Monetrix News Update MDI Gurgaon

News Update
 Monetrix News Update MDI Gurgaon

Insolvency and Bankruptcy Code, 2016

One of the essential business supporting elements is a mechanism to settle failed or bankrupt
entities without causing damage to any players in the economy. Continuation of financially
non-viable businesses leads to locking of funds and physical assets. Similarly, it may lead to
stress for the lender who have provided loan to the distressed business entity. For this, a
bankruptcy code in the form of set of laws for the resolution of failed entities/individuals is
needed.

What is bankruptcy?

Bankruptcy is a financial condition where a firm/individual is unable to repay debts to

creditors. Under India’s Insolvency and Bankruptcy Code 2016, a bankrupt entity is a debtor
who has been adjudged as bankrupt by an adjudicating authority through passing a
bankruptcy order.

Need for Bankruptcy Code

In every economy, there should be a legal procedure accompanied by institutions that

collectively can resolve or settle the problems of failed institutions. An early resolution with
sound principles will help the related parties like banks not to suffer from the failure of the
business entity to which they have provided a loan. Similarly, the Insolvency and Bankruptcy
Procedures will help to ensure confidence of banks, foreign investors, and associated
companies in crisis mitigation mechanism related to business entities in the country.

A situation where investable money locked for a long time in litigations is the least preferred
situation for business partners and lenders. Use of the bankruptcy procedure also may help
the failing entity to resolve its problems early without going to a worst case scenario.

Insolvency and Bankruptcy Code 2016

For establishing an insolvency regulation related to entities and individuals, the Parliament
have enacted Insolvency and Bankruptcy Code 2016. The Code offers a uniform,
comprehensive insolvency legislation encompassing all companies, partnerships and
individuals (other than financial firms). For financial firms like banks, insolvency is a much
delicate issue and for this a separate resolution regime will be enacted later.

The Code provides clear, coherent and speedy process for early identification of financial
distress and resolution of entities if the underlying business is found to be viable. It suggests
two options – a restructuring if the firm is viable and liquidation if it is not financially viable.
Resolution should be done quickly and judiciously to ensure that business is not stuck.

The new code will replace existing bankruptcy laws and cover companies, limited liability
partnerships, partnership firms, other corporate persons, and individuals, and any other body
specified by the Government. There are Sick Industrial Companies Act, the Recovery of Debt
Due to Banks and Financial Institutions Act, and Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). Besides,
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DRTs, Lok Adalats are also dealing with bankruptcy procedures. All these will be substituted
or guided by the Insolvency and Bankruptcy Code on bankruptcy matters as it
consolidates/improves the existing laws.

Features of Insolvency and Bankruptcy Code 2016

The Code specifies a timeframe — 180 days after the process is initiated, plus a 90-day
extension — for resolving insolvency.

A major feature of the Code is that it creates four pillars of institutional infrastructure for
administering the bankruptcy procedure. These entities/agencies are:

Insolvency and Bankruptcy Board of India: is the regulator that will oversee the new
entities.

Insolvency Professionals: will conduct the insolvency resolution process, take over the
management of a company, assist creditors in the collection of relevant information, and
manage the liquidation process,

Insolvency Professional Agencies: will examine and certify the insolvency professionals,
and

Information Utilities: collect, collate and disseminate financial information related to

debtors,

An important prerequisite for the success of the Code is the presence of sophisticated
institutions and professionals who should facilitate the resolution procedure. Highly skilled
insolvency professionals and matured institutions are critical for making the entire process
workable.

How insolvency procedures are conducted under the new law?

As per the new law, when a loan default occurs, either the borrower or the lender approaches
the NCLT or DRT (Debt Recovery Tribunal) for initiating the resolution process. The Code
provides two options if a firm files insolvency: first is an Insolvency Resolution Process,
during which creditors assess whether the debtor’s financial position is viable for him to
continue and if so, they have to search options for the rescue of the firm. The second option is
liquidation.

The adjudicating authority for insolvency issues of a Company/LLP is prescribed to be the

NCLT and National Company Law Appellate Tribunal (NCLAT), and for individuals and
partnership firms, it is the extant DRT and Debt Recovery Appellate Tribunal (DRAT).

