The Factoring Regulation (Amendment) Act

The Ministry of Law and Justice, vide notification dated 9^th August 2021, notified amendment to the Factoring Regulation Act, 2011. The amendment is named as ‘the Factoring Regulation (Amendment) Act, 2021’ which received Presidential assent on 7^th August 2021. Notably, the amendments are effective from 23^rd August 2021. The present article briefly highlights the amendments notified vide the Factoring Regulation (Amendment) Act, 2021.

Important amendments in various definitions-

Detailed analysis of various amendments undertaken in different definitions of the Factoring Regulation Act, 2011 is highlighted hereunder-

Assignment [Section 2(a)]-

The definition of the term ‘assignment’ is entirely amended. The new definition means the transfer by agreement to a factory of an undivided interest (whole or part) of an assignor in the receivables due from the debtor. The assignment includes transfer where the assignor or debtor is situated/ established outside India. In nut-shell, the amended definition of ‘assignment’ includes the transfer of the undivided Interest, whether whole or part, in the receivables.

Factoring Business [Section 2(j)]-

The definition of the term ‘Factoring Business’ is amended. Amended definition means acquisition of receivables of assignor by an assignment for a consideration. The acquisition should be for collection of the receivables/ for financing against such assignment.

Receivables [Section 2(p)]-

Definition of the term ‘Receivables’ is entirely substituted. According to the new definition, the receivables means-

The money owned by the debtor; and
Which is not yet paid to the assignor of goods/ services.

The term receivables as includes payment of any sum for the toll/ use of any infrastructure facility/ services.

Insertion of new definitions-

Following two definitions are inserted in the Factoring Regulation Act, 2011-

Regulations [Section 2(pa)]-

It means regulations made by the RBI (Reserve Bank of India) under this Act.

Trade Receivables Discounting System [Section 2(sa)]-

It means payment system which is authorized by the RBI under section 7 of the Payment and Settlement System Act, 2007 for facilitating financing of the trade receivables.

Removal of threshold limit for Non-Banking Financial Company (NBFC)-

Proviso to section 3(2) and explanation thereof is omitted vide the Factoring Regulation (Amendment) Act, 2021. Accordingly, the threshold limit for NBFC to be engaged in factoring business is removed. As per earlier provisions, for NBFC to engaged in the factoring business must have the financial assets in the factoring business and income from the factoring business more than 50% of the total assets / gross income or more than the threshold as notified by the Reserve Bank. The said condition is removed from 23^rd August 2021.

Registration of transactions [Substitution of section 19(1)]-

As per section 19(1) of the Factoring Regulation Act, 2011, every factor is required to register the details of every transaction of an assignment of receivables in their favor. Such details are to be recorded with the Central Registry set up under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI Act, 2002]. Prior to amendment, such details were to be submitted within a period of 30 days from the date of assignment/ establishment of registry. Post amendment, now, the details are to be submitted within such time and in such manner as may be prescribed.

Details to be filed by Trade Receivables Discounting System (TReDS)-

As per newly inserted sub-section (1A) to section 19, the trade receivables financed through TReDS needs to be filed with the Central Registry. The details are to be filed by the TReDS on behalf of the factor.

Regulations by the Reserve Bank of India (RBI)-

New section 31A is inserted to the Factoring Regulation Act, 2011, accordingly the section empowers the Reserve Bank to make regulations for the manner of granting of the registration certificate to a factor and to make regulations for the manner of filing of the transactions with the Central Registry for trade receivables financed through TReDS.