In line with an overhaul of changes proposed in the Companies Act, 2013, the Corporate Laws (Amendment) Bill proposes some changes in the Limited Liability Partnership (LLP) Act, 2008. Aimed at greater ease of doing business for corporates, the proposals are dominated by provisions to recognise LLPs operating in International Financial Services Centres by allowing them to issue and maintain share capital in foreign currency as permitted by the International Financial Services Centres Authority . Further, decriminalisation of various procedural defaults under the LLP Act have been provided for by replacing criminal provisions with civil penalties, , and easing compliances for Alternative Investment Funds which are formed asLLPs.
Following definitions added:
IFSC and IFSCA inserted and aligned with definition in International Financial Services Centres Authority Act, 2019
“Permitted foreign currency” to be specified by IFSCA in consultation with CG
“Specified IFSC LLP” meaning an LLP set up in an IFSC, and regulated by IFSCA
To facilitate LLPs operating in International Financial Services Centres allowing them to issue and maintain share capital in foreign currency
Specified IFSC LLPs
Registered office to be in IFSC
“IFSC LLP” to form part of its name.
If any LLP is regulated by SEBI or IFSC, primarily meaning AIFs:
Details of changes in partners to be furnished to the Registrar annually.
Manner of filing changes in LLP Agreement to be prescribed.
Monetary value of contribution by partner in Specified IFSC LLP to be accounted for and disclosed only in permitted foreign currency and any prior contribution also to be converted to such foreign currency.
Subsequent monetary contribution not allowed without converting the same into permitted foreign currency.
To prepare its books and records in the permitted foreign currency, however, may be allowed to prepare in INR, if permitted by IFSCA. [Section 34(1)]
Specified IFSC LLPs may be required to use permitted foreign current for filings under this Act, however, payment of fees/fines/penalties, to be made in INR. [Section 68]
Incorporation/Conversion of/into LLP
Changes in the LLP agreement, names and other details of partner of those LLPs regulated by SEBI or IFSCA to be intimated as may be prescribed i
Requirement of compliance statement by advocate/CS/CA/CMA replaced by the requirement of an affidavit, only in cases where such professional is engaged
Specified IFSC LLP to state its objects of financial service activities as per Section 3(1)(e) of IFSC Authority Act, 2019
Enabling provisions for conversion of a specified trust, established under Indian Trusts Act, 1882 or Central/State Act and registered by SEBI/IFSCA, having prescribed activities. primarily aimed at AIFs formed as trust, to convert into LLPs. [Sections 57A and 58]
Adjudication and Penalties
Decriminalising extant provisions providing for punishment with:
Fine of Rs. 2,000-25,000 for failure to comply with Registrar’s summons/requisition to a penalty of Rs. 10,000 for failing to comply with any requisition of Registrar (other than summons). [Section 38(4)]
Fine of Rs. 25,000-5,00,000 for LLP, and Rs. 10,000-1,00,000 for every DP, for failure to comply with requirements of maintenance of accounts, and annual Statement of Account and Solvency to Rs. 100/day upto Rs. 1,00,000 for LLP, and Rs. 50,000 for DP.
LLP/Partner/DP expressly permitted to make application suo moto for adjudication of penalty.
For failure to comply with any requisition of the Registrar, penal actions will apply instead of fine
From the commencement of the proposed legislation, where a provision in respect of any offence provided in LLP Act has been amended to provide for adjudication under the said section, the manner of withdrawal of the complaint and the manner of transfer of such matter for adjudication under such section, whether pending in the Court or otherwise, shall be dealt with in accordance with such Scheme as may be notified by the Central Government.
Appeal allowed against decision of Registrar regarding name reservation (Section 16) or declining to incorporate LLP (Section 12). [Section 68B]
Valuation
Provisions of Section 247 of Companies Act, 2013 to apply mutatis mutandis for valuation of partner’s contribution, property/assets/net worth i.e. only valuer registered with IBBI in accordance with Section 247
Read our coverage on the amendments proposed in the Companies Act, 2013 here.
https://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.png00Staffhttps://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.pngStaff2026-03-24 19:11:582026-04-02 15:45:32RBI Directions on Lending to Related Parties: Frequently Asked Questions
It is common for companies to enter into multi-year contracts in its usual business operations, to secure supply of goods or services, access to premises for operations, or for other commercial reasons etc. In the maze of RPT compliances, however, given that the transactions are usually approved by the Audit Committee and/ or shareholders on an omnibus basis, challenges arise on the ideal way of dealing with and taking approval for multi-year contracts.
The relevance of multi-year contracts in the context of RPTs arises for two reasons:
the value of contract that is required to be taken for the purpose of ascertaining materiality of a contract or transaction, and
the tenure for which the approval can be taken for such contracts.
Several questions arise:
Should the entire value of the contract be placed for approval, even if that results in crossing the materiality threshold, and requires going to the shareholders?
Or can the shareholders’ approval be circumvented by dividing the total contract value into yearly values and taking approval only for the estimated yearly transaction value?
If so, what happens if the contract is not approved by the AC in any subsequent FY within the tenure of the contract?
If the total contract value is approved, should the approved value be considered for materiality thresholds again for the next FY?
