Factoring Regulation Amendment Act 2021

By : Neha Dhyani

Updated : May 12, 2022, 10:19

The Government of India passed the Factoring Regulation Amendment Act, 2021, to expand the scope of entities engaged in the factoring business. This bill is an extension of the Factoring Amendment Act, 2011. This bill was first introduced in the Lok Sabha on 14th September 2020.

The Lok Sabha passed it on 26th July 2021. After Lok Sabha, the Rajya approved this bill on 29th July 2021. Later on 7th August 2021, honorary President Shir Ram Nath Kovind sanctioned this bill, after which it became the new constitutional Act. The amendments incorporated in the Factoring Regulation Amendment Act, 2021 became effective on 23rd August 2021.

New Amendments of the Factoring Regulation Amendment Act, 2021

Listed below are the amendments incorporated in the Factoring Regulation Amendment Act, 2021:

Change in the Definition of Receivables

As per the Factoring Regulation Amendment Act 2021, the new definition of receivable is any money owed by a debtor to the assignor for toll or the use of any facility or services.

Change in the Definition of Assignment

As per the new definition of assignment laid out in the Factoring Regulation Amendment Act 2021, the transfer of the undivided interest in the receivable dues should include both whole or in part transfers.

Change in the Definition of Factoring Business

As per the Factoring Regulation Amendment Act 2021, the definition of factoring business is the acquisition of receivables of an assignor by assignment for consideration. The acquisition should be for collecting the receivables or financing against such assignment.

Factoring Regulation Amendment Act 2021 - Registration of Factors

As per the Factoring Regulation Amendment Act 2021, all companies must register with the Reserve Bank of India (RBI) to engage in factoring business. Besides, the Act removes the threshold for Non-Banking Financial Company (NBFC) to engage in factoring business.

Factoring Regulation Amendment Act 2021 - Registration of Transactions

The Factoring Regulation Amendment Act 2021 mandates the factor to register details of every transaction or assignment of receivables with the Central Registry setup under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. However, the amendment removes the 30 days time limit for the registration as laid out in the original Act.

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Factoring Regulation Amendment Act 2021 - TReDS to Register Charges

The Factoring Regulation Amendment Act 2021 specifies that when Trade Receivables Discounting System (TReDS) is used to finance trade receivables, then the details of the transactions must be filed on behalf of the factor by the concerned TReDS with the Central Registry. Specifically, TReDS is an electronic platform facilitating the financing of Micro, Small, and Medium Enterprises (MSME).

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Factoring Regulation Amendment Act 2021 - Regulated by the RBI

The Factoring Regulation Amendment Act 2021 empowers the RBI to make regulations:

  1. On granting registration certificates to a factor.
  2. On the filing of transaction details with the Central Registry concerning TReDS transactions.

The Factoring Regulation Amendment Act 2021 changed the definition of factoring businesses and expanded the scope of assignment and receivables based on the MSME needs. Some clauses such as threshold on NBFC and time limit for registrations have been removed. At the same time, some new clauses like the regulation from the RBI have been added to the Act. Overall, this new bill has expanded the scope of factoring business for the welfare of MSMEs.

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FAQs on Factoring Regulation Amendment Act 2021

Q.1. When was the Factoring Regulation Amendment Act 2021 introduced in Lok Sabha?

Factoring Regulation Amendment Act 2021 was first introduced in the Lok Sabha on 14th September 2020.

Q.2. When was the bill corresponding to Factoring Regulation Amendment Act 2021 passed by Lok Sabha?

The Lok Sabha passed the bill on 26th July 2021 corresponding to the Factoring Regulation Amendment Act 2021.

Q.3. When was Rajya Sabha passing the bill corresponding to the Factoring Regulation Amendment Act 2021?

The Rajya Sabha passed the bill on 29th July 2021 corresponding to the Factoring Regulation Amendment Act 2021.

Q.4. When was the Factoring Regulation Amendment Act 2021 put into action?

Factoring Regulation Amendment Act 2021 became effective on 23rd August 2021.

Q.5. Under the Factoring Regulation Amendment Act 2021, what does TReDS represent?

Under the Factoring Regulation Amendment Act 2021, Trade Receivables Discounting System (TReDS) is an electronic platform facilitating the financing of trade receivables of MSMEs.