Next step is that creditors appoint an interim Insolvency Professional (IP) to take control of
the debtor’s assets and company’s operations, collect financial information of the debtor from
information utilities, and constitute the creditors’ committee.
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Third step is that the committee has to then take decisions regarding insolvency resolution by
a 75% majority. During the insolvency resolution period, the management of the debtor is
placed in the hands of a resolution professional.

Fourth step is that once the resolution is passed; the committee has to decide on the
restructuring process through either a revised repayment plan or liquidation of the assets of
the company. If no decision is made, the debtor’s assets will be liquidated to repay the debt.

The final step is that the resolution plan will be sent to the tribunal for final approval, and
implemented once approved.

The bankruptcy code has provisions to address cross-border insolvency through bilateral
agreements with other countries.

The Code proposes shorter time duration for the completion of insolvency process. Filing for
bankruptcy has to be done in three months and other procedures like filing claims and appeals
are also to be done quickly. The entire process will be completed within 180 days

The Insolvency and Bankruptcy Code is thus a comprehensive and systematic reform that
ensures speedy solution to insolvency and bankruptcy. Such a swift procedure will help
creditors considerable as well as avoid distressed firms negatively affecting the economic and
financial activities. The code is a big stride for ease of doing business in India.
 Monetrix News Update MDI Gurgaon

Real Estate Regulatory Authority Act, 2017

In the year 2016, real estate developers faced a massive change in the way things were
functioning. If you look at any newspaper before 2016, it was possible to find at least one
report which would talk about the way the real estate developers have been functioning and
their constant failure to keep up with the promises relating to possession of the developed
property or amenities or returning a buyer his money in case of cancellation.

With a view to regulating real estate under one regime, and aim to establish the Real Estate
Regulatory Authority (RERA) for regulation and promotion of the real estate sector and to
ensure the sale of the plot, apartment or building, in an efficient and transparent manner the
Real Estate Regulation Act, 2016 was enacted.

RERA seeks to address issues like delays, price, quality of construction, title and other
changes. Delays in projects are the biggest issue faced by buyers. The reasons are many and
the impact is huge. Since the last 10 years, many projects have seen delays of up to 7 years.
Projects launched after the turn of this decade have faced delays as well. Some have run into
obstacles even before a brick was laid. The reasons include diversion of funds to other
projects, changes in regulations by authorities, the environment ministry, national green
tribunal etc. and other bodies like those involved in infrastructure development and governing
transport. In many places, land acquisition becomes an issue. Errant builders often sell
projects to investors without the approval of plans, unauthorised increase in FAR, bad quality
of construction, projects stuck in litigation etc.

Key Provisions of RERA

 The promoter of a real estate development firm has to maintain a separate escrow
account for each of their projects. A minimum 70 per cent of the money from
investors and buyers will have to be deposited. This money can only be used for the
construction of the project and the cost borne towards the land.
 To provide clarity to buyers, developers will have to keep them informed of their
other on-going projects.
 RERA requires builders to submit the original approved plans for their on-going
projects and the alterations that they made later. They also have to furnish details of
revenue collected from allottees, how the funds were utilised, and the timeline for
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construction, completion, and delivery that will need to be certified by an

Engineer/Architect/practicing Chartered Accountant.
 It will be the responsibility of each state regulator to register real estate projects and
real estate agents operating in their state under RERA. The details of all registered
projects will be put up on a website for public access.
 RERA talks about the quality of construction in projects. Over the last few years,
buyers have protested about poor of flats. The regulator will ensure protection to
buyers in this matter for five years from the date of possession. If any issue is
highlighted by buyers in front of the regulator in this period including in quality of
construction and the provision of services, the developer will have to rectify the same
in a matter of 30 days.
 Developers can’t invite, advertise, sell, offer, market or book any plot, apartment,
house, building, investment in projects, without first registering it with the regulatory
authority. Furthermore, after registration, all the advertisement inviting investment
will have to bear the unique RERA registration number. The registration no. will be
provided project-wise.
 After registering the project, developers will have to furnish details of their financial
statements, legal title deed and supporting documents.
 If the promoter defaults on delivery within the agreed deadline, they will be required
to return the entire money invested by the buyers along with the pre agreed interest
rate mentioned in the contract based on the model contract given by RERA.
 If the buyer chooses not to take the money back, the builder will have to pay monthly
interest on each delay month to the buyer till they get delivery.
 After developers register with the regulator, a page will be created for the builder on
the regulatory authority’s website. The developer will be given login credentials using
which it will upload all the information regarding the registered projects on the
regulator’s website. The number, type of apartments, plots and projects and their
completion status will be updated at a maximum quarterly basis.
 To add further security to buyers, RERA mandates that developers can’t ask more
than 10 per cent of the property’s cost as an advanced payment booking amount
before actually signing a registered sale agreement.
 The regulator will have the power to fine and imprison errant builders based on a case
by case basis. The imprisonment can go up to a period of three years for a project.
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Advantages of RERA

