Page 45 - MSME BULLETIN 2022 NEW LAYOUT 19082022.indd

MSME & START-UP BULLETIN, VOLUME 1, ISSUE 1, AUGUST 2022

Master Agreement may also clearly indicate that any payments by buyers. The TReDS would also need to
legal proceedings to be initiated by one entity against ensure adequate arbitration and grievances redressal
another, if at all, will be outside the purview of TReDS. mechanism is in place.
TREDS will also review the need for CERSAI Regulatory framework for TReDS
registration for the assignments as indicated above, The TReEDS, which undertakes clearing and
and put in place a suitable mechanism for the same settlement activities, would be governed by the
(preferably driven automatically through the TReDS), regulatory framework put in place by the Reserve Bank
as soon as feasible after a factoring unit has been of India under the Payment and Settlement Systems
accepted for fi nancing by a fi nancier. Act 2007 (PSS Act). If will function as an authorized
payment system under the PSS Act 2007. The activities
Settlement Process of the TReEDS as well as those of the participants in
Critical to the operations of the TReDS is the the TReDS would be governed by the relevant legal and
mechanism that ensures timely settlement of funds regulatory provisions applicable to various stakeholders
between the member fi nanciers and the MSME sellers in the system. As such, the processes and procedures
(when the factoring unit is fi nanced) and the subsequent of the TReDS should be compliant with such legal
settlement of funds between the member buyers and the and regulatory provisions which may be issued and
respective fi nanciers on due date of the factoring unit. amended from time to time by respective authorities.
In order to ensure a smooth process of such payments, Eligibility Criteria to Set Up and Operate The
the TReEDS would be required to: TReDS
Entities desirous of setting up and operating the
Trigger settlement between fi nancier and MSME TReEDS should fulfi ll the following criteria.
for accepted bids. In respect of all factoring units
fi nanced ona given day, the TReDS will generate Financial Criteria
the payment obligations of all fi nanciers on T+2 Since the TReEDS will not be allowed to assume any
basis and send the fi le for settlement in any of credit risk, ifs minimum paid up equity capital shall be
the existing payment system as agreed among the `25 crores.
system participants. The TReEeDS would have
to put in place a separate recourse mechanism to The foreign shareholding in the TReDS would be
handle settlement failures in resoective payment as per the extant Foreign Investment Policy. Entities,
systems. other than promoters, will not be permitted to have

Trigger settlement between the buyer and the shareholding in excess of 10 per cent of the equity
ultimate financier on due date. The TReDS capital of the TReDS.
would generate the payment obligations fi le and The overall fi nancial strength of the promoters/
send the same for settlement on due date to the entity seeking to set up TReDS would be an Important
relevant payment system.
criterion of assessment/selection.
The TReEDS will generate the settlement fi les and
send the same fo existing payment systems for actual Due Diligence of Promoters
payment of funds. This would ensure that the inter- The entities and their promoters/promoter groups
bank settlement (between the bankers representing as defi ned in the SEBI (Issue of Capital & Disclosure
member MSMEs, buyers and the fi nanciers) will take Requirements) Regulations, 2009 should be ‘fi t and
place and defaults, if any, by the buyers will be handled proper’ in order to be eligible to operate as TReEDS.
by the buyer’s bank and will not be the responsibility RBI would assess the ‘fi t and proper’ status of the
of the TReDS. Hence, the settlement process ensures applicants on the basis of their past record of sound
payments to relevant recipients on due date, thus, credentials and integrity; fi nancial soundness and track
facilitating the smooth operations on the TReDS. record of at least 5 years in running their businesses.
However, if would not entail a guaranteed settlement RBI may, inter alia, seek feedback on the applicants
by the TReDS. on these or any other relevant aspects from other
regulators, and enforcement and investigative agencies
The TReEDS would be required to put in place like Income Tax, CBI, Enforcement Directorate, SEBI,
a mechanism for bankers to report defaults in etc. as deemed appropriate.

The Institute of Cost Accountants of India 45