INSITE - India - 04 Dec 2023

RBI DIRECTS BANKS TO APPOINT WHOLE TIME DIRECTORS

Summary: The Reserve Bank of India (RBI) plays a vital role in the financial stability and governance of financial institutions. It has issued a circular and mandated private sector banks to appoint a minimum of two full-time directors, in addition to the MD & CEO. Banks failing to meet this requirement must submit proposals to comply within four months from the date of issuance of this circular.

In Detail: The central bank emphasizes the necessity of having two Whole-Time Directors (WTDs) in private sector banks due to the increasing complexity in the banking sector. This requirement is crucial for succession planning, especially considering regulatory conditions for MD & CEO positions.

Banks lacking an executive director must promote or appoint a senior banker as a WTD. Those without existing provisions for WTDs in their Articles of Association will need to seek immediate approvals from the RBI.

Key Links: Reserve Bank of India - Index To RBI Circulars

LLP THIRD AMENDMENT RULES 2023

Summary: The Ministry of Corporate Affairs (MCA) has recently issued a significant notification, G.S.R. 803(E), dated October 27, 2023, amending the Limited Liability Partnership (LLP) Rules, 2009. This update brings important changes to the Register of Partners and the declaration of beneficial interest in contributions.

In Detail: The MCA has recently introduced the Limited Liability Partnership (Third Amendment) Rules, 2023, which bring important changes to LLP regulations. These rules focus on maintaining a Register of Partners and declaring beneficial interest in contributions. LLPs must comply with these rules to ensure transparency and adherence to the law.

Key Points

Rule 22-A has been introduced concerning the "Register of Partners."

• Every Limited Liability Partnership (LLP) is required to maintain a register of partners in Form 4A from the date of its incorporation.

• For LLPs in existence on October 27, 2023, a register must be maintained within 30 days from the commencement of these rules.

• The register should include essential details such as the partner's name, address, Permanent Account Number/Corporate Identification Number, Unique Identification Number, father/mother/spouse’s name, occupation, status, nationality, name and address of nominee, date of becoming a partner, date of cessation, and the amount and nature of the contribution with monetary value.

• Any changes in the partner's name or details, contribution amount, or the cessation of partnership interest should be recorded within 7 days of such changes.

Rule 22-B has been introduced regarding the "Declaration of Beneficial Interest in any Contribution."

• If a person's name is listed in the register but they do not have any beneficial interest in the contribution, they must submit a Declaration in Form 4-B within 30 days from the date their name is entered in the register of partners. This declaration should specify the name and details of the person who actually holds the beneficial interest in such contributions.

• If there is any change in the beneficial interest, the partner holding the beneficial interest must submit a declaration using Form 4C within 30 days of the change.

• If a registered partner's beneficial interest is limited to the contribution stated against their name and they do not have any beneficial interest in the contributions of other registered partners, they are not required to submit such a declaration.

• The LLP should record any declaration in the register of partners within 30 days from the date of receiving the declaration.

The following forms have been updated:

Form 4 - Notice of appointment, cessation, change in name/address/designation of a designated partner or partner, and consent to become a partner/designated partner/declaration of designated partner with respect to beneficial interest.

Form 4-A - Register of Partners.

Form 4-B - Declaration by the Registered Partner who does not hold a beneficial interest in the Contribution.

Form 4-C - Declaration by the Partner who holds or acquires a beneficial interest in the Contribution but whose name is not entered in the Register of Partners.

Form 4-D - Return to the Registrar in respect of the declaration of beneficial interest in contribution received by the LLP.

Key Links: getdocument (mca.gov.in)

COMPANIES (PROSPECTUS & ALLOTMENT OF SECURITIES) SECOND AMENDMENT RULES, 2023

Summary: On October 27, the Ministry of Corporate Affairs issued the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023. These rules mandate that all private companies, except small companies to dematerialise their shares by October 1, 2024.

In Detail: The Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, represent a notable update to the regulatory framework for companies in India. Issued by the Central Government under the Companies Act, 2013, this amendment introduces changes that affect both public and private companies.

Key Points

Rule 9 has been updated regarding the dematerialization of securities, specifically addressing public companies that issued share warrants before the Companies Act, 2013 but have not converted them into shares. These companies must inform the Registrar about the details of such share warrants using Form PAS-7 within three months of the amendment rules' commencement.

Bearers of these share warrants must surrender them to the company and dematerialise the shares in their account. To facilitate this, the company is required to issue a notice for share warrant holders in Form PAS-8 within six months of the amendment rules coming into effect. If a share warrant bearer fails to surrender the warrant within six months, the company will convert the share warrants into dematerialised form and transfer them to the Investor Education and Protection Fund.

