Nation
Jaitley discusses sovereign wealth fund roadmap
Finance Minister Arun Jaitley on Wednesday discussed the operationalisation of India's first Rs 40,000 crore sovereign wealth fund, the National Investment and Infrastructure Fund (NIIF).
 
"Second meeting of the governing council of the NIIF was held under the chairmanship of Arun Jaitley to review the status of actions taken for the operationalisation of the NIIF and to provide the road map for further activities," the Finance Ministry said in a statement.
 
Jaitley also launched NIIF website here on Wednesday during the second governing council meet of the sovereign wealth fund.
 
The council discussed the long term investors, sovereign wealth funds and pension funds, which are seeking to invest in the NIIF, the statement said.
 
The progress on the MoUs (memorandum of understanding) for investment in NIIF with several investors such as Abu Dhabi Investment Authority from UAE, open joint-stock company Rusnano from Russia and Qatar Investment Authority, Qatar were also discussed, it said.
 
Financial Times, London has adjudged NIIF as the most innovative structure in Asia Pacific under finance category.
 
The guidelines for investment of the corpus of NIIF were also discussed at the meeting.
 
"The NIIF would have various sector-specific or investor-specific close ended funds and each fund may issue various classes of units. The government along with other investors would subscribe to the units of various funds," it said.
 
The units, investment strategy and accounts of each fund shall be distinct from and independent of the other funds, it added.
 
The shortlisting of projects for initial investment by the NIIF and the selection of its chief executive officer was also discussed at the meeting.
 
"A core team has been put in place to carry-out the activities of the NIIF," the statement said.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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MSME Amendment Bill will destroy the sector
Medium and Small Enterprises are governed by the provisions of MSME Development Act 2006. Two years after the NDA government came to power, the MSME sector seems to be in a confused state with unresponding credit markets, no access to equity, and adverse global situation in spite of its potential to create jobs. The institutional lenders invariably consider MSME sector as high risk. The sector also suffers from the absence of exit route in case the unit fails. 
 
MSMEs were redefined in September 2015 by way of amendment to rules to the 2006 MSMSE Act. Earlier definitions of SSI and MSMEs post 2006 accommodated horizontal growth and perverse incentives. But all the states have not fallen into the groove. New regulations and rules seem to be compounding the problems for the sector when it comes to revival and rehabilitation even as the Bankruptcy Law provides the long awaited relief for the large industry. Draft MSME Development (Amendment) Act 2015, notified in November 2015 awaits cabinet approval for placing before the Parliament. 
 
It is important that every authority empowered to make any rule which is reasonably likely to affect a significant number of MSMEs, should, before notifying the rule, or at the time of notifying the draft rules/amendments to the existing statute, prepare an impact assessment analysis. The impact analysis report should clearly and concisely show the objectives and the legal basis for the rule. It should also give a description of the record keeping and other compliance requirements together with an estimate of the classes of MSMEs will be subject to the requirements and type of professional skills necessary for preparation of report, return and /or record. 
 
Unfortunately, the Draft MSME Development Act (2006) Amendment Bill, 2015 targeting revival and rehabilitation of MSMEs does not satisfy these requirements. The Bill also failed to mention the extant provisions for rehabilitation, revival and restructuring of MSMEs announced in its own Rules in June 2015. It would have been better had the Bill provided for certification as to the ability and feasibility of different classes and sizes of MSMEs to comply with the requirement. 
 
The Bill provided for the appointment of a Special Adjudicating Authority under Section 3 of the Act by the state government in consultation with the Chief Justice of the High Court. Likewise, it also provided for appointment of an Enterprise Trustee. Both the appointments are to be made by the state government. There is no reference as to who will bear the related costs. The fate of DRTs is too well known to bear repetition in these columns that suffered for want of judges. One more judicial authority for the sector would remain on paper at least for another decade if not more.
 
‘Claim’ under the Bill has been defined as – “a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, un-matured, disputed,  undisputed, legal, equitable, secured or  unsecured.” Whether legally disputed claims can go beyond contest by the respondent under this Bill is a matter of doubt.
 
Section 2 (la) defines the sick unit: "sick enterprise" shall mean an enterprise which has failed to pay the debt of its creditors within 30 days of the notice of demand or to secure or compound it to the reasonable satisfaction of the creditors.' 
RBI’s prudential norms suggest that the banks have 90 days time after the asset becomes NPA for taking any recovery measures. (It will take irregularity in payment of dues – principal and/or interest- 90 days to become NPA). This would mean that 180 days would be the effective time for initiating and implementing the rescheduling guidelines. 
 
Declaring an enterprise as sick currently rests with the creditor under the rules of the RBI. There is no reference to the RBI regulations in the Bill. While the entrepreneur has the right to demand for revival, validation of the demand and conceding to it with such conditions as deemed necessary rest with the zonal committee set up under the extant rules of RBI.
 
Under Section 25B application for the scheme of revival and rehabilitation has to be submitted to the Authority under the Act and this Authority under the Act cannot bind the financing institution over his decision in regard to the application. 
 