Divisibility of contracts into smaller relevant units
The crucial point in considering whether a contract requires yearly approval or one single approval valid for the whole contract is based on the “divisibility” of the contract – that is to say, its ability to be divided into smaller units instead of considering the contract as a whole. If it is a single contract for a fixed term, the approval of the contract is approval of the entire exchange of resources/services that takes place over such term.
The divisibility of a contract may be judged against various factors, for instance:
Tenure of the contract
Contractual milestones for payment based on performance
Satisfaction of performance through delivery of goods or services under a contract etc.
We discuss each of these in detail below.
Fixed tenure implies single approval for whole tenure?
Several contracts may have a fixed tenure, but does the fixity of tenure itself implies that such a contract shall be required to be approved through a single approval – valid for the whole tenure of the transaction?
There may be several contracts having a fixed term, but the fixity of term in itself may not be the essential feature in all such contracts. For example, a contract might have been entered into 3 years for supply of certain goods or services. While the tenure of the contract is 3 years, each instance of supply of goods or services constitutes an independent divisible supply in itself. Hence, in such cases, merely based on the tenure of the contract, the indivisibility of such arrangement cannot be argued.
Performance or payment milestones in a contract
In a multi-year contract, there are usually payment milestones based on performance of the contract. For example, a contract for development of software may contain milestones, such as, (i) development of UAT model, (ii) development of final software interface, and (iii) activation of the software etc. While the contract value may be divided based on the three different stages or milestones specified in the contract – it is important to note that the performance of the contract becomes complete only upon activation of the software, and hence, the divisions based on the performance milestones do not have an independent existence. Hence, dividing the contract would not be feasible here.
Performance of contract: delivery of goods or services
The most important factor in considering the divisibility of a contract is the actual performance of the contract. Whether the contract is of such nature that the delivery happens “over a period of time”, or is it such that while the exchange of resources/ services take place over the tenure of the term, the performance may be said to be complete only “at a point of time”.
Period of time v. point of time: drawing reference from Ind AS 115
In order to understand the divisibility of a contract based on ‘period of time’ v/s ‘point of time’- reference may be drawn from its closest equivalent under Ind AS 115 read with its guidance note for the purpose of revenue recognition.
Divisible contracts: satisfaction of performance obligations over a period of time
Ind AS 115 specifies conditions based on which it may be said that the performance obligation is satisfied and revenue is required to be recognised over a period of time: [Para 35]
The nature of the activity is such that the counterparty is able to enjoy the supply simultaneously as it is made.
In case an asset is created/ enhanced, it remains within the control of the counterparty during such creation/ enhancement.
In case the nature of the asset so created is such that it has no alternative use and the payment terms provide that the supplier has a right to payment for supply till date.
Where none of these conditions are satisfied, the performance obligation in the contract is considered to be satisfied at a point in time.
(a) the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs;
The key question here is if the performance of the contract is stopped midway, would the customer still be considered to have benefitted from the performance already done?
For e.g., in a rental agreement, the tenant takes the benefit of the premises simultaneously. Even if the tenancy is terminated midway, it does not take away the benefits already enjoyed by such tenant during the period of the contract, he would remain benefitted for the fulfilled period of tenancy.
This may be compared with a construction agreement, where, in the event of an early termination of the contract, the performance obligations would remain incomplete, with no benefits to the customer for the period of time during which the service has been performed prior to its termination. Even where the work is rerouted to another supplier, it would require substantial rework.
(b) the entity’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced;
The renovation of an office building owned by the customer would amount to a contract over a period of time. The service may be terminated midway and can be completed by another service provider since the control of the asset remains with the owner at all times.
(c) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.
The term ‘an alternative use’ must be considered from the perspective of practical limitations and contractual restrictions. Where the nature of the asset is such that it cannot be redirected to another contract, for example – machinery with unusual specifications cannot be sold to another customer, it is said to not have an alternative use. Even where the resources are portable, but the contractual terms restrict such redirection, there is no alternative use.
In such cases, where a contract is terminated midway, the service provider must have the right to receive payment on quantum meruit basis i.e. the work is sufficiently divisible to assess the payment due to the supplier.
When a contract fulfills any of the three conditions, it satisfies one principle criteria:
Any exit from the contract may require the contractual parties to replace the party, and may have penal consequences, but it is not as if the contract was not performed at all.
Manner of seeking approval
Where the transaction is a single indivisible contract i.e. takes place over a period of time, the IND AS recognises revenue over time by measuring the progress in the performance of the contract[1]. Accordingly, the transaction must be placed in its entirety with its full value for approval before the audit committee, the board of directors and the shareholders (if the materiality threshold is crossed). The transactions placed before all the three bodies must be aligned. Once approved, the actual implementation of the transaction shall come merely for review before the audit committee on a yearly basis in terms of section III.B.5 of the SEBI Master Circular dated January 30, 2026.
An interesting question arises here. Once approved, shall this amount be aggregated with new proposed transactions in the next year? Let us consider an illustration here. The materiality threshold for A Ltd. (listed entity) is Rs. 2000cr. In FY 25-26, A enters into a construction contract (single indivisible multiyear contract) and in FY 26-27, a contract for purchase of goods (one off transaction) with B Ltd for various amounts as tabulated below:
S. No.
FY 25-26
FY 26-27
Construction Contract Amt (Rs.)(I)
Whether I is material and approved by shareholders?