A new Rule 9-B has been added concerning the issuance of securities in dematerialised form by private companies. Private companies are now required to issue securities exclusively in dematerialised form. However, small private companies are exempt from this rule. All private companies must adhere to these regulations within 18 months from March 31, 2023. It's important to note that this rule doesn't apply to government companies.

The following Forms have been inserted-

• Form PAS-7– relating to “Details of pending share warrants”.

• Form PAS-8– relating to “Notice for bearers of pending share warrants”.

Key Links: getdocument (mca.gov.in)

COMPANIES (MANAGEMENT AND ADMINISTRATION) SECOND AMENDMENT RULES, 2023

Summary: On October 27, 2023, the Ministry of Corporate Affairs issued an important notification, G.S.R. 801(E), using its authority under the Companies Act, 2013. This notification brings noteworthy amendments to the Companies (Management and Administration) Rules, 2014.

In Detail: The recent notification G.S.R. 801(E) from the Ministry of Corporate Affairs brings crucial updates through the Companies (Management and Administration) Second Amendment Rules, 2023. These changes mandate each company to appoint a responsible person for reporting beneficial interests in company shares. The rule allows flexibility in selecting this person to accommodate different organizational setups. To enhance transparency, the rule includes annual disclosure requirements and a mechanism for changing the designated person. It's essential for companies to promptly follow these rules for compliance and uphold good governance in their operations.

Key Points

Rule 9 "Declaration of Beneficial Interest in Shares," has been updated with the following provisions:

• Rule 9(4): Every company must appoint a designated person responsible for cooperating with the Registrar and providing information about beneficial interests in the company's shares.

• Rule 9(5): The designated person can be a company secretary, key managerial personnel, or any director if the first two are not present in the company.

• Rule 9(6): If no person is designated, the following will be deemed as the designated person: company secretary, every Managing Director or Manager, and every director.

• Rule 9(7): The company must include details of the designated person in the Annual Return.

• Rule 9(8): If there is a change in the designated person, the Registrar will be informed through e-form GNL-2, as specified in the Companies (Registration Offices and Fees) Rules, 2014.

Key Links: getdocument (mca.gov.in)

SEBI COMES WITH GUIDELINES TO IMPROVE GOVERNANCE OF QUALIFIED RTA’S

Summary: The Securities and Exchange Board of India (SEBI) has released guidelines to enhance the governance of Qualified Registrars and Transfer Agents (QRTAs). The guidelines aim to improve readiness by conducting regular drills to handle disruptions.

In Detail: SEBI has issued guidelines, as "Guidelines for Business Continuity Plan (BCP) and Disaster Recovery (DR) of Qualified RTAs," to strengthen the resilience, procedures, governance, and practices of QRTAs. Registrar and Transfer Agents (RTAs) are SEBI-registered entities handling investor records and securities transactions and are crucial for the securities market. QRTAs, managing over two crores of physical and dematerialized folios annually, fall under these guidelines. In the dynamic financial market, these guidelines aim to establish robust infrastructure and frameworks for smooth and uninterrupted market operations.

Key Aspects:

QRTAs are required to create a detailed Business Continuity Plan (BCP)-Disaster Recovery (DR) policy. This policy should cover various aspects like disaster scenarios, standard operating procedures, escalation hierarchies, communication protocols, performance monitoring, and documentation policies. It needs to be regularly reviewed and updated, at least once every six months and after any disaster occurs.

QRTAs must have their Policy reviewed by their technology committee, approved by their governing board, and then communicated to SEBI. To comply with this, QRTAs should submit the updated Policy to SEBI within three months from the Circular's date.

QRTAs must form an incident and response team or crisis management team chaired by the Managing Director (MD) of the QRTA, or the Chief Technology Officer in case of the MD's unavailability. This team is in charge of declaring a disaster, implementing the BCP, and moving operations from the Primary Data Center (PDC) to the Disaster Recovery Site (DRS) when necessary. The Policy should clearly document the roles, responsibilities, and actions during such events.

As a disaster recovery measure, QRTAs need to keep a DRS at least 500 kilometers away from their PDC to reduce the risk of both centers being impacted by the same disaster. Additionally, QRTAs must maintain a Near Site (NS) to ensure there is no data loss.

If there is a disruption in the critical systems, the QRTA must declare it a disaster within 30 minutes of the disruption.

After declaring a disaster, QRTAs must restore critical system operations within 45 minutes. This guideline should be implemented within 90 days of the Circular's date.

QRTAs must ensure that the Recovery Point Objective (RPO), which is the maximum acceptable time for potential data loss in a major incident, is set at 15 minutes.

