July 2024

Regulated Entities (RE) must periodically ensure compliance with the RBI’s Circulars and Directives. A streamlined compliance process and thorough internal compliance monitoring are essential. The RBI Circular on 31 January 2024 provided a five-month deadline for a new directive for using technology to have a dashboard in place.  how banks and NBFCs can seamlessly integrate robust monitoring tools and mechanisms for a single dashboard by June 30, 2024. The financial sector is the backbone of any economy, and ensuring its stability and integrity is of paramount importance. As the custodian of the Indian financial system, the Reserve Bank of India (RBI) plays a crucial role in maintaining this stability through comprehensive regulations and oversight. The recent RBI directive (RBI/2023-24/117) dated 31 January 2024 emphasizes the critical importance of compliance for regulatory entities (REs) in India’s financial landscape. This directive aims to strengthen the regulatory framework, enhance financial stability, and protect consumer interests by ensuring REs adhere to established norms. By boosting investor confidence and aligning with global standards, the directive facilitates a trustworthy financial and regulatory environment conducive to innovation and growth, ultimately reinforcing the integrity and resilience of the Indian financial system. What does the RBI Circular 117/2023-24 say The RBI circular RBI/2023-24/117, dated 31 January 2024, directs RE to adopt and implement tools/mechanisms for monitoring all applicable compliances. It advocates that RE deploy a single/unified dashboard for better internal compliance monitoring. The Circular would apply based on the size and complexity of its operations. The tool/mechanism should do the following: Bring all stakeholders on one platform, showing all compliances in one place. Create a workflow for identifying, assessing, monitoring, and managing compliance requirements.  Escalate all non-compliances to the right stakeholder. Have a unified dashboard view for senior management on the compliance position of the regulated entity. Applicability of the RBI Circular 117 Small Finance Banks (SFB) Payments Banks Non-Banking Financial Companies (NBFC) (ML and UL) Housing Finance Companies Scheduled Commercial Banks (SCB) Primary (Urban) Co-operative Banks (Tier III and IV) Credit Information Companies All India Financial Institutions Deadline to comply with the RBI Circular 117 The time limit to comply with the RBI Circular is June 30, 2024. REs are advised to thoroughly review and update their internal compliance monitoring and tracking processes, making necessary adjustments to the existing systems or implementing new systems by June 30, 2024. The importance of compliance Compliance plays a pivotal role in ensuring the stability and trust of the financial system. It safeguards the interests of stakeholders, including customers, investors, and the broader economy. Non-compliance can expose REs to significant risks, such as reputational damage, legal liabilities, financial penalties, and potential regulatory sanctions. Moreover, in an era of heightened scrutiny and public accountability, adhering to regulatory requirements is essential for maintaining the credibility and sustainability of financial institutions. What is Internal Compliance Monitoring? Internal compliance monitoring is the act of continuously assessing within the RE whether it is complying with the regulatory requirements, including internal policies and specific industry standards. Its goal is to help enterprises achieve consistent regulatory compliance and avoid non-compliance. Internal monitoring of compliance assures that your team follows company policies and procedures. While internal auditing ensures that the necessary controls are in place, it’s through monitoring that one can determine whether or not staff are following those controls in their daily activities. This helps enterprises guard against liability, data breaches, and costly penalties. FAQs What is the RBI’s Single Dashboard Circular? The RBI’s Single Dashboard Circular is a regulatory directive aimed at streamlining the internal compliance monitoring of banks and Non-Banking Financial Companies (NBFCs). It mandates the implementation of a unified dashboard to oversee and manage compliance activities effectively. What is the purpose of the Single Dashboard? The Single Dashboard aims to enhance the efficiency and effectiveness of compliance monitoring within banks and NBFCs. It provides a centralized platform for tracking compliance activities, identifying potential issues, and ensuring timely resolution.

