Archive for year: 2018
EXCEPTION TO CONSOLIDATION: GUIDE TO THE MEANING OF SEVERE AND LONG-TERM RESTRICTIONS
By Beni Agarwal (beni@vinodkothari.com)
Introduction
For the group enterprises, as the Companies Act provides, there is a requirement to prepare and present Consolidated Financial Statements. However there are a certain number of conditions which if satisfied may exclude a subsidiary from consolidation for preparation of consolidated financial statements. This article talks about one such restriction which deals with severe and long term restrictions. The purpose of the article is to throw more light and provide clarity to the meaning of “severe” and “long term” restrictions.
Background
Companies Act 2013, section 129(3) states that where a company has one or more subsidiaries, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2). Schedule III of Companies Act 2013, provides that the financials should be prepared in accordance with the applicable Standards.
Hence, it is the requirement of companies act to prepare consolidated financial statements where there is a parent company and the economic activities of the group is presented in the financial statements. For the preparation of Consolidated Financial Statements, presentation is as per Schedule III and as per the rules stated in Accounting Standard 21( AS 21). The disclosure and presentation requirements as per schedule III are in addition to and not in substitution of the Accounting Standards.
The Standard lays down the rules for the preparation and presentation of Consolidated Financial Statements of the group enterprise under the control of the parent. These are in addition to the Standalone Financial Statements. Now the question arises as to what is the meaning of “control” that builds the subsidiary and holding relationship?
LIQUIDATION PROCESS (SECOND AMENDMENT) REGULATIONS
– Richa Saraf and Devisha Dhanuka (resolution@vinodkothari.com)
Pursuant to Notification No. IBBI/2017-18/GN/REG028, dated 27.03.2018, the very first amendment was brought into Regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 w.e.f. 01.04.2018 to permit sale of the corporate debtor as a going concern. The insertion, as aforementioned, was brought in force keeping in view the object with which the Insolvency and Bankruptcy Code, 2016 (“Code”) was formulated, i.e. to provide for an opportunity of revival of the entity under distress.
RBI’s Interoperability guidelines for PPIs- A move to promote Digitalization
By Simran Jalan (simran@vinodkothari.com)
Introduction
Interoperability is the ability of customers to use a set of payment instruments seamlessly with other users within the segment. It enables a payment system to be used in conjunction with other payment systems. It allows Prepaid Payment Instruments (PPI) issuers and other service providers to undertake, clear and settle payment transactions across systems, without participating in multiple systems. All the service providers adopt common standards so as to make the PPIs interoperable. This interoperability shall facilitate payments among different wallets inter se and with banks. Paytm, Freecharge, Oxygen wallet, Airtel money, etc. are some of the digital wallets operating in India currently.
Last year, RBI issued Master Directions on Issuance and Operation of Prepaid Payment Instruments[1] (“Master Directions”) to regulate the prepaid payment instruments and to monitor the working of the PPI issuers. This was the much required legislative framework to supervise the prepaid payment industry. The Master Directions also provided for interoperability of the PPIs. It stated that the interoperability shall be enabled in the following phases for the PPIs:
The Master Directions mandated the first phase for all KYC compliant PPIs (bank and non-bank) issued in the form of wallets to have interoperability amongst themselves through UPI within 6 months from the issue of the Master Directions. This ensured fair competition between the different PPI providers as some providers used to spend exorbitantly to get merchants on-board and this would in turn eliminate competition.
PRIORITY OF TAX DUES IN LIQUIDATION?
By Kasturi Chowdhury (resolution@vinodkothari.com)
The manner of distribution of the assets of a company during liquidation is fraught with ambiguity and settlement of such claims arising out of it has inconvenienced the parties concerned since the advent of the Insolvency and Bankruptcy Code, 2016 (“Code”). In a recent ruling, the judgement of the Hon’ble High Court of Hyderabad showed the path to be followed when there arose such conflict regarding priority of settling the dues of the Income Tax authority during liquidation of a Company. Read more →
RBI’s dissent on the PSS Bill, 2018
By Simran Jalan (simran@vinodkothari.com)
Introduction
An Inter-Ministerial Committee was formed to finalise Payment and Settlement System Bill, 2018 to amend the Payment and Settlement System Act, 2007 (“PSS Act”). The Bill seeks to foster competition, consumer protection, systemic stability and resilience in payment sector and establish an independent Payments Regulator Board (“PRB”) to regulate the same. The proposals of the Government to amend the PSS Act at length is covered in our previous Article- Major recommendations of the Committee on Payment Systems.
Reserve Bank of India (“RBI”) had raised various objections in the Bill and has, further, issued dissent note[1] to bring out into public domain the fact that RBI is not happy with the government’s attempt to take control of payment and settlement systems.
Dissent of RBI
The RBI has given the dissent on the following recommendations of the committee:
• On composition of PRB
RBI has contended that there has been a major departure with respect to composition of the PRB from what was proposed under the Finance Bill, 2017. Initially, the Finance Bill proposed that the PRB shall be constituted with the Governor of RBI as the Chairman, however, the PSS Bill states that the Chairman of the PRB shall be appointed by the Government in consultation with the RBI.
Further, the Finance Bill, 2017 suggested that the PRB must be built into the overall framework and the RBI, however, the PSS Bill states that the PRB shall be an independent body. Payment and settlement system being a sub-set of the currency management system, keeping the PRB independent of RBI would not be appropriate. The Monetary Policy has a huge impact on the payment systems and therefore, the power to regulate the payment systems should be with the monetary authority.
The Bill also provides for a formal mechanism for co-ordination between PRB and RBI. The RBI is of a view that the operations of PRB should be integrated and not co-ordinated with RBI.
Further, banks are the most important parties of the payment systems, RBI being the banking regulator makes it logical to keep integrate PRB within the operations of the RBI.
It will additionally provide holistic benefits since a single regulator will decrease the compliance costs as compared to the costs incurred if there are multiple regulators and will be more effective.
Further, the Bill stated that it was necessary to distinguish the role of the Central Bank as an infrastructure institution providing settlement function from its role as a regulator of the payment sector. In respect to this statement, RBI commented that the payment systems are nothing but digital substitutes of currency. RBI creates currency and distributes them through banks. Major concern of RBI was that the non-banks were ascribed the job of creating money via payment systems.
