The Factoring Regulation Act, 2011 was passed in the Lok Sabha in the year 2011 and was enacted upon finally on 22nd January, 2012. The Act was passed with the objective to regulate assignments of receivables by making necessary provisions for registration, rights and obligations of the parties to a contract for assignment of receivables and for matters connected with it. 

Section 2(j) of this Act defines the term ‘factoring business’ as the business of acquisition of receivables of assignor by accepting or financing assignments, either by way of loans or advances or otherwise against the security interest over any receivables. It does not include:

• The credit facilities provided by a bank in its ordinary course of business;
• Any activity as commission agent or for sale of agricultural produce or goods of any kind or activity in relation to production, storage, supply, distribution, acquisition or control of any such service.

THE FACTORING REGULATION (AMENDMENT) BILL, 2020:

The Factoring Regulation (Amendment) Bill, 2020 was introduced in Lok Sabha on September 14, 2020. The bill was passed in Lok Sabha on July 26, 2021 without discussion amid protests. The bill is still to be laid in front of the Rajya Sabha for its consideration. This new amendment bill tends to liberalize the Factoring Regulation Act, 2011 by widening the scope of factors that can engage in factoring business. The Finance Minister informed that the Factoring Regulation (Amendment) Bill, 2021, after including recommendations of the UK Sinha Committee, proposed to implement long-term measures for economic and financial sustainability of the MSME sector. The amendment brings about many changes in the Act passed in 2011 in terms of the definitions in the Act and also many other aspects which will be discussed further in this article.  The key changes that the Factoring Regulation (Amendment) Bill, 2020 aims to bring in the Factoring Regulation Act, 2011 are listed below:

• The Act defines ‘Factoring business’ as to mean the business of: (i) acquisition of receivables of an assignor by accepting assignment of such receivables, or (ii) financing against the security interests of any receivables through loans or advances. The bill amends this definition to define factoring business as acquisition of receivables of an assignor by assignment for a consideration.  The acquisition should be for the purpose of collection of the receivables or for financing against such assignment.
• The Act defines the word ‘Receivables’ to mean all or part of or undivided interest in the monetary sum which is the right of a person under contract. This right may be existing or arise in future or contingent arising from use of any service, facilities or otherwise. The amendment bill changes the definition of the above stated word to mean any money owed by a debtor to the assignor for toll or for the use of any service. 
• The Act defines the word ‘Assignment’ to mean transfer by agreement of undivided interest of any assignor in any receivable due from the debtor, in favour of the factor. The Bill amends the definition to add that such a transfer can be in whole or in part of the undivided interest in the receivable dues.
• According the Section 3 of the Act, no companies can engage in the factoring business without getting themselves registered with the Reserve Bank of India. For a non-banking financial company to engage in this business certain criteria were set in the act which is that its financial assets in the factoring business and the income from the factoring business both should be more than 50 percent of the gross assets or net income or more than the threshold as notifies by the RBI. The Bill removes the above stated threshold notified by the RBI for the NBFC’s to engage in this business thus, widening the scope of the companies to enter easily. 
• Under sub-section (1) of section 19 of the Act, factors are required to register the details of every transaction of assignment of receivables in their favour.  These details should be recorded with the Central Registry setup under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 within a period of 30 days. A fine of rupees five thousand per day will be imposed on the company and each officer failing to comply with the guidelines till the default continues. The Bill removes the 30-day time period.   It states that the time period, manner of registration, and payment fee for late registration may be specified by the regulations.
• The amendment bill also seeks to insert a new sub-section (1A.) in section 19 to allow the concerned Trade Receivables Discounting System (TReDS) to register charge on behalf of entities using the platform with the Central Registry. Note that TReDS is an electronic platform for facilitating financing of trade receivables of Micro, Small and Medium Enterprises.  
• The bill also seeks to insert a new section 31A which empowers RBI to make regulations for: (i) the manner of granting registration certificates to a factor, (ii) the manner of filing of transaction details with the Central Registry for transactions done through the TReDS, and (iii) any other matter as required.

The above stated points were the changes the bill seeks to bring in the Factoring Regulation Act, 2011. Finance Minister Nirmala Sitharaman noted that the original Factoring Regulation Act, 2011 was implemented to address problems related to delay in payment and liquidity faced by all enterprises, including micro, small and medium enterprises, the problems still persist and there has not been any actual redressal till date. The proposed amendments are expected to help MSMEs significantly, by providing added avenues for getting credit facility, especially through TReDs Platform. Also, the NBFC industry would welcome the expansion of scope for carrying out factoring business which would further help in achieving the actual objective the Act was prepared for. Hence, I feel that these amendments should be adopted for the betterment of the MSME and other enterprises too.