ABOLITION OF FOREIGN INVESTMENT PROMOTION BOARD

The Foreign Investment Promotion Board (FIPB), a 25 year old institution that offered a single window clearance for all foreign direct investment (FDI) in India, under the approval route, has now been abolished. The Union Cabinet has now cleared the dismantling of the FIPB on 24 May 2017 in keeping with the declaration made by the Finance Minister during the presentation of the Union Budget.

Following is a brief summary of the legal ramifications of the abolition of the FIPB:

·          FDI proposals that must comply with the approval route shall now be cleared by the concerned government ministry instead of the FIPB;

·                FDI proposals, pending before the FIPB shall now be sent to the concerned ministries for approval;

·                The approvals will now have to be approved in a time bound manner;

·            Rejection by the department concerned has been made difficult as it will now mandatorily require concurrence of the Department of Industrial Policy and Promotion (DIPP);

·                A standard operating procedure (SOP) will be issued by the DIPP for facilitating the processing FDI applications.

·            All FDI from Pakistan and Bangladesh and FDI proposals requiring approval in private security agencies and manufacture of small arms have to be approved by the ministry of home affairs.

MHCO Comment: The abolition is in line with governments' aim of improving the ease of doing business in India.  This will certainly streamline and accelerate the process of FDI proposals as it shall now be approved by the concerned ministries themselves, instead of unconnected officers at the FIPB. However, much will depend on the alternate FDI approval plan, to be notified by the Government. 

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

DIGITALIZATION OF THE INDIAN ECONOMY|PAYMENT SYSTEMS

The demonetization action by the Government of India aimed to encourage and promote a digital India by making payments through digital means and thereby creating a cashless economy to enhance transparency for all transactions throughout India and make every transaction accountable.

In the recent years, the use of mobile banking, smart cards, e-wallets, prepaid cards etc have been increasing in India significantly. Such instruments are called Prepaid Payment Instruments (PPI) and are governed by the Payment & Settlement Systems Act, 2007 (PSS Act) and the Reserve Bank of India (RBI) Guidelines on PPI. Pre-paid payment instruments are payment instruments that facilitate purchase of goods and services, including funds transfer, against the value stored on such instruments which represents the value paid for by the holders by cash, by debit to a bank account, or by credit card. 

Some of the important features of the PSS Act and RBI Guidelines on PPI are as follows:

There are 3 types of PPI:

·                Closed System Payment Instruments- These payment instruments are issued to facilitate the purchase of goods and services. These instruments do not permit cash withdrawal or redemption. As these instruments do not facilitate payments and settlement for third party services, they are not classified as payment systems. For eg- online shopping wallets like Amazon Pay, Ola Money, MakeMyTrip Wallet, BookMyShow Wallet;

·                Semi-Closed System Payment Instruments- These are payment instruments which can be used for purchase of goods and services, including financial services at a group of clearly identified merchant locations/ establishments which have a specific contract with the issuer to accept the payment instruments. For eg- Paytm Wallet, MobiKwik Wallet;

·                Open System Payment Instruments- These are payment instruments which can be used for purchase of goods and services, including financial services like funds transfer at any card accepting merchant locations (point of sale terminals) and also permit cash withdrawal at ATMs/BC’s. For eg- Vodafone mPesa;

Eligibility & Capital Requirements: The Banks and Non Banking Financial Companies (NBFCs) which comply with the capital adequacy requirements prescribed by the RBI from time to time shall be permitted to issue PPI. However, only those banks which have been permitted to provide Mobile Banking Transactions by the RBI shall be permitted to launch mobile based pre-paid payment instruments (mobile wallets & mobile accounts). Any other person/institution which seeks authorization to issue PPI shall have a minimum paid-up capital of Rs 5 crores and positive net worth of Rs 1 crore at all times.

Safeguard against Money-Laundering: The guidelines on Know-Your Customer(KYC)/Anti-Money Laundering issued by RBI to Banks shall also apply to all the persons issuing PPI.

Value: The maximum value of any PPl shall not exceed Rs 50,000 (Rupees Fifty Thousand) and in case of semi closed payment instruments, after carrying out a Customer Due Diligence, the balance in such PPI shall not exceed Rs 1,00,000 (Rupees One Lakh) at any time.

Customer Protection: The issuers of PPI shall disclose all terms and conditions in simple language including the expiry period. The non-bank PPI issuer shall put in place an effective mechanism for redressal of customer complaints along and publicize the same for the benefit of customers.In case of PPI issued by banks, customers shall have recourse to Banking Ombudsman Scheme for grievance redressal.

PAYMENTS BANK: RBI has issued guidelines for setting up Payments Bank in India to further financial inclusion by providing small savings accounts and remittance services to migrant labour workforce, low income households, small businesses, other unorganized sector entities and other users. In 2016, Airtel Payments Bank got the license from the RBI for launching a Payments Bank. Paytm has recently launched the Paytm Payments Bank in India. Important features of a Payments Bank:

·              Activities:A Payments Bank is a licensed bank which can perform various banking services including acceptance of demand deposits, issuance of debit cards etc. Payments bank will initially be restricted to holding a maximum balance of Rs. 100,000 (Rupees One Lakh) per individual customer.However, a Payments Bank cannot undertake lending activities.

·               Cards: A Payments Bank can issue ATM/debit cards but not credit cards.

·     Eligible Promoters:Existing non-bank PPI issuers; and other entities such as individuals / professionals;NBFCs, corporate Business Correspondents, mobile telephone companies, super-market chains, companies, real sector cooperatives; that are owned and controlled by residents; and public sector entities may apply to set up payments banks.

·               Deployment of Funds: A Payments Bank will be required to invest minimum 75% of its demand deposit balances in Statutory Liquidity Ratio eligible Government securities/treasury bills with maturity up to one year and hold maximum 25 % in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.

