August 2023 – Vinod Kothari Consultants

Chinese Non-banking financial entities in precarious state

August 31, 2023/0 Comments/in Financial Services, NBFCs /by Vinod Kothari

Vinod Kothari, Director | finserv@vinodkothari.com

One of the trust companies defaults; other casualties likely

Chinese financial system is opaque and intriguing, for any outside trying to understand it. Regulatory framework is also mostly spasmodic, and given the fact that Chinese regulators do not follow global institutions or their regulations, Chinese institutions have developed along their own lines.

One of the non-banking financial entities in China is “trust companies”, somewhat similar to private collective investment vehicles or alternative investment funds seen elsewhere. These trust companies mostly invest in activities closely mimicking the lending of banks, while at the same time not being regulated as such. The size of the shadow banking industry in China, better known as “non banking financial intermediaries” (NBFIs) is huge, and is the second largest in the world, next only to the USA. Of the NBFIs, trust companies were estimated to be about USD 4 trillion, and 79% of the trust companies are based out of China, as per data as of end-December, 2021, appearing in the NBFI report of the Financial Stability Board.

Full Day Workshop on NBFCs: Recent Regulatory Changes

August 30, 2023/0 Comments/in Financial Services, Training & Workshops /by Team Finserv

Register Here – https://forms.gle/KHUzQtf868LihCPA7 (Early Bird Rates upto 02 September)

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SEBI approves changes in SSE framework – Eases registration & listing of NPOs

August 30, 2023/0 Comments/in Corporate Laws, IPOs and listing, LODR, SEBI, Sustainability, Sustainability /by Staff

– Payal Agarwal, Senior Manager | corplaw@vinodkothari.com

(Updated as on November 28, 2023)

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Access our resource centre on Social Sector her:

Resource Centre on Social Sector

Proposal to designate a Research Analyst Administration & Supervisory Body to administer and supervise the RAs: SEBI Consultation Paper dated 22.08.2023

August 28, 2023/0 Comments/in Corporate Laws, SEBI /by Neha Malu

– Neha Malu, Senior Executive | Corplaw@vinodkothari.com

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Framework for voluntary delisting of debt securities notified

August 25, 2023/0 Comments/in Bond Market, Corporate Laws, LODR, SEBI /by Team Corplaw

– Sharon Pinto, Senior Manager & Palak Jaiswani, Asst. Manager | corplaw@vinodkothari.com

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Our resources related to the topic:-

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Large Corporate Borrowers

देख मत मुड़कर परिन्दे

August 25, 2023/0 Comments/in Uncategorized /by Vinod Kothari

देख मत मुड़कर परिन्दे
सामने आकाश का विस्तार है
लोग मापेंगे तुम्हारे फासले जो तय किये हैं
हाथ में फीता लिए
किन्तु तुमको फासलों की है नहीं परवाह
क्षितिज तक उड़ना तुम्हारी चाह
सांस सीने में परों में शक्ति है
अनवरत उड़ना तुम्हारी नियति है, संसार है
देख मत मुड़कर परिन्दे
सामने आकाश का विस्तार है

Delving further into Preferential Transactions: NCLAT studies section 43 in light of Jaypee ruling, SC upholds

August 25, 2023/0 Comments/in Insolvency and Bankruptcy, Resolution /by Shaivi Bhamaria

– Shaivi Bhamaria | resolve@vinodkothari.com

When a corporate person undergoes Corporate Insolvency Resolution Process (‘CIRP’) or liquidation process, there is an obvious presumption of precedent financial stress, and hence, all the transactions that have an adverse bearing on the financial health of the distressed corporate person, at the cost of stakeholders, come under the scanner. There is a look-back period, which, based on global equivalents, has been fixed at 2 years prior to commencement of CIRP in case of transactions with related persons, and 1 year prior to commencement of CIRP in other cases. The Insolvency and Bankruptcy Code, 2016 (‘the Code’) has titled such transactions as ‘avoidance transactions’. Such avoidance transactions are classified into 4 categories in the Code, viz- (a) preferential transactions (b) undervalued transactions (c) transactions defrauding the creditors and (d) fraudulent transactions. The provisions with respect to avoidance transactions are inspired by the UK Insolvency Act.

Loan Penal Charges: Accounting and GST implications

August 25, 2023/1 Comment/in Accounting and Taxation, Financial Services, Good & Service Tax (GST), NBFCs, RBI /by Team Finserv

Abhirup Ghosh, Qasim Saif & Aanchal Kaur Nagpal | finserv@vinodkothari.com

Background

Levying of penal charges or late payment charges are claimed as ‘just’, owing to the underlying breach of contract under the Contract Act, 1972. A breach or a non-performance by one party entitles the other party to receive compensation for any loss or damage suffered due to such breach. Penalties may not only be compensatory; they also have a deterrent element.

In order to ensure compliant behaviour, lenders charge penalties to their borrowers for various ‘events of default’; the predominant ones being penalty for delayed payments (in the form of charges or interest) and prepayment penalties. However, such charges stopped being ‘just’ and ‘reasonable’ when lenders started maneuvering such penalties as revenue enhancement tools, rather than as a deterrent measure and compensation for a breach. Such unreasonable penalties coupled with non-disclosures, compounding of penal interest, etc. were highly prejudicial to consumer interest and accordingly, caught the eye of the regulator.

The RBI introduced guidelines to the lenders to ensure reasonableness and transparency in the disclosure of penal interest vide its Circular on ‘Fair Lending Practice – Penal Charges in Loan Accounts’(RBI Guidelines on penal charges’) dated August 18, 2023. Our article and FAQs ^{^[1]} on the same may be read here ^[2].Our YouTube video discussing the guidelines may be viewed here.

However, charging penal interest also raises several practical questions for lenders, mainly indirect taxation and accounting of penal charges, which will be discussed in detail in this article.