Purchase Contract Amt (Rs.)(II)
Whether II is material and needs shareholders’ approval?
Whether (I) and (II) shall be aggregated for materiality threshold?
Does the aggregate of (I) and (II) cross the materiality threshold?
Whether (I) shall be placed for noting before shareholders?
1
1000cr
No
500cr
No
Yes
No
No
2
1000cr
No
1500cr
No
Yes
Yes
Yes
3
1000cr
No
2300cr
Yes
Yes
Yes
Yes
4
3000cr
Yes
1
No
No
No
Already approved by the shareholders
5
3000cr
Yes
2500cr
Yes
Not required
Yes
For the first 3 cases, the transactions are aggregated for testing the material threshold since transaction (I), even though ongoing in FY 26-27, has never been placed before the shareholders. In effect, in case 2, the actual transactions ongoing with B in FY26-27 are crossing the materiality threshold and thus, must be placed for approval before the shareholders.
In case 3, while Transaction (II) crosses the threshold independently, it is only logical for the shareholders to be apprised of the other ongoing transactions (Transaction I) with the same RP to understand the true position of the transactions between the RP and the listed entity. The Industry Standard Note on RPTs (ISN), anyways, requires this disclosure. [Part A(3)] Read our latest article on the ISN: Repetitive Overhaul: RPT regime to get softer
In case 4, Transaction (I) has already been placed before the shareholders for approval. If its value is aggregated with Transaction (II), even a Rs. 1 transaction will require the approval of the shareholders. The essence of the materiality thresholds is seeking approval for material contracts. Such aggregation would defeat the very intent of the law.
In case 5, Transaction (I) is already approved by the shareholders and Transaction (II) crosses the materiality threshold independently. There arises no question of aggregation.
Thus, the decision of aggregating the value of a single indivisible contract in the previous FY for materiality thresholds in the current FY depends upon
whether such aggregated value crosses the thresholds in the current FY;
whether the transaction in the previous FY crossed the thresholds back then.
On the other hand, where the transaction is a divisible contract over a term, the estimated value to be utilised in that particular year may be placed for approval before the audit committee, board of directors and shareholders, as the case may be. In case a material transaction was approved by the audit committee on an omnibus basis, it shall continue to be placed before the shareholders. [Section III.B.5 of the Master Circular]. Since the yearly value of the transaction is being approved and utilised, there arises no question of aggregation of previously approved value with proposed transactions in a new FY.
Specific disclosure of tenure of multi-year projects
The law enables securing transparent approvals for indivisible contracts. The ISN requires an estimated break-up financial year-wise in case of a transaction spanning over multiple years to be placed before the audit committee as well as shareholders, as the case may be [Para A5(5)]. (See our FAQs on the Industry Standard Note)
Further, while disclosing RPTs on a half yearly basis as a part of quarterly integrated filing (governance) to the stock exchange, the Master Circular requires disclosure of the aggregate value of the RPT as approved by the Audit Committee as well as the value of transaction during the reporting period.
Conclusion
With SEBI settling RPT approval related non-compliances for settlement fees running into crores[2], compliance officers need to tread more carefully than ever. Deciding whether a multi year contract should be approved as a whole or in parts remains a crucial decision, particularly in the absence of detailed guidance under Companies Act and SEBI LODR. While accounting standards primarily address revenue recognition and may not directly apply to all RPTs, the principles outlined therein can still offer useful guidance in navigating such situations.
https://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.png00Staffhttps://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.pngStaff2026-03-24 16:56:282026-04-27 15:06:26CareEdge Award for Structured Finance Instruments
The Statement of Objects and Reasons refers to the Govt’s constant “endeavour to facilitate greater ease of doing business for corporates”; after reading through the provisions of the Bill, that indeed seems to be the intent, though, as happens often, the intent may get miscarried. The provisions are admittedly inspired by the recommendation of the 2025 High Level Committee on Non-financial Regulatory Reforms.
Broadly, the Bill focuses on decriminalisation, streamlining of provisions, bringing more audit quality oversight with powers to NFRA, regulation of the profession of valuations, etc. While doing so, it also makes the provisions of the State more aligned to present day realities, permitting greater digitisation, recognising concepts such as stock-appreciation rights or similar share-related benefits, etc. Note that the Bill has been referred to the Joint Parliamentary Committee.
Directors and KMPs
Directors related
Independence criteria for Independent director
Clarification u/s 149(6)(e)(i) and (ii) referring to disability of a person to be appointed as ID in case of his association with the appointee company, its holding, subsidiary, associate or their auditor for not just “three financial years immediately preceding the financial year” but also “or during the current financial year”.
Amount of transaction allowed with a legal or consulting firm whose employee / partner / proprietor may be appointed as the ID of the company / its holding / subsidiary / associate has been changed from “10% or more of the gross turnover of such firm” to “amounting to 10% or such lower per cent., as may be prescribed of the gross turnover of such firm”
Where the transaction of such legal or consulting firm with the company, its holding or subsidiary or associate company is less than the prescribed thresholds, the ID may continue his association with the legal or consulting firm
Clarification: that every ID shall ensure that he continues to fulfil the requirements specified under sub-section (6) during the term of his appointment.
