Update 07.02.2019- Guidelines on Reporting and Monitoring of Frauds in HFCs

Guidelines on Reporting and Monitoring of Frauds in Housing Finance Companies

 

To facilitate the reporting and monitoring system relating to fraudulent transactions reported by HFCs, NHB issued “Guidelines on Monitoring of Frauds in Housing Finance Companies, 2018” (“Guidelines”) effective from February 05, 2019. The Guidelines shall apply to all Housing Finance Companies registered with the NHB.

Key responsibilities of HFCs

  1. Place a reporting system for recording frauds without any delay
  2. Fix staff accountability in respect of delays in reporting of fraud cases to the NHB.
  3. Adhere to the timeframe fixed for reporting frauds
  4. Nominate an official of the rank of General Manager or equivalent who will be responsible for submitting all the returns and reports to the NHB
  5. Take precautions to ensure that the cases reported by them are duly received by the NHB.
  6. Disclose the amount related to fraud, reported in the company for the year in their balance sheets.
  7. Quarterly Review of Fraud:
  • Information relating to frauds for the quarters ending March, June, September and December shall be placed before the Board of Directors during the quarter following the quarter to which it pertains.
  • Audit Committee of the Board of HFCs shall review and monitor the frauds involving an amount of Rs. 50 lakh and above
  1. Annual Review: HFCs should conduct an annual review of the frauds and place a note before the Board of Directors for information
  2. Make provisions, in case of accounts classified as ‘fraud’, to the full extent irrespective of the value of security.

Classification of fraud

In order to have uniformity in reporting, frauds have been classified as follows:

Fraud only when fraudulent intention is suspected / proved

 

Deemed to be treated as fraud (irrespective of the fraudulent intention)
a)      Negligence

b)      Cases of cash shortages of less than Rs. 10,000/-

c)      Irregularities in foreign exchange transactions

a)      Misappropriation and criminal breach of trust

b)      Fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property

c)      Unauthorized credit facilities extended for reward or for illegal gratification.

d)      Cheating and forgery

e)      Cases of cash shortages more than Rs. 10,000/-

f)       Cases of cash shortages more than Rs. 5000/- if detected by management / auditor/inspecting officer and not reported on the occurrence by the persons handling cash.

g)      Any other type of fraud not coming under the specific heads as above

 

Reporting of Frauds

Reporting of fraud shall be done by referring to the following heads of frauds:

  1. Frauds involving – 1 lakh and above
  2. Frauds committed by unscrupulous borrowers
  3. Frauds involving t 1 crore and above
  4. Cases of attempted fraud

Following forms have been introduced for the purpose of reporting frauds:

 

FMR-1: Report on Actual or Suspected Frauds in HFCs

FMR-2: Report on Frauds Outstanding

FMR-3: Progress Report on Frauds of Rs. 1 lakhs and above

Read more

Update 01.02.2019- Key Changes in the Indian Stamp Act

Key changes

  • Definition of bonds will not include debentures;
  • Definition of debenture inserted which includes usance bills, commercial papers, certificate of deposits and other short terms instruments of original or initial maturity of one year or as provided by RBI.
    • Definition under Act, 2013 categorically excludes instruments covered under Chapter III-D of RBI Act, 1939.
  • Definition of instrument now includes a document, electronic or otherwise, created for transaction in a stock exchange or depository by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded;
  • Definition of security also includes usance bills, commercial papers, certificate of deposits and other short terms instruments of original or initial maturity of one year or as provided by RBI.
  • Section 9A & 9B provides for levy of stamp-duty on following types of transactions:
Nature of transaction Stamp duty to be collected by Stamp duty to be collected from When On
Sale of securities through a stock exchange Stock exchange or clearing corporation Buyer At the time of settlement of transactions Market value of such securities
Transfer of securities by a depository, otherwise than on the basis of any transaction on stock exchange Depository Transferor/ Seller At the time of transfer Consideration amount
Issue of securities Depository Issuer At the time of creation or any change in records of a depository.

