The Supreme Court Aadhaar Verdict- Major blow to Fintech Companies

By Simran Jalan (simran@vinodkothari.com)

Introduction

The Supreme Court announced a landmark ruling in the case of Justice K.S. Puttaswamy (Retd.) & Anr. V. Union of India, W.P. (Civil) 494/2012 dated September 26, 2018.[1] (“Aadhaar Verdict”), the one which the entire country was looking forward to, relating to the constitutional validity of the Aadhaar card and the Aadhaar Act. Since the very introduction of Aadhaar card, there have been innumerable applications against the same, however this ruling rests each of those.

One of the major highlight of the ruling is that the same has partially quashed section 57 of the Aadhaar Act, which dealt with use of Aadhaar by private companies or bodies corporate. This has posed a lot of operational difficulties of the startups especially the fintech startups and in this write up we intend to examine the same. But before we delve into further details let us understand what changes have been made to section 57 of the Aadhaar Act.

The ruling has struck down the last phrase in the main provision of Section 57 of the Aadhaar Act., i.e. “or any contract to this effect”, which enabled fintech companies to use Aadhaar number for verifying the identity of a person for the purpose of KYC. Therefore, the section now reads as:

“Nothing contained in this Act shall prevent the use of Aadhaar number for establishing the identity of an individual for any purpose, whether by the State or any body corporate or person, pursuant to any law, for the time being in force, or any contract to this effect“.

Earlier private entities and bodies corporate were allowed to use Aadhaar number of establishing identities of the customers, however, under the state of law, the private entities will not be able to demand Aadhaar for establishing identity unless the same is pursuant to any law. Therefore, this will change the way KYC checks were being conducted all this while.

Further, the judgement can be interpreted that if any person voluntarily wants to give Aadhaar as a proof of identity/proof of residence, then the same shall be valid. However, Unique Identification Authority of India (“UIDAI”) is seeking legal opinion on the authentication of Aadhaar provided voluntarily by the customers to such private companies and appropriate decisions are expected to be issued in the future.

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Variable Capital Company: Singapore proposes a new way of making investments

Can India replicate this model?

By Simran Jalan (finserv@vinodkothari.com)

Introduction

On March 23, 2017, Monetary Authority of Singapore (MAS) issued a consultation paper[1] for Singapore Variable Capital Companies. On September 10, 2018, the MAS tabled the Variable Capital Companies Bill (the “Bill”)[2] in Singapore Parliament.

The Variable Capital Company (“VCC”) is a corporate structure that is tailored for collective investment schemes (“CIS”). In Singapore, the most commonly used investment fund structures are unit trusts (constituted by way of trust deeds) and investment companies. The legislative framework for VCC seeks to provide an alternative to incorporating a company under the Singapore Companies Act (“CA”) for the formation of CIS in Singapore.

With the introduction of the VCC structure, the fund managers will have greater operational flexibility. This VCC structure will act as a platform for the fund managers to establish a domicile of their investment funds in Singapore.

This Bill will be administered by the Accounting and Corporate Regulatory Authority (“ACRA”) and will act as the registrar. However, the anti-money laundering and counter-financing of terrorism obligations of VCC will be overseen by the MAS. Read more

Major recommendations of the Committee on Payment Systems on Payment and Settlement System Bill, 2018

By Vishes Kothari & Simran Jalan  (finserv@vinodkothari.com)

Introduction

Major reforms are being proposed to the Payments and Settlement Systems Act, 2007 so as to be able to catch up with the fast changing payments landscape in the country.

An Inter-Ministerial Committee was constituted in October, 2017 to finalise the draft bill called the Payment and Settlement System Bill, 2018[1] and was comprised of representatives from the RBI, UIDAI, Department of Financial Services (DFS), Department of Electronics and Information Technology (DEIT), Department of Economic Affairs (DEA) and the Department of Legal Affairs (DLA). The Committee has recently submitted its recommendations.

The committee has proposed sweeping changes in the payments sector. The formation of Payments Regulatory Board (“PRB”), an independent regulator of the payments system distinct from the central bank is perhaps the most significant. This separates the regulation of payments from the functions of the central bank, The PRB is formed with the broad objectives of consumer protection, systematic stability, and resilience. It further aims to bring about competition and innovation. Moreover the Bill proposes to put banks and non-banks at par by making authorization criteria to operate payment and settlement systems ownership neutral.

Further significant changes include the introduction of the concept of designated payment systems and infrastructure systems. Both are discussed in detail below.

The Bill has 100 sections as compared to 38 sections in the existing Payment and Settlement Systems Act, 2007 (“PSS Act”). Read more

Growth of factoring services in India

-An analysis of the current scenario

By Simran Jalan (finserv@vinodkothari.com)

What is factoring?

Receivables form a major part of the current assets of a company and management of such receivables is the most important concern for the company. Factoring is a financial option for the management of receivables. It is a tool to obtain quick access to short-term financing and mitigate risks related to payment delays and defaults by buyers. In the process of factoring, the seller sells its receivables to a financial institution (“Factor”) at a discount. After the sale, there is an immediate transfer of ownership of the receivables to the factor. In the due course of time, either the factor or the company, depending upon the type of factoring, collects payments from the debtors. Factoring helps the company to improve the cash flows and cover the credit risk of the company. The following chart depicts the factoring process: Read more

Who Can File an Affidavit?

By Megha Mittal (resolution@vinodkothari.com)

Beware before you swear!

 

What is an Affidavit?

“Affidavit” is a term used very frequently in the common-parlance; however, the consequences it carries are highly underestimated. People file affidavits being unaware of what its repercussions might be and also unaware of the fact whether they are at all competent to make the affidavit. Before analysing who can file an affidavit, it is important to understand the duty bestowed upon a person providing affidavit. Even before that let us first understand what an affidavit is.

An affidavit is sworn, written statement, confirmed by oath or affirmation, voluntarily made by an affiant or deponent, administered or notarised by a person authorised to do so by law.

We shall now look through the different components of the different components of an affidavit:

  • Written statementan affidavit must be a written one. Oral statements sworn before law do not tantamount to affidavit. An affidavit may be used as an evidence before law and thus, must be written.
  • Oath or affirmationan oath or affirmation is a solemn promise regarding one’s actions, past, present or future.
  • Voluntarilythe most significant consequence of an affidavit is that it has a binding effect on the person making such affidavit, and thus, an affidavit must be voluntarily and cautiously made. If any aggrieved person proves that the affidavit was made as a result of coercion or undue pressure, it shall not be valid.
  • Affiant or deponent”- an affiant or a deponent is the person who makes an affidavit under oath.
  • Notarised lastly, an affidavit must be compulsorily notarised, i.e. the genuinity of the affidavit is to be certified by a notary public appointed by the state or the central government.

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