The restriction in respect of appointment or association in any other capacity during cooling off period of three years is applicable to the company as well as its holding, subsidiary or associate company.
Clarification: any period during which an ID has served as an additional director of the company, shall be included in his tenure as an ID
Additional director
An additional director may hold office up to the date of the next general meeting or up to a period of three months from the date of his appointment, whichever is earlier.
Restriction for appointment of a person not considered / approved to be director in a general meeting
a person whose appointment as a director could not be considered or could not be approved in a general meeting, shall not be appointed by the Board as an additional director, or alternate director or a director against a casual vacancy without the prior approval of its members
Disqualifications of a director
Clarified: While sec 188 has been decrimilarised since 2020, the respective reference u/s 164(1)(g) was not amended. Post amendment, a person has been subjected to a penalty for default under section 188 of the said Act will be disqualified from appointment.
an auditor or a secretarial auditor or a cost auditor or a registered valuer or an insolvency professional of the company or its holding, subsidiary or associate company discharging the functions as such under the Act or under the IBC during the immediately preceding three financial years or during the current financial year, shall be disqualified to be appointed as a director.
What or who is a “fit and proper person”
Criteria shall be prescribed in the rules
Reduces the period of non-filing of financial statements or annual returns from “3 financial years” to “2 financial years” so that companies are more diligent in filing such documents within time.
Default of sec 164(2) will lead to vacancy of office in every company where he is a director (including the company which is in default under that sub-section), after six months from the date of incurring such disqualification or upon expiry of his tenure in such company, whichever is earlier. Proviso to sec 167(1)(a) also proposed to be amended. Of course, the automatic vacation of office takes place 6 months after the disqualification. This may result in a curious situation where every director of a defaulting company gets disqualified, leaving the company headless. How does a headless company ever come out of the default is a curious question.
Board Meeting
Small companies / OPC and dormant companies may have one BM in a calendar year against the requirement of one BM in each HY.
Subsequent disclosure u/s 184(1) will be required only in case of any change in the disclosures made and not “at the first meeting of the Board in every financial year”.
Sec 185 (clarification)
LLPs are also covered along with firms u/s 185(1)(b) i.e company cannot extend loan / guarantee/ security in connection with loan to even LLPs where the directors / their relatives are partners
Resignation by whole time Non director KMP – New insertion 203A.
CFO, CS may resign giving notice in writing to the company,
Board shall take note and shall intimate the RoC:
In case of failure to intimate RoC by Board, said KMP may forward a copy of his resignation along with detailed reasons for his resignation to the RoC
Resignation takes effect from the date on which the notice is received by the company or the date, if any, specified by such KMP in the notice, whichever is later. This is, again, surprising as KMPs are not only office-holders, they are also bound by the contractual terms of their employment. It is unthinkable to think of an employment contract that allows an office holder at that level to resign with immediate effect. While the very intent of this provision is difficult to understand, in our view, the only way to align this with employment contracts is to say that for giving the notice u/s 203A, the KMP shall have to adhere to the employment contract.
Such KMP will be liable even after his resignation for the default for which he was liable during his tenure.
Secretarial Audit – Sec 204
Allowing multi disciplinary firms with majority of PCS as partners to undertake secretarial audit
Directors Report
Additional disclosure in directors report:
While the management is required to explain or comment on every observation, comment or adverse remark of auditor, specific attention has been made to comment on matters relating to:
financial transactions
matters which have any adverse effect on the functioning of the company
maintenance of accounts
details in respect of composition of the ACB and where the Board had not accepted any recommendation of the ACB, a statement along with the reasons for the same
Issuance and buy of securities
Private placement offences become more punitive: Proposed amendment to increase the penalty for private placement offences to Rs 2 crores or up to the amount involved in the placement, whichever is lower. This may potentially relate to some of the so-called private placements against which adjudication orders were made by some registrars. Read our related articles
More flexibility for Buyback of shares [Sec 68]
Power to prescribe different percentage of maximum buy-back value (based on aggregate of paid-up capital and free reserves) for prescribed class of companies
Currently the maximum buy-back size is 25% of aggregate of paid-up share capital and free reserves for all classes of companies
It appears that the government may offer more flexibility for scaling down business by companies; notably, the tax provisions for buybacks were rationalised by the Finance Act, 2026.
Enabling prescribed class of companies to make upto two buyback offers in a year; with minimum gap of 6 months between closure of first buyback offer and opening of second buyback
Such enabling clause is proposed for companies that are debt-free
Currently, minimum time gap between two buyback offers shall be atleast 1 year
Doing away with the requirement of affidavit for declaration of solvency by the directors
Share capital of IFSC companies
Section 43A inserted
Companies set up and incorporated in IFSC are allowed to convert, issue and maintain capital in permitted foreign currency
IFSCA will prescribe regulations.