The Bill provides for appointment of Provisional Trustee from a Panel to be maintained by the State Government and it mentions in Section 25 E (3) the eligible persons for Provisional and Enterprise Trustee. The first level of appointment – Provisional Trustee and the second level – Enterprise Trustee, if different, whose decision on the course of action prevails, is not clear in the Bill. 
 
Section 25 E (6) provided for recovering any damages to the suffering unit caused by the decisions of the Enterprise Trustee have to be ordered by the Adjudicating Authority from the Trustee. The appointment conditions of Enterprise Trustee do not provide for any caution deposit or an affidavit from the Trustee to that effect.
 
Section 25N (a) of the Bill, while winding up the unit, exempts proceedings against certain properties and class of assets of which á single dwelling house of the house owned by the entrepreneur and his family is one. But it adds a proviso there under: ‘Provided that any dwelling unit of the owner which has been given on security for any loan shall not be exempt.’ 
 
The Amendment also ignores the RBI regulation that collateral free lending shall be made in respect of enterprises whose loan requirements are below Rs100 lakh at present but guaranteed by the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises). It should have provided that such dwelling house if obtained within this credit limit shall be excluded from the proceedings charged under the Act.
 
Jurisdiction of the Court has to be decided by the concerned State Government in consultation with the High Court as per Section 3 (Principal Act 20A) of the Act. It could have as well mentioned that the units established and running in a particular state and having its registered office located in that State as the jurisdiction for the purpose of the Act.
 
If the Bill takes effect it will ensure death of a unit legally once it fails to respond to the notice of claim for payment of its obligations to the lender within 30 days. It not merely fails to conform to the basic tenets of legal formulations but also internationally accepted tenets of regulation. 
 
(B Yerram Raju is an Economist and Risk Management Specialist and Adviser, MSME Facilitation Council, Industries Department, Government of Telangana. The views are personal)
 

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COMMENTS

Growth Idea Lab

6 months ago

Dr. Raju,
you have talked about exit route in case the unit fails. actually, healthy units are also looking for exit to start another venture. as you are well aware that 93 to 95% of MSME are proprietary or partnership in nature.so if central govt. gives income for benefit to carry over losses, early M&A activity is possible. so suitable laws are to be formed. i have given representation to honourable minister of MSME Sri Kalraj MishraJi.
if is well known, in sillicon valley failed entrepreneurs new ideas gets more valuation.
under startup india, stand up india, we are trying to create echo system for entrepreneurship. and many may fail in next 3 to 10 years. from bank nationalisation days in 1969 to today, we known that units keeps trying for various reasons. but surviving units are national wealth creators that is why our middle class is growing much faster.
so, the exit route is a must and bankruptcy laws can not be solution.
people of your repute, shall be able to suggest better solutions.

Gopalakrishnan T V

6 months ago

Well addressed based on experience .Any amendment of the act should help the units suffering from all sorts of problems right from the setting up of MSMEs to its survival with dignity Apart from want of adequate institutional support providing finance and other essential needs of MSMEs, these units have no wherewithal to get their grievances adequately addressed. From this angle, the author has come out well what needs to be looked into in the amendment of the bill to protect the MSME sector with all his experiences in handling this sector from a bankers perspective which needs to be taken note of by the authorities.

sameer ranade

6 months ago

the article and amendment refers to what will happen after there is default etc. it does not address what needs to be done for the sector to flourish. The State should set up a State Fund for MSMEs for investing and providing much needed capital to MSMEs without the burden of being forced to take directions from the investor, who may or may not be part of the Board. The Fund can have nominee directors/observers with strict monitoring on monthly basis. Additionally, the Fund can also help promoters with help in the form of advisory services to improve systems & processes. The Fund need not be a Not-for-Profit entity. It can be a For-Profit organization with exit clauses that are a bit more acccomodative.

REPLY

B. Yerram Raju

In Reply to sameer ranade 6 months ago

Government of Telangana is actively considering instituting such a fund and also establish a MSE Industrial Clinic shortly.

Dr. Shyam

6 months ago

I have come across serious Auditor fraud in which Auditor manufactured fake appointment letter and board of Director's consent letter for 2 companies using same scanned signature of Director to become fake Auditor for 3 years and filed on MCA web site and is neither working nor resigning from fake position, rendered the companies without Audit Report and MCA return for two years now. ROC Gwalior office was given written complaint about the fact but officer asked to compromise and withdraw complaints even though fact are in open with MCA. I filed complaint with Police and High Court but nothing yet happened from any where. There is Auditor Mafia like structure at Gwalior City. As company can't remove even a fake Auditor and it is to be done by MCA is causing time delays, MCA 10 times penalties and complete loss of business. Finance Minister was also informed about problem of Auditor charging arbitrary fee, taking digital signature in hand to do fraud and blackmailing of Directors for arbitrary charges is very common. I wish, someone takes this seriously and I can provide documents to anyone who wishes to pursue this matter with the Government of India. Many Auditors are killing MSME and there seems no remedy to this menace. Companies are www.sensorstechnology.com and www.asro.in about which I have written here.

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