Key takeaways from Budget-2020: Corporate Laws perspective

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1. Govt. proposes to exempt levy of stamp duty on transactions in stock exchanges established in IFSCs
The Finance Bill, 2020 proposes to exempt levy of stamp duty in respect of instruments of transaction in stock exchanges and depositories established in IFSC set up under SEZ Act, 2005. In order to give effect to the proposed amendment, a new proviso has been proposed to be inserted to Section 9A (2) of the Indian Stamp Act, 1899.
The exemption of the stamp duty on transactions carried out on stock exchanges and depositories established in IFSCs will lower the transactions cost and would encourage investments in IFSCs.
Last year, in Finance Budget, 2019 the Govt. had inserted Section 9A to the Indian Stamp Act, 1899 whereby it was proposed to consolidate the stamp duty provisions relating to issue, sale or transfer of securities under the newly inserted section 9A and 9B of the Indian Stamp Act, 1899. The Amendment Act also proposed a uniform system for collection and payment of stamp duty on the issue and transfer of securities.
The Finance Bill, 2020 further proposes to include new regulation for issuing the directions and authorize SEBI and RBI to issue instructions, circulars or guidelines for carrying out the provisions of Part AA of Chapter II and the rules made thereunder. Part AA of Chapter II of Indian Stamp Act, 1899 relates to the liability of instruments of transactions in stock exchanges and depositories to duty.
2. Deposit Insurance Coverage limit to be increased From Rs. 1 Lakh to Rs. 5 Lakh per depositor
The Finance Minister in her budget speech has assured depositors’ that there money is absolutely safe with scheduled bank. She said that robust mechanism is in place to monitor the health of all Scheduled Commercial Banks. Further, she announced that the Deposit Insurance and Credit Guarantee Corporation (DICGC) has been permitted to increase Deposit Insurance Coverage for a depositor, which is now Rs 1 lakh to Rs. 5 lakh per depositor.
Meaning of Insurance deposit- As per Section 2(j) “insured deposit” means the deposit or any portion thereof the repayment whereof is insured by the Deposit Insurance and Credit Guarantee Corporation under the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961
The decision of the FM to hike the deposit insurance amount is a welcome step. The hike in deposit insurance will give major relief to the depositors post Punjab & Maharashtra Co-operative Bank (PMC) scam and would help in re-building depositors’ confidence in the banking system. Post PMC scam both Govt. and RBI faced much criticism for capping the deposit insurance limit to Rs. 1 lakh.
This announcement was earlier made in Nov’19 and it was expected that Govt. would bring amendment to effect the hike in limit of deposit insurance in winter session. It is to be noted that although this amendment has been proposed in the budget speech yet no amendment has proposed in the Finance Bill-2020 to bring amendment to the Deposit Insurance and Credit Guarantee Corporation Act, 1961.
3. Eligibility limit for NBFCs for debt recovery under SARFAESI Act to be reduced to loan size of Rs. 50 Lakh.
The FM in the budget speech has announced that the limit for NBFCs to be eligible for debt recovery under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 is proposed to be reduced from Rs. 500 crore to asset size of Rs. 100 crore or loan size from existing Rs. 1 crore to Rs. 50 lakh.
The reduction in the loan size limit for using SARFAESI for cases of Rs 1 crore to Rs. 50 lakhs would mean that now NBFCs can enforce the security interest for lower ticket size loans. This would improve their ability to recover smaller loans.
4. Specified Government securities to be opened for NRIs
In order to attract foreign investment in India, the Finance Ministry in her speech proposed to provide certain specified categories of Government securities exclusive for non-resident investors only, apart from being available to domestic investors as well.
It is a very positive proposal by Govt. it will bring in a new class of investors in Indian G-secs. Issuance of G-secs to NRIs would bring down the cost of borrowing for the Government. However, the exercise of issuance of G-secs would be prone to currency risk. It would be interesting to see how Govt. will formulate framework to address the currency risks involved in process of issuance and remittance of G-secs.

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