September 2022 – Vinod Kothari Consultants

Stressed for reform: RBI proposes stressed assets securitisation and loss provisioning

September 30, 2022/0 Comments/in Financial Services, Indian Accounting Standards (Ind AS), RBI, Securitisation /by Team Finserv

– Team Finserv (finserv@vinodkothari.com)

Rating agency Standard and Poor’s recently noted that at least 60 percent of the world’s economies are either into recession already or heading towards the same. The same report notes that 29 of the 33 countries covered by the study have disorderly inflation above the targets set by the respective central banks^[1]. OECD’s interim report of September, 2022 says that despite a boost in activity as COVID-19 infections drop worldwide, global growth is projected to remain subdued in the second half of 2022, before slowing further in 2023 to an annual growth of just 2.2%. This is accompanied by inflationary pressures in most countries^[2]. India is one of the two countries projected to have a growth rate of more than 6%.

The RBI’s monetary policy, September, 2022, as expected, has announced an interest rate hike of 50 bps in the policy rates.

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Maintenance of security cover for secured debt made transparent by SEBI

September 28, 2022/3 Comments/in Corporate Laws, SEBI /by Vinita Nair Dedhia

Debenture trustees responsible for monitoring the security cover and covenants effective October 1, 2022

– Vinita Nair, Senior Partner | corplaw@vinodkothari.com

Background

Securities and Exchange Board of India (‘SEBI’) is carrying out radical changes in relation to monitoring the security cover and covenants with respect to listed debt securities. Recently, SEBI amended SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) and SEBI (Debenture Trustees) Regulations, 1993 (‘DT Regulations’) and SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (‘NCS Regulations’) in order to substitute the concept of ‘asset cover’ with ‘security cover’ and accordingly, prescribed the requirement of maintenance and reporting of the security cover in case of listed secured debentures[1].

Monitoring of security cover has always been the key responsibility of the DT and therefore, SEBI in November 2020, had prescribed norms for independent due diligence by DTs for the purpose of creation of security[2] and for periodical monitoring of the security created and enhanced disclosures by DTs[3]. Thereafter, in August, 2021[4] SEBI rolled out the norms for security and covenant monitoring using Distributed Ledger Technology (‘DLT’) and in March, 2022 prescribed operational guidelines for security and covenant monitoring wherein system generated unique identifier (Asset ID) will be generated for each security offered by issuer in order to enable the DTs and Credit Rating Agencies (‘CRAs’) for better tracking[5]. Lastly, on August 4, 2022[6] SEBI issued enhanced guidelines for DTs and listed issuer companies on security creation and initial due diligence which inter-alia provides directions to harmonize the process of creation of security.

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Partial sales, SCC in new avatar and other crucial IBC amendments (Presentation)

September 26, 2022/0 Comments/in Insolvency and Bankruptcy, Resolution, Uncategorized /by Team Resolution

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Deliberation by Mr. Vinod Kothari and Ms. Sikha Bansal in the session organized by ICSI-IIP on the topic can be viewed here

In-house Training on SBR Framework for NBFC-ML/UL

September 26, 2022/0 Comments/in Financial Services, scale based regulations, Training & Workshops /by Vinod Kothari Consultants

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Resources on Scale Based Regulations

CSR Rules tweaked to rationalize committee constitution, implementing agencies etc

September 23, 2022/4 Comments/in Amendments to the Companies Act 2013, Companies Act 2013, Corporate Laws, MCA /by Nitu Poddar

– Nitu Poddar, Partner | Lovish Jain, Executive | corplaw@vinodkothari.com

MCA vide its notification dated September 20, 2022 has made amendments in the Companies (Corporate Social Responsibility Policy) Rules, 2014 (“Rules”). The said amendment seeks to do away with the redundant requirements in Rule 3(2) of making CSR expenditure and other compliances even after the companies cease to be covered within the thresholds under section 135(1), provide for continuation of CSR committee in case of amount lying in the unspent CSR account, amend the scope of implementing agencies and in the ceiling of expenditure towards impact assessment as well as some changes in the annual report on CSR.

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FAQs on Share Based Employee Benefits

September 22, 2022/0 Comments/in Companies Act 2013, Corporate Laws, LODR, SEBI /by Team Corplaw

Financial Leases getting a new lease of life?

September 20, 2022/0 Comments/in Financial Services, Lease Transactions, Taxation /by Vinod Kothari Consultants

– Kanakprabha Jethani, Senior Manager | kanak@vinodkothari.com

Background

Leasing industry in India started and grew, as in several other countries, with financial leasing. However, over last several years, it seemed as if financial leases had lost their relevance, for reasons discussed below. While activity in the leasing space was not very brisk, but whatever activity was there was seen mostly in operating leases. Operating leases were sold on the strength of either off-balance sheet treatment, or with lower monthly rentals, or residual value management etc. In case of financial leases, on the other hand, there seemed very little motivation.

Some recent developments seem to be rekindling the interest in financial leases, and if the tax ruling by the ITAT Chennai either goes unchallenged or is affirmed on further appeal, there may be just a new lease of life for financial leases. Coupled with other benefits such as bankruptcy remoteness etc., there may be strong reasons for looking at financial leases, both by lessors and lessees.

In financial year 2021-22, the volume of financial leasing reached to around 7% of the total leasing volumes in the country, compared to 20% in the financial year 16-17^[1]. Considering the legal and regulatory construct in India, the reducing volumes of financial leasing make complete sense. However, the recent rulings on taxation of leases may reverse the long known reasons for not doing financial leases.

In this article, the author discusses the reasons why financial leases do not appeal to lessors and lessees and how the recent developments on the taxation aspects of leasing may seem to be bringing financial leases back to life.

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Corporate climate change litigation: Increasing heat on boardrooms?

September 20, 2022/0 Comments/in Corporate Laws, Sustainability /by Payal Agarwal

– Payal Agarwal and Neha Sinha | corplaw@vinodkothari.com

The importance of ESG aspects in the corporate world does not need an introduction in the current scenario. As the concept travels from the global conferences to the corporate boardrooms, so do the risks and opportunities of the same. Climate change has evolved from an “ethical, environmental” issue to one that presents foreseeable financial and systemic risks (and opportunities) over mainstream investment horizons, as discussed in detail in the Fiduciary Duties and Climate Change in the United States published by Commonwealth Climate and Law Initiative (CCLI). The corporate laws provide a general duty of the directors towards the protection of the environment, and therefore, directors cannot deny their responsibilities towards the same. The same has been dealt with at length in our writeup “Directors’ Liability towards Climate Change: Why Boards should be bothered”.

In this article, the authors try to look at the kinds of litigation in the field of climate change where corporations have been held accountable and identify the potential of litigation risks and the extent to which the directors of a company can be held liable for the climate change actions.

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