 

 

Market value of securities specified in allotment list
Issue of securities otherwise than on stock exchange or depository Issuer On each issue total market value of the securities
Sale or transfer or reissue of securities for consideration is made otherwise than

through a stock exchange or depository

seller or transferor or issuer on each such sale or transfer or reissue Consideration specified in such instrument

 

  • Rate shall be as provided in Schedule I. Accordingly, amendments have been made in Section 29 of the Act providing the details of the person who shall pay the duty.
  • Market value has been defined as well as explained under proviso to Section 21 as under:
Nature of security Market Value will be
Security traded in a stock exchange Trading price
Security transferred by depository but not traded in the stock exchange Consideration mentioned in the instrument.
Security dealt otherwise than in the stock exchange or depository Consideration mentioned in the instrument
Options in any security Premium paid by buyer
Repo on corporate bonds Interest paid by the borrower
Swap Only first leg of cash flow

 

  • The stock exchange or the authorised clearing corporation and the depository shall submit to the Government details of the transactions in the manner to be prescribed in the rules.
    • Failure to submit or submission of false document or declaration will be punishable with fine of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less. [Section 62A (2)]
  • The amounts collected on behalf of State Government to be transferred to such State Government determined as under within 3 weeks of the end of each month:
Particulars State Government eligible to receive stamp duty
Where buyer is located in India Where the residence of buyer is located
Where buyer is located outside India Where the registered office of the trading member or broker of such buyer is located.

 

In case no such trading member or broker, where the registered office of participant is located.

Issue of securities by issuer otherwise than through a stock exchange or depository, Place where its registered office is located

 

  • Section 62A (1) provides fine payable in case of failure to collect duty or failure to transfer duty to the State Government within 15 days of expiry of the 3 weeks’ time specified above, which shall not be less than one lakh rupees, but which may extend up to one per cent. of the collection or transfer so defaulted.

Major changes in Schedule I

  • Duty on debentures (Article 27)
    • Central Government has the power to levy stamp duty on issue of debentures pursuant to Entry 91 of List I (Union List).
    • Article 27 has been amended to provide ad-valorem rate of duty on issue of debentures (0.005%) and on transfer and re-issue of debenture (0.0001%).
    • The exemption in case of issue of debentures by an incorporated company or body corporate in terms of a registered mortgage-deed stands omitted.
  • Duty on security other than debentures (Article 56A)
    • equity shares, preference shares, warrants.
    • Issue will be subject to stamp duty of 0.005%;
    • Transfer on delivery basis will be subject to 0.15%;
    • Transfer on non-delivery will be subject to 0.003%
    • Rate for derivatives also specified.

Update 01.02.2019- Highlights of Interim Budget, 2019

Taxation

Tax Rates

For Individuals For Corporates
Income tax slab/ rate remains the same

 

Turnover less than 250 cr to be taxed @ 25%

 

  Turnover more than 250 cr to be taxed @ 30%

 

Income from house property

  • Deduction amount of Rs 2 lakhs remain same in case of interest on housing loan, however the same will be available for two self-occupied properties in aggregate. (Section 24)
  • Benefit of notional rent to be nil is proposed to be extended to second self-occupied property, earlier this benefit was allowed to only one self-occupied property. (Section 23)
  • Extension of two years from the date of receipt of completion certificate is proposed in place of one year for considering the annual letting value as nil for building or land appurtenant thereto held as stock in trade. (Section 23)

Capital Gains

  • Individuals and HUFs having capital gains upto Rs 2 cr from transfer of a residential house may claim tax relief in respect of gains invested in the purchase or construction of upto 2 residential houses. (Section 54)

Income from Salaries

  • An increase in standard deduction of Rs 50,000 from Rs 40,000 or salary whichever is less is allowed as deduction. (Section 16)

Deductions

  • The affordable housing scheme has been extended for one more year i.e. the housing projects approved till 31st March, 2020 may avail the benefit. Deduction of 100% of the profit and gains derived from such business shall be available to those housing projects approved on or after 1st June, 2016 to 31st March, 2020 subject to fulfilment of specified conditions.

