Lok Sabha Clears Factoring Regulation (Amendment) Bill Amid Opposition Protests

The Bill was introduced in the Lok Sabha on September 14, 2020. It was referred to the Standing Committee on Finance on September 25, 2020 and the Committee's report was tabled in the Lok Sabha on February 3, 2021.

While speaking on the Bill, Finance Minister Nirmala Sitharaman informed the house that though the original Act was brought to address the problems of delay in payment and liquidity faced by all enterprises, including micro, small and medium enterprises, the said problems persist. Thus, the Bill (based on recommendations of UK Sinha Committee) contemplates long-term measures for economic and financial sustainability of the sector.

She further stated that some recommendations of the Standing Committee have been accepted by the Government and accordingly, one amendment will be made to the Bill.

It is significant to note that discussion on the Bill could not be conducted properly due to disruptions in the house amid opposition protests.

Factoring business is a business where an entity (factor) acquires the receivables of another entity (assignor) for an amount. Receivables is the amount owed by the customers (debtors) to the assignor for the use of any goods, services or facility.

The Bill inter alia, seeks to:

(i) amend the definitions of "assignment", "factoring business" and "receivables", so as to bring them in consonance with international definitions and also to insert a new definition of "Trade Receivables Discounting System" in section 2;

(ii) amend section 3 to widen the scope of financiers and to permit other nonbanking finance companies also to undertake factoring business and participate on the Trade Receivables Discounting System platform for discounting the invoices of micro, small and medium enterprises;

(iii) amend sub-section (1) of section 19 to reduce the time period for registration of invoice and satisfaction of charge upon it, in order to avoid possibility of dual financing; and also to insert a new sub-section (1A.) in that section to allow the concerned Trade Receivables Discounting System to register charge with the Central Registry on behalf of the factors using the platform;

(iv) insert a new section 31A to empower the Reserve Bank of India to make regulations with respect to factoring business.

It will now be presented before the Rajya Sabha, for its consideration.