Books of accounts, financial statements and other records to also be aligned to be prepared in the permitted foreign currency unless IFSCA permits to maintain these in Indian rupees
Presently, the Companies Act does not include specific provisions to enable companies to prepare accounts or financial statements in foreign currencies. Taking into account the nature of companies set up in IFSC jurisdiction, this is a welcome change. It also seeks to clarify that such companies shall pay fees, fines and penalties under the Companies Act and the rules made thereunder in Indian rupees.
Recognition of other forms of share-linked benefits, such as SARs, RSUs etc.
Inclusion of reference to “or such other scheme linked to the value of the share capital of a company” in certain provisions, such as:
Issue of shares to employees on preferential basis in addition to ESOPs [Sec 62(1)(b)]
Class of security holders to be excluded while counting the number of allottees in a financial year for private placement limits [Sec 42(2)
Reason – executive compensation is issued with approval of shareholders
Enabling buyback of such securities [Sec 68(5)(c)]
Come-back provision: Trust not to be recognised as member [Sec 88(2A)]
The good old principle of CA 1956, that no notice of trust shall be taken in the register of members, subsequently removed in CA 2013, is now finding its way again.
Quite likely, the trigger may have been FATF concerns, to ensure that beneficial ownerships are not garbed under the so-called notice of trust.
However, the classic principle that companies shall not recognise holding of shares in fiduciary capacity belongs to the bygone era where shares were partly paid, and companies had difficulty in claiming money from the contributories. In recent practices, the law specifically requires noting of beneficial interest [sec. 89] – hence the relevance of this provision is difficult to understand.
Dividend and IEPF
Dividend and IEPF
Clarified that the dividend not paid / claimed on the shares which has been transferred to IEPF, shall also be transferred to IEPF
Clarified that amounts in respect of shares bought back and extinguished, remaining unpaid or unclaimed for seven or more shall be credited to IEPF
Audit and Auditors
Audit and auditors
Non audit services
an auditor or audit firm of prescribed class or classes of companies shall not provide, directly or indirectly, any non-audit services to the company or its holding company or subsidiary
restriction under s. 144 shall also apply for a period of 3 years after the auditor or audit firm has completed his or its term u/s 139(2)
Fine prescribed for sec 143 (except sub-section 12) and sec 146
This will mean, if the auditor is not attending the general meetings, he shall be liable to fine and punishment under sec 147(2)
Cost Audit
Empower the Central Government to provide standards of cost accounting by rules, after examination of recommendations of the Institute of Cost Accountants of India.
NFRA
Strengthening NFRA – Sec 132
NFRA shall be a body corporate
Chairperson shall have the power of general superintendence and direction of affairs of NFRA.
the executive body of NFRA may, by way of a general or special order in writing delegate such of its powers and functions as it considers necessary to the chairperson
NFRA can give orders relating to imposing penalty or debar the member of the firm
NFRA can also give warning or censure to the member or the firm or may require additional professional training of the member or the firm or can also refer the matter to central government for taking action
any person who fails to comply with any order of the NFRA u/s 132(4) or fails to pay the penalty imposed shall be liable to punishment with imprisonment, fine and further period of debarment.
NFRA shall meet at such times and places as specified by regulations of the said authority.
Appointment of secretary and such other employees shall be done by the NFRA.
No act or processing of NFRA shall be invalid merely by the reason of-
(a) any vacancy in, or any defect in the constitution of such Authority; or (b) any defect in the appointment of a person acting as a member of such Authority; or (c) any irregularity in the procedure of such Authority not affecting the merits of the case. Subsection(16) to be inserted
Intimation of registration details of auditors and filing of returns – Section 132A
No firm shall be appointed as auditor unless the individual or firm intimates the details of his or its registration with the ICAI, to the NFRA within such time.
The auditors shall file such documents or returns or information with the NFRA, , as may be specified by regulations by the said Authority
Non compliance with the above provision shall attract penalty of not less than twenty-five thousand rupees, but which may extend to five hundred rupees for each day during which such default continues, subject to a maximum of twenty-five lakh rupees, if such person is an auditor or an audit firm
If a person while performing his duties under this section, knowingly furnishes false information, omits material facts or wilfully alters/suppresses/destroys required documents he shall be liable to penalty of not less than fifty thousand rupees, but which may extend to one thousand rupees for each day during which such default continues, subject to a maximum of fifty lakh rupees, if such person is an auditor or an audit firm.
Section 132B
The CG may make grants to the NFRA.
NFRA fund shall be created and the following shall be credited there:
Grants by the Central government
All fees received by the authority
All sums received by the said authority from such other sources
Interest or other income received out of the investments made by NFRA.
The fund shall be applied for meeting the expenses of NFRA for the discharge of its functions.
NFRA can now give directions to the certain classes of companies as it considers appropriate.
NFRA can hold inquiry and it shall have power to summon and enforce attendance of any person
There are some more changes relating to NFRA which are not very relevant.
Corporate Social Responsibility
Corporate Social Responsibility
Enhancing applicability threshold of net profit from 5 crore to 10 crore under 135(1)
Enable additional time period for transfer of unspent CSR amounts relating to ongoing projects to the Unspent CSR Account from “30 days” to “90 days” i.e extending the time till 29th day of June of each year.