Increased
FDI

Reduction in Customer
Litigation Management

RERA
Timely
Completion of
Transparency
the Project

Project
Planning
 Monetrix News Update MDI Gurgaon

Rupee Devaluation
The Indian currency is weakening steadily, and the outlook isn’t rosy.

The rupee has lost nearly 3% of its value since the start of 2018, and it is the second-biggest
loser in the BRICS group: Brazil, Russia, India, China, and South Africa. The Russian ruble
is the only currency that has lost more value than the rupee in 2018 so far.

“The fall in Indian rupee can be attributed to higher crude oil prices, widening trade deficit,
and higher capital outflows,” Prathamesh Mallya, an analyst at Angel Commodities Broking,
said in a report on April 17.

Wider trade deficit

India’s import bill is rising at a time when exports’ contribution to the country’s GDP has hit
a 14-year low. That has increased the trade deficit, the amount by which a country’s import
value exceeds its net exports, by up to $156.8 billion for financial year 2018, compared to
$105.72 billion in the previous year.

The expansion in merchandise imports in India was nearly twice that of export growth in the
year ended March 2018.

This trend of rising imports, and slow exports, she added, may push up the current account
deficit, the sum of all transactions between a nation and its global trading partners, to nearly
1.9% of the gross domestic product (GDP) in financial year 2019.

This essentially means India will spend substantially more dollars buying stuff from other
countries than it earns from selling goods and services across borders, leading to a weaker
rupee.

The oil slick

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India spends more money on importing crude oil than anything else. Nearly 80% of the
country’s fuel needs are met by imported crude oil.

And the daily fuel demand is expected to more than double to 190,000 barrels in 2018, up
from last year’s 93,000 barrels, according to a January report from energy research and
consultancy firm Wood Mackenzie.

While demand for crude oil is rising, so is the cost. The Indian crude basket, the weighted
average price of all the country’s crude oil imports, has gone up from $52.49 in April last
year to over $63 in March 2018, a rise of 22% in a year, according to government data.

This rise in crude oil prices will strain finances. Every $10 rise in the crude oil price widens
India’s fiscal deficit by 0.1% of the GDP, according to a January report by global broking
firm Nomura

Again, India will need more dollars to meet the rising demand and meet the cost of crude
oil—the expected stress has dented the rupee. The weaker rupee, in turn, will increase the
cost of imports further.

Capital outflows

The vicious cycle of the dollar deficit and weakening rupee can be offset if other sections of
the economy earn additional dollars for instance, the capital markets.

However, foreign investment in Indian equities and bonds has slowed down, too.
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In the last three months, foreign portfolio investments stood at Rs13,260 crore, a fifth of the
figure at the same time last year, data from National Securities Depository Limited show.

Even as external factors have shaken Indian authorities out of their comfort zone, the Reserve
Bank of India (RBI) can take heart from its record pile of dollars to support the rupee in rainy
days such as these. India’s foreign exchange reserves hit an all-time high of $424.8 billion in
the week ended April 06, RBI data show.

Fugitive Economic Offenders Bill, 2018

On 25 July 2018, the Parliament passed the Fugitive Economic Offenders Bill. The ordinance
makes provisions for a court (‘Special Court’ under the Prevention of Money-laundering Act,
2002) to declare a person as a ‘Fugitive Economic Offender.’

 A Fugitive Economic Offender is a person against whom an arrest warrant has been
issued in respect of a scheduled offence and who has left India so as to avoid criminal
prosecution, or being abroad, refuses to return to India to face criminal prosecution.
 A scheduled offence refers to a list of economic offences contained in the Schedule
to this Ordinance.