SEBI also instructed that RTAs will conduct periodical training programmes to boost awareness level among their employees, outsourced staff, and vendors, among others as per BCP policy.

Key Links: SEBI | Guidelines for Business Continuity Plan (BCP) and Disaster Recovery (DR) of Qualified RTAs (QRTAs)

RELAXATION FROM COMPLIANCE WITH CERTAIN PROVISIONS OF THE SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015 – REG.

Summary: On October 6, 2023, the Securities and Exchange Board of India (SEBI) issued a circular, granting issuers who have listed Non-Convertible Securities a partial exemption from complying with specific SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

In Detail: Regulation 58(1)(b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, states that a listed entity must provide a printed copy of the document outlined in Section 136 of the Companies Act, 2013, and its associated rules to non-convertible securities holders who haven't registered electronically.

On September 25, 2023, the Ministry of Corporate Affairs (MCA) issued a circular that extends the relaxation on sending physical copies of financial statements, including the Board's report, Auditor's report, and other required documents, until September 30, 2024.

Considering the MCA decision to extend the relaxation until September 30, 2024. Regulation 58(1)(b) of SEBI Listing Regulations is relaxed until September 30, 2024.

This relaxation is basically to ease the compliance burden on issuers and to align with the extended timeline of MCA for sending physical copies of financial statements.

Key Links: https://www.sebi.gov.in/legal/circulars/oct-2023/limited-relaxation-from-compliance-with-certain-provisions-of-the-sebi-listing-obligations-and-disclosure-requirements-regulations-2015_77763.html

LIMITED RELAXATION FROM COMPLIANCE WITH CERTAIN PROVISIONS OF THE SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015

Summary: On October 7, 2023, the Securities and Exchange Board of India (SEBI) issued a circular, addressing listed entities and recognized stock exchanges regarding relaxation from compliance with certain provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

In Detail: Regulation 36(1)(b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, talks about sending physical copies of financial statements (including reports by the board of directors and auditor and other documents required to be attached in addition to that) to their shareholders for the annual general meeting(s).

The Ministry of Corporate Affairs (MCA) issued a circular that extends the relaxation on sending physical copies of financial statements, including the Board's report, Auditor's report, and other required documents, until September 30, 2024.

Considering the MCA decision to extend the relaxation until September 30, 2024. Regulation 58(1)(b) of SEBI Listing Regulations is relaxed until September 30, 2024.

It is emphasized that listed entities must ensure compliance with the conditions specified in section VI-J of the Master Circular, specifically in para 5.1 and 5.2 while availing the extended relaxations. Key Links: https://www.sebi.gov.in/legal/circulars/oct-2023/relaxation-from-compliance-with-certain-provisions-of-the-sebi-listing-obligations-and-disclosure-requirements-regulations-2015-reg-_77781.html

RBI AMENDMENT TO KYC

Summary: The Reserve Bank of India (RBI) is at the forefront of ensuring financial institutions’ compliance and the safety of the Indian financial system. In its quest for a robust financial sector, the RBI periodically amends and updates its regulations. This circular delves into the recent amendment to the Master Direction (MD) on Know Your Customer (KYC) and its significance for regulated entities (REs).

In Detail: The Reserve Bank, made changes to its Customer Due Diligence (CDD) norms. Banks and regulated entities are now required to use a risk-based approach for periodic updates of KYC. These changes were made to the MD on KYC after a review. REs must follow the CDD process for their customers, which aligns with recent government instructions related to the Prevention of Money-Laundering Rules, Unlawful Activities (Prevention) Act (UAPA), and Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act. The Reserve Bank also updated some instructions to comply with FATF recommendations.

The most recent Master Directions state that the risk-based approach for updating KYC has been changed to this: "REs must update KYC periodically, focusing on keeping the information current and relevant, especially when dealing with high-risk cases."

The Master Directions also emphasize that strict adherence to instructions for opening accounts and monitoring transactions is essential to prevent the use of "Money Mules." These individuals are used by criminals to launder money gained from fraudulent schemes such as phishing and identity theft, where they illegally access deposit accounts.

Key Links: Reserve Bank of India - Index To RBI Circulars

CENTRAL GOODS AND SERVICES TAX (THIRD AMENDMENT) RULES, 2023

Summary: The Ministry of Finance, along with the Department of Revenue and the Central Board of Indirect Taxes and Customs (CBIC), has introduced changes to the Central Goods and Services Tax (Third Amendment) Rules for 2023, through Notification No. 51/2023-Central Tax dated September 29, 2023. These changes, authorized by the CGST Act of 2017, bring notable adjustments to the current tax system.