Companies having minimum CSR spent u/s 135(5) up to 1 crore (or such other higher amount) need not constitute the CSR Committee [sec 135(9)]
New insertion: prescribed class or classes of companies which fulfil prescribed conditions shall not be required to comply with the section
Schemes
Easing of Schemes of arrangements
An important and welcome change: Schemes of arrangement will not require adjudication by multiple NCLTs in case of multiple states. Proviso to sub-section (1) allows the matter to be disposed of by the NCLT of the transferee or resulting company’s jurisdiction. Currently, a lot of time is lost as each Bench continues to wait for the orders of the other.
In case of fast track mergers, applications are filed before jurisdictional RD by transferee/ resulting company, and in cases where the RD found that the application is not in public interest or in the interest of the creditor, RD is required to file an application to the Tribunal. Now, such application is to be made to the Tribunal having jurisdiction over the transferee/resultant company only.
In case of demerger, a report from OL will not be needed.
Fast Track mergers [Sec 233]
The amendment reduces approval requirements in the following manner- –
In case of members, twin test approval will be applicable. i.e. ‘Majority in number representing 75% in value of the members present and voting’
In case of creditors, 75% majority in value will suffice as opposed to the present 90%..
Central Government gets power to make rules procedures with regard to fast track mergers u/s 233.
A new Section 233A has been introduced, dealing with ‘Treasury shares’
While sec 230 and 232 specifically provides that any treasury shares arising as a result of a compromise or arrangement shall be cancelled and extinguished, however treatment w..r.t. Shares held prior to commencement of CA, 2013 are not provided in the Act.
To avoid misuse of voting rights vide such treasury shares, Section 233A now provides a three-year sunset period requiring all existing treasury stock in entities to not carry voting rights after such period.
Consequence of non compliance with the above is also prescribed as follows-
In case of failure to comply within the prescribed period of 3 years, such shares shall be cancelled or extinguished, and such extinguishment or cancellation will be treated as capital reduction
Further, non compliance will attract a penalty of Rs. 10,000/- per day during which the default continues to the company and every officer in default.
IBBI to be Valuation Authority; valuers get significant powers and responsibilities
IBBI – Appointed as “Valuation Authority” and entrusted with the powers to grant certificate to Registered Valuers and Valuers’ Organisation and imposing penalties in Registered Valuers
Appointment of a valuer will be done with audit committee resolution:
The new requirement that appointment of valuers will have to be done by the audit committee should be read with sec 247 (1) – it only relates to such valuations as are required under the Act.
Several powers, including those for regulation making, are proposed to be given to IBBI.
Striking off names of defunct companies – [Sec 248]
Conditions for strike off names by RoC becomes to introduce other grounds
non happening of any significant accounting transaction in the preceding 2 years and in the current FY.
Meaning of significant accounting transaction same as u/s 455
Additionally, has not filed financial statements or annual returns that were due to be filed for two consecutive financial years preceding the previous financial year
An illustration to clarify the same has also been inserted.
In case of opting for striking off by companies, ‘manner of extinguishing liabilities’, to be prescribed vide Rules
The offence relating to filing an application for strike off in violation of the prescribed conditions has been decriminalised by replacing the penal provision with a monetary penalty
Earlier– Punishable with fine which may extend to Rs. 1,00,000
Now: Liable to a penalty of Rs. 50,000
Revival application u/s 252
If made within 3 years of striking off, application to be filed before RD
If made after 3 years but before 20 years, application to be filed before NCLT
Incorporation related
Declaration from professionals required at the time of incorporation only if their services are engaged in the formation or incorporation of such company [Sec 7(1)(ba)]
Ease of compliances
Charges related
Additional time for registration of charges for prescribed class of companies (for e.g. – small companies)
120 days instead of existing 60 days from creation of charge after payment of such ad valorem fees as may be prescribed.
Auditor appointment (small companies)
Class of companies like small companies to be prescribed who, upon fulfilment of the prescribed conditions, shall not be required to appoint auditors under Chapter X.