Business restructuring is a comprehensive process be it financial or technological or market or organisational. There are various modes by way of which it can take place such as re-organisation of capita, compromise/arrangement, merger/amalgamation, demerger, acquisition/takeover, slump sale, strategic alliance and such other similar modes. The primary motive behind undertaking any such rearrangement would be to prosper both in size and profits. The corporate restructuring process can be either be by any of the much traversed gradual way or a much faster way of selling off the business undertaking. Here it is important to note that the sale can happen in two ways, one is an entity sale and the other is an asset sale. The type of sale is determine which items of the business shall form part of the ownership transfer. A buyer is benefited from an asset sale by availing the depreciation benefits early and avoiding acquiring the former company’s liabilities. However, from a seller’s perspective an entity sale is preferable so as to pay taxes at a low long-term capital gain rate, as compared to the higher ordinary income tax rate applicable on asset sales. Re-organizing the business whether financial, technological, organizational by way of merger, amalgamation, arrangement, compromise, demerger, acquisition, takeover, strategic alliance or slump sale is a complicated and a lengthy process. Business Transfer Agreement Business Transfer Agreement is an agreement executed by and amongst the transferor and the transferee company to by way of executing a slump sale where every asset and the liability of one or more units transferred, sold, leased or assigned to any other for the lump sum consideration. This type of agreement provides ownership of other businesses. As per section 2(42C) of Income -tax Act 1961, ‘slump sale’ means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. Purpose behind restructuring of business through Slump Sale is as follows:- Growth & betterment of the business Reaching out to the better profits. Reorganizing through slump sale attracts stamp duty only on immovable properties. The transferor has to pay a certain amount of capital gain arising from such transfer. Elements Which Requires Deep Understanding Before Executing Business Transfer Agreement Sale of any part of the undertaking Transferring the undertaking on a going concern basis Payment for such transfer should be in lump sum consideration Transfer assets & liabilities of that undertaking which will be transferred Importance of Business Transfer Agreements It helps in improving the business performance post-integration. It helps in facilitating the strategic investments. It helps in availing of tax and the regulatory advantages associated with the business. It helps in improving the focus on core areas and also helps in optimizing operational synergies Contents of Business Transfer Agreement Schedule of the Assets Schedule of the Liabilities Detail of the creditors List of the contracts List of the employees Lump-sum consideration involved Details of the total intellectual property Name of the parties Address of the parties Pending suits and cases under authority, if any Closing date Modes of Execution of Business Transfer Agreement Agreement to sell: It is only the way in which respective business undertaking is to be sold shall be laid down. The agreement executed itself does not result in  transfer of the undertaking on immediate basis, rather it is an underlying agreement whereby the intent of parties is laid down giving effect to an intended slump sale and the actual sale is carried out by diverse agreements/documents. Therefore, it only remains as an indication of the intention, effectuated by the subsequent binding documents. Deed of conveyance: It is the agreement or the Deed which leads to the sale of the business undertaking and the payment of consideration received for the undertaking. In this type of document, parties agrees to transfer the said undertaking and actually effects the transfer of undertaking. FAQs Does Agreement to sale means transfer of undertaking? No, Agreement to sell doesn’t mean the transfer of undertaking, it is merely an instrument where the intention of parties is laid down and parties mutually decide to reach a certain decision of purchase or sale of undertaking. What are legal and stamp duty implications? Business Transfer Agreement becomes legally binding when it is printed on judicial stamp paper or an e-stamp paper which is to be signed by both the Transferor(Vendor) and the Transferee(Purchaser), and has been dated. The value of the stamp paper depends state to state in which it will be executed. Each state in India has different provisions in respect of the amount of stamp duty to be paid.