In Detail: On September 29, 2023, the Central Board of Indirect Taxes and Customs notified the Central Goods and Services Tax (Third Amendment) Rules, 2023, to amend the Central Goods and Services Tax Rules of 2017. These changes will become effective on October 1, 2023. As per the notification, these may be called the Central Goods and Services Tax (Third Amendment) Rules, 2023.

Key Points: Rule 8 of the CGST Rules, 2017, has been amended to specify that persons who are legally obligated to register under section 25(1) or are voluntarily seeking registration under section 25(3), with the exception of specific categories such as non-resident taxable persons and those with tax deduction or collection obligations, are required to furnish their Permanent Account Number (PAN) and specify their State or Union Territory in FORM GST REG-01 before initiating the registration process. It is noteworthy that Input Service Distributors are mandated to submit distinct registration applications.

Rule 14 has been modified to include persons engaged in the provision of online money gaming services originating from outside of India to a recipient within India within the ambit of this regulation. This adjustment signifies the applicability of pertinent tax provisions to such transactions.

Rules 31B and 31C have been introduced to provide specific valuation methodologies for transactions involving online gaming and actionable claims within casino establishments. These rules determine the value of supplies within these sectors, which include factors such as the aggregate amounts disbursed by the players.

Rule 46 has been amended to stipulate the need for special considerations in cases pertaining to the supply of online money gaming services.

Rule 64 outlines the form and manner for the submission of returns for persons engaged in providing online information and database access or retrieval services, as well as those supplying online money gaming services from overseas to recipients in India.

Rule 87 has been modified to incorporate provisions related to the supply of online money gaming services from foreign jurisdictions to recipients in India, ensuring alignment with the provisions outlined in section 14A of the CGST Act.

Form GST REG-10 has been revised to accommodate applications for registration from persons engaged in the supply of online money gaming services from foreign jurisdictions to recipients in India and for those providing online information and database access or retrieval services from abroad to non-taxable online recipients within India.

A new Form GSTR-5A has been introduced to capture comprehensive details regarding supplies of online information and database access services to non-taxable online recipients in India, registered persons in India, and the provision of online money gaming services from overseas to recipients in India. This aligns with the evolving legal landscape in the context of Goods and Services Tax compliance.

Key Links: https://www.gstindiaonline.com/pages/gstlegislation/GST-Nfy/Central%20Tax/2023/51_ENG.pdf

MASTER DIRECTION – RESERVE BANK OF INDIA (NON-BANKING FINANCIAL COMPANY– SCALE BASED REGULATION) DIRECTIONS, 2023

Summary: On October 19, 2023, the Reserve Bank of India (RBI) issued new regulations “Reserve Bank of India (Non-Banking Financial Company– Scale Based Regulation) Directions, 2023”. These regulations organise Non-Banking Financial Companies (NBFCs) into four layers, depending on their size and operations.

In Detail: The Reserve Bank of India issued a circular on October 19, 2023, specifying new regulations for Non-Banking Financial Companies. These regulations shall comprise of four layers based on their size, activity, and perceived riskiness. NBFCs in the lowest layer shall be known as NBFCs-Base Layer (NBFCs-BL). NBFCs in the middle layer and upper layer shall be known as NBFCs-Middle Layer (NBFCs-ML) and NBFCs Upper Layer (NBFCs-UL), respectively. The Top Layer is ideally expected to be empty and will be known as NBFCs-Top Layer (NBFCs-TL).

NBFCs-BL: This layer includes smaller non-deposit taking NBFCs with assets less than ₹1,000 crore. It also covers NBFCs engaged in activities like Peer-to-Peer Lending Platforms (NBFC-P2P), Account Aggregators (NBFC-AA), Non-Operative Financial Holding Companies (NOFHC), and NBFCs without public funds and customer interaction.

NBFCs-ML: This layer encompasses all deposit-taking NBFCs, irrespective of their asset size. It also includes non-deposit taking NBFCs with assets of ₹1,000 crore or more. It applies to various activities like Standalone Primary Dealers (SPD), Infrastructure Debt Fund-NBFC (IDF-NBFC), Core Investment Companies (CIC), Housing Finance Companies (HFC), and Infrastructure Finance Companies (NBFC-IFC).

NBFCs-UL: This layer includes NBFCs chosen by the RBI for stricter regulations based on specific criteria and a scoring system. The ten largest NBFCs in terms of assets will always belong to the higher regulatory layer.

NBFCs-TL: This layer is typically left blank to act as a safety zone. However, it can be filled if the RBI believes that some NBFCs in the upper regulatory layer present a significant systemic risk.

Key Links: Reserve Bank of India - Notifications (rbi.org.in)