Tax Deducted at source

  • Threshold limit for deduction of TDS on interest income paid by banking company, co-operative banking society or post office cooperative is increased from Rs 10,000 to Rs 40,000. (Section 194A)
  • Threshold limit for tax deduction at source on rent is increased from Rs 1,80,000 to Rs 2,40,000. (Section 194- I)

Rebate for individuals

  • A full tax rebate to individual taxpayers having taxable annual income upto Rs 5 lakhs which was earlier restricted to Rs 3.5 lakhs. A deduction of 100% of income tax on the total income or Rs 12,500 whichever is less is allowed under this section. (Section 87A)

Customs Duty

  • To rationalize customs duties and procedures government has abolished duties on 36 capital goods.

Tax Administration

  • Returns, tax payments, assessment procedures etc are all being done electronically. The Government aims to process all returns in twenty-four hours and issue refunds immediately.
  • All verifications and assessments of returns selected for scrutiny proposed to be done electronically through anonymised back office, manned by tax experts and officials, thereby aiming elimination of personal interface between taxpayers and tax officers.

MSMEs

  • 59 minutes loan portal to enable easy access to credit for MSMEs.
    • The Finance Minister said that all GST-registered MSMEs will get 2% interest rebate on incremental loan of Rs. 1 crore.
  • Mandatory 25% procurement from MSMEs by CPSEs
    • Out of the 25% procurement mandated from MSMEs, 3% shall be reserved for women entrepreneurs
  • Mandatory registration of vendors on GeM

Agricultural Sector

  • Facility of extension of Kisan Credit Card scheme (KCC) to Animal Husbandry and Fisheries farmers.
  • Provide the benefit of 2% interest subvention to the farmers pursuing the activities of animal husbandry and fisheries, who availing loan through KCC, including an additional 3% interest subvention in case of timely repayment of loans.
  • For farmers affected by natural calamity, and who are provided funds via the National Disaster Relief Fund (NDRF), an interest subvention of 2%, topped with 3% will be given for the entire loan restructuring period.
  • Government is launching a historic programme namely “Pradhan Mantri KIsan SAmman Nidhi (PM-KISAN)”. Under this programme, vulnerable landholding farmer families, having cultivable land upto 2 hectares, will be provided direct income support at the rate of Rs. 6,000 per year.

Labour Sector

  • Employee contribution in pension scheme has been kept intact and the government contribution has been increased from INR 3,500 per month to INR 7,000 per month and the maximum ceiling of the pay has been increased from INR 10,000 per month to INR 21,000 per month.
  • In the event of death of a labour during service, the amount to be paid by EPFO has been enhanced from INR 2,50,000 lakh to INR  6,00,000 lakh.
  • The ceiling of payment of gratuity has been enhanced from INR 10,00,000 to INR 20,00,000.
  • The ceiling of ESI’s eligibility cover has been increased from INR 15,000 pm to INR 21,000 pm.
  • The Interim Budget has provisioned for a monthly pension of INR 3,000, with a contribution of INR only 100 per month, for workers in the unorganized sector to those 60 years of age and having monthly income upto INR 15,000.
  • The interim budget provides for establishment of National Programme on ‘Artificial Intelligence’ in order to take the benefits of Artificial Intelligence and related technologies to the people.

Prevention of Money Laundering Laws

  • Time period of attachment under section 8(3)(a) extends by a total of 275 days. The period of attachment by the Adjudicating Authority has changed to 365 days from the current period of 90 days.

To refer the amendments in stamp duty, refer our article here.

You can read our detailed analysis on the Interim Budget 2019 here.

