The Dos and Don’ts of Penal Charges

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RBI to release guidelines on penal charges 

– Tejasvi Thakkar, Executive | finserv@vinodkothari.com

Introduction 

The Reserve Bank of India (‘RBI’) announced various policy measures in its Statement on Developmental and Regulatory Policies dated February 08, 2023, which includes introduction of guidelines for regulating the penal charges levied by financial institutions in case of delay or default in repayment of loans or where there is a non-compliance of ‘material’ terms and conditions. RBI observed that some of the financial institutions were levying unreasonable penal charges. It has time and again been RBI’s concern that financial institutions levy excessive charges under the garb of different names such as penal charges, penal interests, legal charges, notice charges, levy charges etc. A large number of customer grievances with respect to excessive penal charges and divergent practices have influenced the regulator to think on these lines.  

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Ushering the new-age TReDS Platform

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– Anirudh Grover, Executive | finserv@vinodkothari.com

Receivables or debtors though from the face of it is considered as a positive thing for businesses, however when you lift the tag of positivity one can assess the true color of trade receivables. This essentially means that despite it being classified as an asset it may not be helping the business when required. For instance, ABC Ltd has 1 lakh recorded as debtors in its financials however these debtors are of no substantial use unless it is converted into liquid forms of funds. This in essence is the reason why TReDS was introduced, RBI vide Guidelines for the Trade Discounting System (TReDS) opined that the scheme for setting up and operating the institutional mechanism for facilitating the financing of trade receivables of MSMEs from Corporate and other buyers, including Government Departments and Public Sector Undertakings (PSUs), through multiple financiers is known as TReDS.

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SEBI Consultation Paper on NCS regulations: Changes in Offer Doc. | Mandatory Listing | Disclosure of Issue expense

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– Sharon Pinto & Ajay Ramanathan | corplaw@vinodkothari.com

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SEBI revises framework for green debt securities

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– Alignment with international standards and avoidance of greenwashing

– Payal Agarwal and Shreya Salampuria | corplaw@vinodkothari.com

Sustainability labeled bonds, more popularly known as GSS+ bonds, are looked upon as one of the primary means of raising funds towards sustainable development. The same has been discussed in Sustainable finance and GSS+ bonds: State of the Market and Developments. India is also not oblivious to the concept of GSS+ bonds, and companies in India have also been issuing such bonds, in one or more forms.

The issuance of green debt securities (“GDS”) in India was initially formalized through a circular issued  by SEBI in 2017 in this regard, later absorbed under the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (“ILNCS Regulations”) read with Chapter IX of the Operational Circular on the same. The regulatory framework for GDS in India has since been reviewed, and following a Consultation Paper on Green and Blue Bonds as a mode of Sustainable Finance (“Consultation Paper”) dated 4th August, 2022, SEBI, in its meeting dated 20th December, 2022 (“Board Meeting”) has approved amendments to the existing regulatory framework for GDS issuance. The press release of the Board Meeting reads as “in the backdrop of increasing interest in sustainable finance in India as well as around the globe, and with a view to align the extant framework for green debt securities with the updated  Green  Bond  Principles (GBP) recognised by IOSCO, SEBI undertook a review of the regulatory framework for green debt securities.”

Pursuant to the review of the regulatory framework for GDS, the following has been notified –

In this write-up, we intend to discuss the revised regulatory framework for GDS issuance in India.

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Workshop on Emerging RegulatoryFramework for NBFC-ML

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Register here – https://forms.gle/bcRnzVN92CouE7F49
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SEBI notifies amendments to all modes of Buy-back

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– Sanya Agrawal, Executive | executive@vinodkothari.com

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Read our related write-up on Buyback here:

  1. SEBI’s revised framework brings relaxation under buy-back norms

SEBIs Consultation Paper on review of CG norms for a High Value Debt Listed Entities

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– Shreya Salampuria, Executive | corplaw@vinodkothari.com

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Read our comments to SEBI on the said consultation paper:

  1. Comments on SEBI consultation paper on CG norms in HVDLEs

SEBI to provide debenture holders the right to object material related party transactions

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Complicates approval process for closely held High Value Debt Listed Entities

– Vinita Nair, Senior Partner | vinita@vinodkothari.com

SEBI continues to tighten the regulatory regime for debt listed entities as it aims to promote corporate bond market. After equating debt listed entities with outstanding value of listed non-convertible debt securities of Rs. 500 crore and above with equity listed entities for the purpose of corporate governance norms, SEBI proposes a stricter approval regime for Related Party Transactions (‘RPTs’) under Reg. 23 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR’) vide Consultation paper on review of Corporate Governance norms for a High Value Debt Listed Entity (‘HVDLE’)[1]. This has been rolled out just before the corporate governance provisions become applicable on a mandatory basis effective from April 1, 2023. The composition of 138 HVDLEs, in terms of shareholding pattern, as on March 31, 2022 was as under:

Figure 1: Analysis of shareholding pattern of the HVDLE
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Online workshop on Recent amendments relating to Corporate Bonds

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Click here to register for the workshop: https://forms.gle/V8SRUpDpsSMYraBx9

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Comments on the MCA Discussion Paper on changes being considered to IBC, 2016

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– Team Resolution, Vinod Kothari and Company | resolution@vinodkothari.com

The Ministry of Corporate Affairs (‘MCA’) issued a Discussion Paper on 18th January, 2023 on changes being considered to the Insolvency and Bankruptcy Code, 2016 (‘Discussion Paper’). Since the very inception of the Insolvency and Bankruptcy Code, 2016 (‘IBC’), it has undergone six amendments besides, several amendments in the respective regulations. However, the proposals in this Discussion Paper seem to be the most comprehensive one – covering all major aspects of the law.

Broadly speaking, the amendments proposed in the Discussion Paper can be categorized as follows:

  1. Proposals that try to overcome past difficulties:
    1. Voting in CoCs, direct dissolution, etc
    2. Enhancing the scope of pre-packs and fast track insolvency
  2. Proposals that codify amendments in regulations already done or IBBI circulars:
    1. Mandatory filing of information of default with IU
    2. Presumption of relinquishment of security interest
  3. Proposals to override or respond to some court rulings:
    1. Vidarbha Industries Power Limited v. Axis Bank Limited
    2. State Tax Officer v. Rainbow Papers Limited
    3. Gujarat Urja Vikas Nigam Limited v. Amit Gupta & Ors
  4. Fundamental or progressive amendments:
    1. Partial resolution
    2. Collapsing the levels in the waterfall
    3. Separation of resolution and distribution
    4. Resurrection of entity from liquidation to resolution
    5. Aggregation of assets of guarantors
    6. Collaboration for the purpose of group insolvency
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