Small Scale Industries (SSIs) are entities that are involved in the manufacturing, production, and services of products on a micro or small scale. The maximum investment in machinery, plants, and industries by Small Scale Industries cannot exceed Rs. 1 crore. Small Scale enterprises must come under the guidelines of the Government of India.  Small Scale Industries (SSI) are industries that manufacture, produce and render services on a small or micro scale level. In India, several SSIs exists in various fields such as handicrafts, toys, weaving, pickle making, food products, etc. These industries make a one-time investment in machinery, plant, and equipment, but it does not exceed Rs.10 crore and annual turnover does not exceed Rs.50 crore.Earlier industries that manufactured goods and provided services on a small scale or micro-scale basis were granted Small Scale Industries (SSI) registration by the Ministry of Small Scale Industries. However, after the government passed the MSME (Micro, Small and Medium Enterprises) Act in 2006, the small and micro-scale industries came under the MSME Act.  On 9 May 2007, subsequent to the amendment of the Government of India (Allocation of Business) Rules, 1961, the Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries were merged to form the Ministry of Micro, Small and Medium Enterprises. Thus, the SSIs are included under the Ministry of MSME.  Currently, the SSIs are classified as small or micro-scale industries based on the turnover and investment limits provided under the MSME Act and they need to obtain MSME registration. The government provides many benefits to the small scale industries having MSME registration at present. Enterprise Registration under Small Scale Industry (SSI) The small scale industries are generally comprised of those industries which manufacture, produce and render services with the help of small machines and less manpower. These enterprises must fall under the guidelines, set by the Government of India. The SSI’s are the lifeline of the economy, especially in developing countries like India. These industries are generally labour-intensive, and hence they play an important role in the creation of employment. SSI’s are a crucial sector of the economy both from a financial and social point of view, as they help with the per capita income and resource utilisation in the economy. Ministry of Micro, Small, and Medium Enterprises (MSMEs) with the help of the Ministry of Small Scale Industries facilitates the registration process for Small Scale Industries. It is essential to obtain SSI registration to avail benefits of numerous government schemes, subsidies, and incentives. SSI registration form is available online for the applicant to fill and submit to get the registration number. According to the Ministry of Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, MSMEs are classified into two types: 1. Manufacturing Enterprise2. Service Enterprise Characteristics of SSI Ownership- SSI’s generally are under single ownership. So it can either be a sole proprietorship or sometimes a partnership firm. Management- Generally, both the management and the control is with the owner/owners. Hence the owner is actively involved in the day-to-day activities of the business. Labor Intensive- SSI’s dependence on technology is pretty limited. Hence they tend to use labour and manpower for their production activities. Flexibility- SSI’s are more adaptable to their changing business environment. So in case of amendments or unexpected developments, they are flexible enough to adapt and carry on, unlike large industries. Limited Reach- Small scale industries have a restricted zone of operations. Hence, they can meet their local and regional demand. Resources Utilisation- They use local and readily available resources which helps the economy fully utilise natural resources with minimum wastage. Benefits of SSI Registration Loans at low or concessional interest rates SSIs can avail various tax rebates, after SSI registration SSI units are granted carry forward of credit for Minimum Alternate Tax (MAT) for up to 15 years Only SSIs are allowed to have access to certain government tenders Acquiring government licenses and certifications becomes easier once a unit receives a permanent registration As many concessions and rebates are available, therefore the cost of setting up of industry reduces SSI Registration Eligibility Criteria SSI registration can be obtained by both manufacturing units and service rendering enterprises. However, the registration eligibility criteria differ for SSI units in manufacturing and SSI units in service rendering as follows: SSI registration can be obtained for manufacturing units if the investment in plant and machinery (excluding land & buildings) is within any of the following levels: Micro Enterprises: Investment of up to Rs.25 lakhs in plant and machinery Small Enterprises: Investment of up to Rs.5 crores in plant and machinery Medium Enterprises: Investment of up to Rs.10 crores in plant and machinery SSI registration can be obtained for service rendering units if the investment in equipment (excluding land & buildings) is within any of the following levels: Micro Enterprises: Investment of up to Rs.10 lakhs in equipment Small Enterprises: Investment of up to Rs.2 crores in equipment Medium Enterprises: Investment of up to Rs.5 crores in equipment Pre-requisites for Establishing SSI Decision on the Ownership – An entrepreneur wishing to establish an SSI must first decide on the ownership structure of the SSI. The SSI can be established as a sole proprietorship firm, partnership or company. Product Selection -Next, entrepreneurs must decide whether the SSI will venture into manufacturing or provide service, the product/product range that needs to be manufactured and the quantity of production of products or the service that will be provided. Location – The location must be selected where the unit is to be established. The size of the plot, exact site, covered and open area must be decided. Once the location is finalised, the SSI unit should be established in that location and the business operation can start. The location of the established unit will be the registered address/primary address of the SSI unit. Registration – After the unit is established at the decided location, the SSI must obtain the Shop and Establishment Act registration, company registration, or partnership firm registration, as applicable. Once the registration is obtained, the establishment can start its business. SSI Registration-