·              Capital requirement and Promoter’s Contribution - The minimum paid-up equity capital of the Payments Bank shall be Rs 100 crore (Rupees Hundred crore) and the Payments Bank should have a leverage ratio of atleast 3% (three percent). The promoter's minimum initial contribution to the paid-up equity capital of such payments bank shall at least be 40 per cent for the first five years from the commencement of its business.

·                Other conditions - The operations of the bank should be fully networked and technology driven from the beginning, conforming to generally accepted standards and norms and the bank should have a high powered Customer Grievances Cell to handle customer complaints.

MHCO COMMENT: The launching of Payments Bank is helpful for small households and rural areas to mobilize their savings and undertake small scale transactions. The prepaid payments instruments is a boon to the public in India as it encourages digital payments and offers convenience to the customers by way of simply using their mobile phones for undertaking transactions. However, the prepaid payment instruments require a more stringent security system to be put in place to secure the payments being made through such instruments.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

REAL ESTATE AGENT REGISTRATION | REAL ESTATE REGULATION ACT, 2016

Pursuant to the enactment of the Real Estate (Regulation and Development) Act 2016 (RERA), the Government of Maharashtra established Maharashtra Real Estate Regulatory Authority, (Authority) for the regulation and promotion of real estate sector in the State of Maharashtra. Consequently, the Maharashtra Real Estate (Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2017 (Rules) have recently been  notified.

Under the RERA Act for rendering their services, Real Estate Agents (“Agents”) have to be registered with the Authority Following are the salient features of the Rules.

REAL ESTATE AGENT UNDER THE RERA ACT:

A Real Estate Agent is a person who in a Real Estate Project receives (a) Remuneration (b) Fees or (c) any other charges as commissions for negotiating or acting on behalf of one person for transferring (a) plot, (b) apartment or (c) builiding by way of sale, to another person or vice versa and includes the following:

1             Any person who through any medium introduces prospective buyers and sellers to each other for negotiation for sale or purchase of plot, apartment or building.

2                Property dealers, brokers, middlemen etc.

Therefore, the definition of Real Estate Agent is a very broad and inclusive and consequently web portals engaged in selling plots, apartments would also fall within the purview of the definition and be required to comply with provisions of the RERA and Rules.

RERA PROVISION AND RULES IN RELATION TO REGISTRATION AS AN AGENT:

1             COMPULSORY REGISTRATION: Before facilitating the sale or purchase of any unit part of a real estate project registered under the Act, an Agent shall obtain registration under Section 9 of RERA Act.

2           APPLICATION UNDER FORM G: The Agent shall make an application for registration as prescribed under Form G of RERA Rules along with necessary documents and fees.

3          SEPERATE RECORDS OF ENGAGEMENT: The Agent upon being engaged by the promoter on whose behalf he has acted as real estate agent in preceding five years for a real estate project shall maintain and preserve books of accounts, records and documents separately for each such real estate project.

4      REGISTRATION AND RENEWAL CERTIFICATE: The Agent shall receive Registration Certificate (in FORM H) within 30 days of receipt of application subject to fulfillment of conditions. In the event, the Application is not rejected within 30 days of being made it shall be deemed to have been registered and the authority shall provide registration number to the Agent accordingly. The said Registration shall be valid for a period of 5 years on expiry of which the same can be renewed. Renewal of Registration (Form J) to be done within 60 days prior to the expiry of the registration.

5            REJECTION OF APPLICATION: The Authority may reject the Application and record the reasons for the same in FORM I. However, an opportunity of being heard shall be given to the Applicant before rejecting such Application.

6               SUSPENSION OF CERTIFICATE: Registration granted to an Agent maybe revoked or suspended if the Authority is satisfied that the Agent has committed any breach of Terms and Conditions under RERA Act or RERA Rules or if the Authority is satisfied that such registration has been secured by the Agent through misrepresentation or fraud. The said suspension can be made suo-moto by the Authority or on an application or complaint from the Promoter or Allottee.

OBLIGATIONS UNDER RERA ACT READALONGWITH RERA RULES:

           

1             Every registered Agent shall prominently display number of his Registration Certificate at the principal place of business and at its branch offices.

2         Every registered Agent shall quote his number of their registration all the documents relating to advertisement, marketing, selling or purchase issued by the Agent along with the number of registration certificate of the real estate project.

3             An Agent shall not facilitate the sale or purchase of any plot, apartment or building, as the case may be, in a real estate project or part of it, being sold by the promoter in any planning area, which is not registered with the Authority;

4          An Agent shall not involve himself in following unfair trade practices by making following statements orally, in writing or by visible representation which (i) falsely represents that the services are of a particular standard or grade (ii) states that the Promoter or the Agent has approval or affiliation which such promoter or Agent he does not have (iii) makes a false or misleading representation concerning the services;

5         An Agent shall facilitate the possession of all the information and documents, as the allottee, is entitled to, at the time of booking of any plot, apartment or building, as the case may be;

PENALTY FOR NON-REGISTRATION AND CONTRAVENTION OF PROVISIONS:

Under the RERA Act if any Agent fails to comply or contravenes the provisions relating to registration or functions, he/she shall be liable to a penalty of Rs. 10,000/- per day during which the default continues. The said penalty may extend up to five per cent of the cost of plot, apartment or buildings of the real estate project for which the sale or purchase has been facilitated.

MHCO COMMENT: The Rules intend to regulate the largely unorganized, real estate agent sector, and make it more transparent. The registration of real estate agents being made compulsory and the penalties chargeable for non compliance of the rules and non registration shall have a positive impact on the real estate sector and is in favour of the buyers as it shall eliminate the bogus agents who give misleading listings and false specifications in order to draw attention and earn commission.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.