In the earlier
posts (Introduction, Types of Factoring, Disclosed Factoring) , we discussed various aspects relating to Factoring in India. In the present
post, we shall talk about the registration of factors and receivables.
Registration of
Factors and Receivables
1.
The Factoring Act provides that ‘banks’, as defined in the Banking Regulation
Act, 1949 are not required to be registered as factors for the purposes of
carrying out the factoring business.[1]
2.
The Registration of Assignment of Receivables Rules, 2012 under the Act
provide for the procedural requirements to be met in relation to the
registration of the assignment of receivables.[2]
3.
Non-Banking Financial Companies (NBFCs) engaged in the factoring business are
required to be registered in accordance with the provisions of the Factoring
Act.[3]
4.
Factoring companies other than banks, government companies, etc. are required
to be registered with the Reserve Bank of India (“RBI”) as NBFCs and the same
would be subject to regulations by the RBI and the provisions of the RBI Act in
relation to NBFCs.[4]
5.
NBFCs that carried on the business of factoring prior to the commencement of
the Factoring Act are required to apply for registration within six months of
the coming into force of the Factoring Act.[5]
6.
Every Factor is under an obligation to file the particulars of every
transaction of assignment of receivables in his favour with the Central
Registry to be set-up under section 20 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002, within a period of thirty days from the date of such assignment or
from the date of establishment of such registry, as the case may be.[6]
7.
Upon realisation of the assigned receivables or settlement of the claim against
the debtors, the Factor would be required to file for satisfaction of the
assignment of receivables in its favour, in such manner and subject to payment
of such fees as may be prescribed in this behalf.[7]
8.
The Factoring Act covers within its scope cross-border factoring transactions
where the factor, the assignor or the debtor are situated outside the territory
of India. In accordance with the provisions of the Factoring Act, a Factor,
assignor or a customer may be located outside the territory of India and such a
transaction shall be governed by the provisions of the Factoring Act and FEMA.[8]
Important
Provisions of the Factoring Regulation Act
1.
Section 7 of the Act talks about Assignment of Receivables. It states
that in case the receivables are encumbered to any creditor, the assignee shall
pay the consideration for such assignment to the creditor to whom the
receivables have been encumbered.[9]
2.
Section 8 of the Act requires the notice of assignment to be given to
the debtor, without which the assignee shall not be entitled to demand payment
of the receivables from the debtor.[10]
3.
Section 7(2) of the Act, does away with the abovementioned requirement, as it
states that on execution of agreement in writing for assignment of receivables,
the assignee shall have ‘absolute right to recover such receivable
and exercise all the rights and remedies of the assignor whether by way of
damages or otherwise, or whether notice of assignment as provided in
sub-section (1) of section 8 is given or not’.
4.
Section 8, 9 and 10 provide for the requirements of notice of assignment.
Section 11 states that even in case notice of assignment is not provided, the
debtor would not be absolved from his duties to make payment. The section is
worded as ‘till notice is served on the debtor, the rights and obligations
in its contract with the assignor, shall remain unchanged, excepting the change
of the party to whom the receivables are assigned which may become entitled to
receive the payment of the receivable from the debtor’. This means that
whether or not notice for assignment is provided, the rights and obligations of
the debtor towards the assignee would remain unaffected.[11]
1. The Factoring Regulation Act, 2011 - An Introduction
2. Types of Factoring and Important Definitions under the Factoring Regulation Act, 2011
3. Disclosed Factoring and Principle of Debtor Protection in India
4. Registration of Factors and Receivables in India
[1]
Nidhi Bothra and Shampita Das, Factors Impending Factoring - Why is factoring
not picking up in India post enactment of the new Act?, available at https://www.india-financing.com/Factors_impending_factoring_why_is_factoring_not_picking_up_in_India_post_enactment_of_the_new_act.pdf
[5]
Refresh: Changing Regulatory Landscape, PWC India, Newsletter, September
2012 available at https://www.pwc.in/assets/pdfs/services/tax/refresh-september-2012.pdf
[6]
Divij Kisore and Mohit Bhatia, Factoring: An Overview, on September 4,
2012 in the Bar & Bench Newsletter.
[7]
Ibid.
[8]
A Research Paper published by Information and Library Network (INFLIBNET)
Centre available at http://shodh.inflibnet.ac.in/bitstream/123456789/135/2/02_introduction.pdf
[9]
Supra note 1.
[10]
'RBI narrows factoring window' on July 24, 2012 in Business Standard, Mumbai
Edition available at http://www.business-standard.com/article/finance/rbi-narrows-factoring-window-112072400027_1.html
[11]
Ibid.
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