Moving towards digitalisation
Powers to prescribe certain class of companies that will be required to maintain a website, an email address and other modes of communication [Sec 12A]
The class of companies will be listed companies or other unlisted public companies meeting prescribed thresholds
The form and manner of these modes will be prescribed
Details of website, e-mail address and other modes of communication, and the changes therein shall be intimated to the Registrar in the prescribed manner and timeline
Powers to prescribe class of companies that will be required to service prescribed class of documents to their members only through electronic means [proviso to Sec 20(2)]
Manner in which members may seek physical copies will be prescribed
Enable holding of AGM and EGM in fully physical/ virtual/ hybrid mode in the manner prescribed under the rules [Sec 96 and 100]
However, mandatory to hold AGM in physical mode atleast once in every 3 years
Number of members referred to in sec 100(2) may put requisition for the meeting to be held in a hybrid mode
For fully virtual EGMs, notice period to be reduced from 21 clear days to 7 days or such period and manner to be prescribed by the rules
In case of specific requisition by members to hold meeting in hybrid mode, mandatory to conduct meeting in such form
Penalty and prosecution
Fixed penalty prescribed in place of a range of penalty
The penal proposals inter-alia include the following:
Section
Action
Existing Penalty
Proposed Penalty
4(5)(ii)
Name applied by furnishing wrong or incorrect information
Upto 1 Lakh
50, 000
42(10)
Makes offer or accepts money in contravention of sec. 42
Upto money raised through private placement or 2 crore, whichever is lower
Money raised through private placement or 2 crore, whichever is lower
128(6)
MD, WTD, CEO fails to comply with Section 129
50,000 – 5,00,00
5,00,000 – listed company and 50,000 -any other company
166(8)
Director violated the provisions of sec. 166 except sub-section (5)
1 lakh – 5 lakh
Listed company – 5 lakhOther company – 2 lakh
189
Fails to comply with provisions w.r.t Register of contracts or arrangements in which directors are interested
NA
2 lakh
446B
Lesser Penalty for certain companies
In case of Company- upto 50% of penalty specified in provisions upto 2 lakh In case of officer in default or any other person- upto 50% of penalty specified in provisions upto 1 lakh
In case of Company- 50% or such per cent not exceeding the 50% penalty prescribed in such provision upto 2 lakh In case of officer in default or any other person-50% or such per cent not exceeding the 50% penalty prescribed in such provision upto 1 lakh
Fixed penalty in case of non-compliance under sec 152, 155, 156. Also fixing a maximum penalty upto 5 lakh in case of continuing non-compliance.
Decriminalisation of offences under following provisions, including:
Section
Action
Existing FIne
Proposed Penalty
128(6)
MD, WTD, CEO fails to comply with Section 128
50,000 – 5,00,000
5,00,000 – listed company and 50,000 -any other company
147(1)
Punishment for contravention of provisions of sections 139 to 146
Company- Fine – 25,000 – 5,00,000 OID – Fine – 10,000 – 1,00,000
Company – Penalty – 1,00,000 – 5,00,000 OID – Penalty – 25,000 – 1,00,000
166(7)
Default in complying with Section 166 except sub-section (5)
Director – 1,00,000 – 5,00,000
Listed company – 5,00,000Any other Company – 2,00,000
167(2)
In case a Director continues as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications
Director – 1,00,000 – 5,00,000
Listed company – 5,00,000Any other Company – 2,00,000
Realigning the financial year to the period ending on 31st March
Companies / body corporates which have changed their FYs pursuant to NCLT approval, may realign it back to period ending 31st day of March of the following year though:
Approving the application; or
On commercial consideration
Expansion of definition of small companies
increasing the upper limit of paid-up share capital to Rs 20 crore from existing 10 crore and upper limit of turnover to Rs 200 crore from existing 100 crore [sec 2(85)]
Compounding of certain offences [Sec 441]
Increase of amount of fine involved to INR 1 crore for the RD to take up compounding matters
Miscellaneous [Sec 447- 470]
Increase in limit of amount involving fraud
The threshold for applicability of fraud leading to minimum 6 months imprisonment increased to 25 lacs instead of 10 lacs. Any fraud involving an amount lesser than that also liable to face imprisonment which can extend to 5 years and/or fine of 1 crore rupees (earlier 50 lacs rupees).
Decriminalisation of certain offences like improper use of word ‘limited’ or ‘private limited’
CG reserves the power to issue guidelines circulars and directions , for clarifying the intent of a provisions or laying out the procedural requirement with or without holding consultation with experts
Non disclosure of source of information where investigation has been probed by into SFIO
In the context of ‘Dormant Company’, significant accounting transaction also excludes receipt or payment not relatable to the business or operations of the company
Adjudication of Penalties
Assistant Registrar additionally may be appointed as adjudicating officers for adjudging penalty
CG to notify additional appellate authority in addition to RD, not below the rank to Joint Director
Appointment of Recovery officer for recovering penalty under the Act from persons who fail to pay with power to attachment and sale of movable and immovable property [Sec 454B]
Constitution of “Specified Authority” for conducting the settlement proceedings for contraventions which shall be liable for penalty under Act [Sec 454C]
Read our coverage on the amendments proposed in the LLP Act, 2008 here.
The National Credit Guarantee Trust Company (NCGTC), under the Department of Financial Services, has floated a scheme which will guarantee lending upto ₹20000 crores by banks and financial institutions (Member Lending Institutions or MLIs), for taking incremental loan exposure to MFIs. The Scheme intends to nudge bank lending to MFIs, as the former has shunned away in view of the perceived risk of the sector in the recent past. The NCGTC takes 70% – 80% risk of default of the bank loans to the MFIs, provided the lending is done accordingly with the conditions of the Scheme.
Among the conditions, the MFI must lend at least at 1% lower than the average lending rate over the last 6 months, and the MLI must lend at no more than 2% over the benchmark rate (MCLR or EBLR as applicable).
In our view, the Scheme has following outcome expectations:
Given the credit risk transfer to the extent of 70% – 80% (depending on the 3 sizes of MFIs), the credit risk aversion as also the credit risk premium, should significantly come down.