The bill empowers the authorities to attach and confiscate properties and assets of economic
offenders like loan defaulters who flee the country. The absence of offenders during
investigations poses problems for the probing agencies apart from undermining the law of the
country. This would also help the banks and other financial institutions to achieve higher
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recovery from financial defaults committed by such fugitive economic offenders, improving
the financial health of such institutions. Since the approved law would utilise the existing
infrastructure of the special courts constituted under the Prevention of Money-laundering Act,
2002 (PMLA) and the threshold of scheduled offence is high at Rs 100 crore or more, no
additional expenditure is expected on the enactment of the ordinance.
 Monetrix News Update MDI Gurgaon

US China Trade war

Overview of the Trade War

In March, Trump announced import duties of 25 per cent and 10 per cent on steel and
aluminium respectively coming from all nations except Canada and Mexico. Further, on 3
April, a list of 1,300 Chinese exports was announced by US, which the country plans to hit
with 25 percent tariffs to punish Beijing for restricting US investment in China. The US also
accused China of stealing American intellectual property. The combined tariffs were in the
range of about $50 billion worth of Chinese exports.

Then, China reacted by listing down its plans to counter the US decision by hitting the

American exports with 25 percent tariffs. The proposed package targeted over 100 US-made

products, including cars, airplanes, and soybeans, the top US agricultural export to China,

covering $50 billion worth of US exports. Soon, Trump retaliated by directing his

administration to identify tariffs on an additional $100 billion worth of goods, triggering a

trade war.

US China Trade war Timeline

Impact on India

Souring trade relations between US and China mean economic implications for other Asian
nations.

The following are some ways the Indian economy may be affected:

 Amid concerns over the global trade war, key indices in the Indian share market
dropped due to the cautious approach of the investors
 An escalating trade war with US will further weaken the Indian currency value
against the US dollar.
 India runs a trade surplus with US, which means we export more than we import from
them. This brings much needed dollar inflows into the country. If the trade war with
US escalates, this will widen our trade deficit and also current account deficit
 As the United States of America imposed duties on steel and aluminium, India now
has to pay approximately $241 million worth of tax to the US. India, on the other
hand, as a counter-measure has proposed imposing duties on 30 different types of
goods. This will ensure that the US has to pay about $238 million as duties to India.
However, this will make life more difficult for the end consumers as everything that
falls under the tariff scanner is expected to become more expensive.
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 The trade war has a potential to impact the domestic industry-especially

pharmaceuticals, apparel and textiles, iron and steel, mineral fuels and also fisheries.
All these industries are manpower intensive. At a time when unemployment is a big
issue in India and economy is also slowly coming back to normal, a trade war with
US will impact the economy's growth momentum.
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Walmart-Flipkart Deal
Walmart paid $16 billion for acquiring an initial stake of 77 per cent in Flipkart, valuing the
e-tailer close to $ 20.8 billion. The remainder of the business will be held by some of
Flipkart's existing shareholders, including Flipkart co-founder Binny Bansal, Tencent
Holdings Limited, Tiger Global Management LLC and Microsoft Corp. Walmart
and Flipkart will remain separate brands with the goal of transitioning Flipkart to a publicly-
listed, majority-owned subsidiary in the future. The buyout, which is Walmart’s biggest
acquisition and the biggest e-commerce deal globally, marked the end of an era for Flipkart
as co-founder and chairman Sachin Bansal left the company, selling his 5.5-6% stake for
roughly $1 billion. Flipkart’s other founder, Binny Bansal, continues as Flipkart group chief
executive officer (CEO) and Kalyan Krishnamurthy has retained his position as Flipkart
CEO.

Walmart in the Indian Market

Walmart had assured the CCI that the deal will not lead to any competition complications and
the pecking order of the Indian retail sector will remain unaffected. However, a lot of flak has
been drawn from retailer bodies who have been vocally opposing the deal, on grounds that
the resultant entity will eat into the market of small retailers. In contrast, Walmart has
maintained that the deal will ultimately benefit the small traders and farmers, and will create
employment.

Walmart said it supports small businesses and 'Make in India' through direct procurement as
well as increased opportunities for exports through global sourcing and e-commerce. The
company aims to partner with kirana owners and members to help modernise retail practices
and adopt digital payment technologies. Also, Walmart had announced that it will hire 1,000
professionals for handling the technical aspect of its venture in India.