Whether a private company can accept deposits from HUF?

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Vinita Nair | corplaw@vinodkothari.com

Provisions of Law

According to Section 2(31)  of the Companies Act, 2013 ‘Deposit’ includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India. The exclusions are cited in Rule 2 (1) (c) of Companies (Acceptance of Deposits) Rules, 2014 which are applicable to public and private companies.

Rule 2 (1) (c) (viii) of Deposit rules excludes amounts received from a person who, at the time of the receipt of the amount, was a director of the company or a relative of the director of the private company, provided that the person declares that the amount is his own fund and not borrowed. The private company is required to disclose the details of money so accepted in the Board’s report.

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FAQs on compensation of Key Managerial Personnel and Senior Management under the Scale Based Regulatory Framework

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Financial Services Division | (finserv@vinodkothari.com)

RBI had introduced the Scale Based Regulatory Framework: A Revised Regulatory Framework for NBFCs vide a circular dated October 22, 2021. Para 3.2.3 (h) of the circular dealt with ‘Compensation Guidelines’ which required that NBFCs shall put in place a Board approved compensation policy in order to address issues arising out of excessive risk taking caused by misaligned compensation packages.

In terms of the aforementioned para, the RBI subsequently issued a circular on April 29, 2022 detailing the ‘Guidelines on Compensation of Key Managerial Personnel (KMP) and Senior Management in NBFCs’. 

With these FAQs, we aim to address some of the key questions that may arise out of the guidelines and provide an understanding of the same.

1. Applicability

1.1. What is the basic intent of RBI for issuing the Compensation Guidelines for NBFCs?

Response: As per the SBR framework and the text of the notification, the purpose appears to be – (i) to address issues arising out of excessive risk taking caused by misaligned compensation packages and  (ii) to ensure that there is no conflict of interest.

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The Credit Card Business for NBFCs

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RBI Directions on Credit Cards and Co-branded Credit Cards issued by NBFCs

With the objective to provide general and conduct regulations relating to credit, debit and co-branded cards to banks and NBFCs, RBI, on April 21, 2022, has issued the Reserve Bank of India (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022[1] (‘Directions’), to be applicable with effect from 1st July, 2022.

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Like banks, NBFC-UL to maintain CET-1 capital

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Manner of computation of CET-1  for NBFCs prescribed by RBI

– Qasim Saif | finserv@vinodkothari.com

Addressing risk faced by NBFCs and enhancing their capacity to absorb such risk has been a key point of consideration under the Scale Based Regulations (SBR) for NBFCs. SBR also intends to curb regulatory arbitrage available to very large NBFCs whose size of operations are more or less in line with that of banks.

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RBI notifies Lending Restrictions on NBFCs

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In pursuance of the Scale Based Regulatory Framework

-Anita Baid | Vice- President and Aanchal Kaur Nagpal | Assistant Manager

The Scale Based Regulatory Framework, introduced by the Reserve Bank of India (‘RBI’), among several other things, proposed to regulate loans extended by NBFCs to their directors, senior officers and relatives thereof.

In this regard, the RBI has, vide its notification on Loans and Advances – Regulatory Restrictions – NBFCs dated April 19, 2022, issued two sets of regulatory provisions – one for NBFC-UL and NBFC-ML and the other for NBFC-BL (‘Guidelines’).

  • NBFC-BL are required to have a board approved policy on grant of loans to directors, senior officers and relatives of directors and to entities where directors or their relatives have major shareholding.
  • NBFC-ML and NBFC-UL, on the other hand, have to abide by the restrictions prescribed by RBI, while extending loans to directors, senior officers and their relatives. The said restriction may have an adverse impact on the loans extended by the NBFC to its group companies with common directorship.
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Additional disclosures under Scale Based Regulation for NBFCs

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– Parth Ved, Executive | parth@vinodkothari.com

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Our resources on SBR: https://vinodkothari.com/sbr

Applicability of insider trading regulations to pooled investment vehicles: A discussion on extent and rationale

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The article has also been published on IndiaCorpLaw – read here

Regulatory framework for surveillance of DPs

SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regs.’), although prohibit trading on the basis of unpublished price sensitive information (UPSI) by any “insider” (which includes even an accidental insider or an outsider having come to possess UPSI); however, from a surveillance and compliance system perspective, the PIT Regs. focus on certain specific insiders called designated persons (DPs). Trading in securities of the listed company by the DPs is sought to be “regulated, monitored and reported” by the Code of Conduct (reg. 9 read with Schedule B) which, inter alia, provides for (a) bar on trading while the trading window is closed; (b) prior clearance by the compliance officer while the trading window is open subject to certain declarations; (c) bar on short-term reversal trades; etc. Another article deals with a detailed discussion on the manner in which ‘insiders’, ‘connected persons’ and ‘designated persons’ are dealt with under PIT Regs.

Similar framework has been envisaged in case of intermediaries and fiduciaries who deal with listed companies. In such cases, the compliance officer of such intermediary/ fiduciary is required to maintain a ‘restricted list’ of securities, which is used as the basis for approving or rejecting the application for pre-clearance of trades by the DP. The DP may trade in the securities of a listed client company which is not in the restricted list subject to pre-clearance by the compliance officer.

Hence, there is no blanket prohibition of trading in the listed securities by the DPs; although, there are conditionalities involved. Very recently, there have also been concerns around investment by DPs in the units of pooled investment vehicles (as we discuss below).

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