In view of the credit risk transfer, the risk weight for capital adequacy also comes to zero for the guaranteed portion, resulting into significant capital relief for the MLI
Since the Scheme can be utilised only for incremental lending, and that too, at a cheaper rate, there may be downward pressure on lending rates, resulting in a demand-side push. The latter is quite important, as reduced lending volumes in the MFI sector are quite often the cause of higher defaults as well.
Overall, the environment of sectoral aversion would change.
Essential Features of the Scheme
Who are MLIs?
Schedule Commercials Banks
AIFIs
What type of loans are covered under the Scheme?
Funding provided by the MLIs to MFIs for on-lending to microfinance borrowers
What is the interest cap under the Scheme?
Loans sanctioned by MLIs to NBFC-MFIs/MFIs is capped at EBLR or 1 Year MCLR + 2% per annum
Loans by NBFC- MFIs/MFIs to microfinance borrowers is capped at 1% below the average rate of their lending in past 6 months.
What is the cap on tenure of loans under the Scheme?
Maximum tenure of the loan provided by MLI to MFIs shall be 3 years (1-year moratorium plus 2 years for loan repayment).
Conditions for MLIs to get benefits under the Scheme:
At least 5% of the total loan amount under the Scheme shall be sanctioned to small-sized MFIs, & 10% to medium-sized MFIs.
The maximum amount of loan which can be sanctioned by MLIs to MFIs shall be capped at 20% of the Assets Under Management (AUM) of respective MFI subject to maximum of ₹100 crore to small size, ₹200 crore to medium size and ₹300 crore to large size MFIs
MFIs shall be classified as small, medium and large based on their AUM as follows:
Small MFIs – Less than 500 crores
Medium MFIs – Rs.500 crores to less than Rs. 2000 crores
Large MFIs -Rs. 2000 crores or more
Maximum coverage under the guarantee:
70% to Large MFIs, 75% to Medium MFIs & 80% to Small MFIs of the amount in default for a maximum period of 3 years
Guarantee Fee:
MLIs shall pay to NCGTC Guarantee Fee at 0.5% of the sanction amount (first year) and outstanding amount (thereafter).
Claim Process:
MLI shall submit a claim on an annual basis (once every year) in respect of the amount in default.
https://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.png00Staffhttps://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.pngStaff2026-03-20 19:10:332026-03-20 19:10:34CGTMSE Risk Shield for MFI Lending
Private credit is, in essence, shadow banking without corresponding discipline. Market reports indicate that Private Credit in India (and globally) is beginning to show signs of stress. Several global private credit fund managers have reportedly frozen withdrawals amid rising investor withdrawals. Given that private credit by its very nature is supposed to be illiquid, even a modest redemption pressure may hamper the ability of the fund manager to honor the withdrawals. Although this type of liquidity risk is limited in Indian private credit funds since they are usually close-ended category II funds in which investors are mandated to stay invested throughout the tenure of the fund. However, other risks such a opacity still loom. An equally important issue is the regulatory asymmetry, with private credit funds being regulated far less stringently than banks, NBFCs and other comparable lending institutions. Private credit funds take money from investors and lend to businesses; so do banks and NBFCs. Both carry systemic risks and can trigger panic on failure. Yet, only one is properly regulated.
In our earlier write-up on private credit funds we tried to list down the differences between regulated entities and these funds, a distinction which highlights the scarcity of controls and oversight in a lending fund that is expected in a lending vehicle. Notable examples include no uniform credit appraisal, no standardised reporting of performance of borrowers, no CRAR-like minimum capital requirement, no interest rate risk model etc. One may argue that the very absence of these requirements is what makes private credit funds tailor their deals according to the needs of the investee company; payment-in-kind, income-aligned repayment schedules are some of the examples. However, the absence of discipline also introduces opacity and potential systemic risks. Regulators globally have flagged these lending vehicles due to their opacity and market-wide risk (eg. RBI pointed out the systemic risk of private credit in its June 2024 Financial Stability Report). However, no action/mitigation measure has been taken as of now. In our view, atleast provisioning and NPA reporting-like safeguards should be there in such vehicles.
Note that these funds are not completely unregulated, SEBI AIF Regulations contain some safeguards such as concentration cap, valuation norms, no leverage at fund level etc. but these are generic safeguards and are not made keeping in mind the risks involved in a lending-based fund vehicle.
The case for regulatory intervention, therefore, is not about imposing bank-like rigidity, but about ensuring appropriate discipline for bank-like activities. Whether such oversight should fall within the domain of the RBI, given its expertise in regulating lending institutions, remains an open question. The more immediate concern is that these entities continue to operate outside a robust prudential framework. Importantly, the relatively small share of private credit funds in overall corporate lending (currently less than 2%) should not serve as a justification for regulatory inaction. Risks do not become relevant only at scale; by the time they do, the cost of inaction is often far greater. It is therefore for regulators to move beyond a form-based approach and adopt a substance-based framework for such lending vehicles.
https://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.png00Staffhttps://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.pngStaff2026-03-20 18:34:242026-03-20 18:56:46The Case For Regulating Private Credit Funds
https://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.png00Staffhttps://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.pngStaff2026-03-18 16:41:442026-03-20 13:11:27Digital Lending: Intersection of DPDPA and the RBI Regulations
Reload document 
Open in new tab 
