India is on a path of reform

India is on a path of reform and the corporate law sector is not untouched from this spirit. The first tranche of the relief package announced by the Finance Minister was focused on bringing up the MSME/startup sector. There were also positive takeaways for companies in terms of tax concessions and concessions in labour laws. The past month has witnessed myriad changes with respect to FDI and corporate compliances as well. We bring to you the five key changes which have taken place in the field of corporate laws, in the past month.

Finance Minister Announces Relief Measures For The MSME Sector

On 13th May, 2020, the Finance Minister announced a slew of relief measures for the benefit of the Micro, Small and Medium Enterprises (MSMEs) in order to ensure liquidity in the economy and to protect them from the adverse impact of COVID-19. This is the first step of the government to promote local products and to make India self-reliant. Some of the key relief measures provided to the MSMEs are:

Definition of ‘MSME’ has been made broader

Earlier, the definition of MSME included two sectors: manufacturing and service. The criteria of classification as a MSME was the amount of investment. The thresholds of investment for the manufacturing and the service sector were different. Now, the classification additionally includes, the criteria of turnover as well. Distinction between manufacturing and service sectors has also been removed.
Earlier, MSMEs feared growing beyond the particular monetary threshold, as they would lose the benefits conferred on them as a MSME. The broadening of the definition would now ensure their growth without excluding them from the ambit of a MSME.

The new definition is as follows:

INR 20,000 crores would be given as subordinate debt to stressed MSMEs

Stressed MSMEs are those which are not performing well and may have a number of NPAs in their portfolio. In order to help out such stressed MSMEs, the government has proposed the infusion of INR 20,000 crores in the form of subordinate debt. Further, INR 4000 crores would also be made available under the existing credit guarantee scheme to MSMEs. This is to provide cash in the hands of stressed MSMEs, who can then on the basis of the same can ask banks for more loans.

Mother and daughter funds

A mother fund or a primary fund with a corpus of INR 10,000 crores is proposed to be set up. This fund would then leverage money worth INR 50,000 crores from daughter funds (subordinate funds). This money can then be infused into those MSMEs who are either performing well or have the potential of performing well. This will ensure that the MSMEs who want to scale up their operations have enough money at their disposal.

Availability of debts for MSMEs with no collaterals required

For loans up to INR 3 Lakh crores, no collaterals would have to be shown. An emergency credit line up to 20% can be availed by the MSMEs from financial institutions. The loans can be taken for a period of 4 years. A moratorium of 12 months for principal amount payment shall apply on such loans. The deadline before which MSMEs may avail of collateral free loans is October 31, 2020.

Clear Receivables Within 45 Days

The government has also promised that all MSME dues pending from the side of the government would be cleared within 45 days’ time period.

Liquidity Measures for all enterprises, which would also benefit MSMEs

• EPF contribution for both employers and employees is reduced from 12% to 10%. This would increase spending money in the hand of the employees and would place less burden on the employer to deposit a 12% mandatory contribution.
• The government had earlier announced that it will bear the burden of employers’ contribution for entities with less than 100 employees where 90% of the employees draw salaries of INR 15,000 or less for the months of March-May. This facility has been extended by another three months.
• The existing rates of TDS and TCS will be reduced by 25% till 31st March 2020..