Update 30.01.2019- Clarification on Applicability of Rotation principles on a company as per Section 139 of the Companies Act 2013

Clarification on Applicability of Rotation principles on a company as per Section 139 of the Companies Act 2013 where the company ceases to fall under the ambit of Rotation principles in subsequent years- This is regarding the applicability of Rotation principles on a company as per Section 139 of the Companies Act 2013 where the company ceases to fall under the ambit of Rotation principles in subsequent years. 
  • Issue-  A Chartered Accountant/ firm, an auditor in a company on which Rules relating to Rotation of auditors were applicable, retired in the year 2017 and a new auditor appointed in the same year. After amendment was brought as per Companies (Amendment) Act 2017, the company do not meet principles of rotation of auditors in the year 2018. Whether the auditor who was an auditor of the company in the year 2017 can be reappointed by the company as the company ceases to fall under the criteria of rotation of auditors?
  • Clarification- The Corporate Laws & Corporate Governance Committee at its 43rd meeting held on 7th January, 2019 discussed the issue and was of the view that since the requirement of rotation of auditors is not applicable on the company subsequently, therefore the auditor who was the auditor in the company earlier in the year 2017 can be reappointed without prejudice to the other provisions of the Companies Act 2013. In other words, once a company ceases to fall under the ambit of Rotation principles, the company can appoint any chartered accountant/ firm as an auditor of the company irrespective of the fact that the same chartered accountant/ firm was an auditor of the company in previous years. Read More

Update 28.01.2019- Consultation paper for amendment of SEBI InvITs Regulation, 2014 and SEBI REITs Regulation, 2014

– The following are the proposals for amendment:

  • Reduction in the minimum allotment and trading lot for publicly issued InvITs and REITs- 
    REITS INVITS
    Current regulatory framework ·         Minimum subscription in an initial offer and a follow- on offer from any investor shall be Rs. 2 lakhs.

    ·         The prescribed trading lot for the purpose of trading of units of the REIT on the designated stock exchange, is Rs. 1 lakh.

     

     

    ·         Minimum subscription in an initial offer and a follow- on offer from any investor shall be Rs. 10 lakhs.

    ·         Trading lot for the purposes of trading of publicly listed units, on the designated stock exchange, shall be Rs. 5 lakhs.

     

     

    Proposal The minimum application and  trading  lot for publicly issued  InvITs and  REITs is proposed to be revised as follows:

    a.    At the time of initial/follow-on issue, the minimum application and allotment lot shall be of 100 units and the value of one such lot shall be within the range of Rs. 15,000– Rs. 20,000.

    b.    Allotment shall be made in multiples of a lot.

    c.    After initial listing, a trading lot shall also be of 100 units.

     

For InvITs

  1. Increase in the leverage limit-
    • Current regulatory framework: Regulation   20(2)   of the InvIT Regulations provides   that   the   aggregate consolidated borrowings  and  deferred  payments  of  the  InvIT  net  of  cash  and cash equivalents  shall  never  exceed 49  % of  the  value  of  the  InvIT  assets. Regulation  22(4)(b)  of  the  InvIT  Regulations,  any  borrowing exceeding  25%  of  the  value  of  the  InvIT  assets  requires unit  holders’ approval and mandatory credit rating.
    • Proposal- It is proposed that the leverage limit for InvITs be increased from existing 49% to 70%.
  2. New regulatory structure for privately placed unlisted InvITs- 
    • Current regulatory framework- The InvIT Regulations provide for mandatory listing of units of InvITs, issued either through publicissue or on private placement basis.
    • Proposal-  The regulatory framework for privately placed listed InvITs, including registration requirements, structural obligations, operational requirements, corporate governance and investor protection measures, etc. shall be made applicable mutatis-mutandis for the proposed framework for privately placed unlisted InvIT.

Public comments are invited on the proposed framework given at Para 4, 5 and 6 above. The comments, may be sent by email or through post, latest by February 18, 2019.  Read More

Detailed article can be read here.