or external, upon the Central Government.
  • PDMA will be under the general superintendence of Board of Agency which will comprise of such executive and nominee members ( nominee of Central Government and RBI) as may be notified.
  • Functions of PDMA will be

(a) collecting and publishing information about public debt, including borrowing by the Central Government otherwise than under this Chapter;

(b) purchasing, re-issuing and trading in Government securities (issuance will be in demat form and securities will be fungible and freely transferable); and

(c) carrying out such other transactions as may be required for management of public debt.

  • PDMA shall also undertake cash[1] management for and manage contingent liabilities of the Central Government.
  • PDMA will be governed by RBI. Suitable amendments has been proposed under Section 17 (11) and 21 of RBI Act, 1934 to ensure managing public debt and issuing and managing bonds and debentures of the Central Government.
  • Definition of repo and reverse repo under Section 45U of RBI Act amended to mean the following:

(c) “repo” means an instrument for borrowing funds by selling securities corporate bonds and debentures with an agreement to repurchase the securities corporate bonds and debentures on a mutually agreed future date at an agreed price which includes interest for the funds borrowed;

(d) “reverse repo” means an instrument for lending funds by purchasing securities corporate bonds and debentures with an agreement to resell the securities corporate bonds and debentures on a mutually agreed future date at an agreed price which includes interest for the funds lent;

6. Forwards Markets Commission to be merged with SEBI

FM has proposed the same to strengthen regulation of commodity forward markets and reduce wild speculation. Forward Contract (Regulation) Act, 1952 shall stand repealed and on that date undertaking shall be transferred, and vest with SEBI.

RBI Act, 1934 has been amended with respect to definition and provisions pertaining to derivative and money market instruments. SCRA, 1956 has been amended with respect to definition of derivative, to include repo, reverse repo and commodity derivatives. Further, definition of goods, commodity derivative, non- transferrable specific delivery contract, ready delivery contract, repo, reverse repo, specific delivery contract and transferable specific delivery contract has been inserted. New Section 30A dealing with Special provisions related to commodity derivatives is also proposed to be inserted.

7. Capital Account Transactions under FEMA Act, 1999

FM proposed to amend Section 6 of FEMA Act, 1999 to provide that control on capital flows as equity will be exercised by the Government, in consultation with the RBI.

RBI may now specify any class of classes of capital account transactions, involving debt instruments, which are permissible; the limit upto which forex shall be admissible for and any conditions which may be placed on such transactions, in consultation with the Central Government.

Further, Central Government may now specify any class of classes of capital account transactions, not involving debt instruments, which are permissible; the limit upto which forex shall be admissible for and any conditions which may be placed on such transactions, in consultation with the RBI.

Debt instruments shall mean such instruments as may be determined by the Central Government in consultation with the RBI.

Section 6 (3) has been proposed to be deleted. This will be a major amendment as the sub-section inter-alia empowered RBI to prohibit, restrict or regulate the following:

(a) transfer or issue of any foreign security by a person resident in India;

(b) transfer or issue of any security by a person resident outside India;

(c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India;

(d) any borrowing or lending in foreign exchange in whatever form or by whatever name called;

(e) any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India;

(f) deposits between persons resident in India and person resident outside India;

(g) export, import or holding currency or currency notes;

(h) transfer of immoveable property outside India, other than a lease not exceeding five years, by a person resident in India;

(i) acquisition or transfer of immoveable property in India, other than a lease not exceeding five years, by person resident outside India;

(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred –

            (i) by a person resident in India and owed to a person resident outside India; or

            (ii) by a person resident outside India.

Section 47 of FEMA Act, 1999 which empowered RBI to make regulations has been amended to the extent that all regulations made by RBI till date under Section 6 and Section 47 on capital account transactions, the regulation making power in respect of which now vests with the Central Government, shall continue to be valid, until amended or rescinded by the Central Government.

Post amendment of Section 47 of FEMA Act, 1999 RBI will have power to make regulations for following:

(a) the permissible clauses of capital account transactions, involving debt instruments determined under sub-section (7) of section 6, the limits of admissibility of foreign exchange for such transactions, and the prohibition, restriction or regulations of such capital account transactions under section 6;

(b) the manner ad form in which the declaration is to be furnished under clause (a) of sub-section (1) of Section 7;

(c) the period within which and the manner of repatriation of foreign exchange under Section 8;

(d) the limit upto which any person may possess foreign currency or foreign coins under clause (a) of Section 9;

(e) the clause of person under limit upto which foreign currency account may be held or operated under clause (b) of Section 9;

(f) the limit upto which foreign exchange acquired may be exempted under clause (d) of Section 9

(g) the limit upto which foreign exchange acquired may be retained under clause (e) of Section 9;

(ga) export, import or holding of currency or currency notes;

(h) any other matter which is required to be or may be specified.

8. Sector-Neutral Financial Redressal Agency

FM proposed to create a Task Force to establish a sector-neutral Financial Redressal Agency that will address grievances against all financial service providers.

9. Law On Black Money for confiscating assets parked abroad..

In order to track and bring back the wealth which legitimately belongs to the country, FM has proposed to enact a comprehensive new law on money to specifically deal with such money stashed away abroad and introduce a Bill to this effect soon. Concealment of income and assets and evasion of tax in relation to foreign assets will be regarded as a non-compoundable offence and will be prosecutable with punishment of rigorous imprisonment upto 10 years and penalty for such concealment of income and assets at the rate of 300% of tax shall be levied. Income in relation to any undisclosed foreign asset or undisclosed income from any foreign asset will be taxable at the maximum marginal rate.

The offence of concealment of income or evasion of tax in relation to a foreign asset will be made a predicate offence under the Prevention of Money-laundering Act, 2002 (PMLA). To the extent mentioned, PMLA has also been proposed to be amended. This provision would enable the enforcement agencies to attach and confiscate unaccounted assets held abroad and launch prosecution against persons indulging in laundering of black money.

Section 4 of FEMA Act, 1999 allows a person resident in India to acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immoveable property situated outside India, only in accordance with provisions of FEMA Act, 1999. In view thereof, Section 37A has been proposed to be inserted in FEMA Act, 1999 empowering the Authorised Office to seize value equivalent, situated within India, of such foreign exchange, foreign security or immovable property:

10. Benami Transactions (Prohibition) Bill

In order to curb domestic black money, the aforesaid law is proposed thereby enabling confiscation of benami property and provide for prosecution. This, as per the FM, will result in blocking a major avenue for generation and holding of black money in the form of benami property, especially in real estate.

Amongst other measures to curb black money, Income Tax act is also proposed to be amended to restrict payment of INR 20,000 or more in case of purchase of immoveable properties, quoting of PAN for purchase or sale exceeding INR 1,00,000. CBEC and CBDT to leverage technology and is to have access to information in each other’s database.

How far these will facilitate in developing a better nation is something for us to observe in the time ahead.

[1] means monies held by the Central Government or any of its departments in the form of cash or bank deposits including deposits held with the Reserve Bank

[The above post is contributed by CS Vinita Nair at Vinod Kothari & Co. She can be contacted at vinita@vinodkothari.com]

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