Regulatory Compliances for Project Finance | Regulatory Framework

Regulatory Compliances for Project Finance in India

Regulatory framework that governs project finance in India:

It is right to say that for now there are no detailed and proper legislations and provisions to govern project finance in India. However, depending upon the nature of the project there are different sets of laws, provisions and regulatory compliances for Project Finance in India. In this article we will be discussing in detail about all the regulatory compliances for Project Finance, that corporate sector and companies are required to know and follow.

These are the following statutes and legislations that govern the denominated rupee by the lenders at local level to the borrowers for the purpose of project financing-

  • The Reserve Bank of India Act, 1934
  • The Banking Regulation Act, 1949
  • All the master directions, circulars, guidelines and notification as prescribed and issued by the Reserve Bank of India (RBI), which is the primary regulator for the lenders and lending business in the country.

In cases where the project financing is provided or availed by lenders who are non-resident or which are categorized as External Commercial Borrowings (ECB), the regulatory compliances for project finance in India are governed by the following-

  • Foreign Exchange Management Act, 1999
  • Foreign Exchange Management (Borrowing or Lending in Rupees) Regulations 2000.
  • Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations 2000.
  • ECB Master Direction on Trade Credit, borrowing, lending and External Commercial Borrowings (ECB).

By the way of instruments of equity or quasi-equity by non-residents for project funding, the regulatory compliances for project finance are regulated or governed by the following-

  • Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations 2000 of the RBI.
  • The Foreign Direct Investment (FDI) policies issued by the Department of Industrial Policy and Promotion (DIPP), time to time.
  • The Companies Act, 2013 and related statutes and rules (in case borrower is a company).

Regulatory authorities for applicability regulatory compliances for Project Finance:

The project finance in India is not governed or regulated by just one single regulatory or government authority. Different authorities, commissions and departments depending on the area and sector of project, govern or formulate the regulatory compliances for project finance in the country. These regulatory departments or authorities are as follows-

  • Airports Authority of India
  • Maritime Boards of different states
  • Ministry of Roads
  • National Highways Authority of India (NHAI)
  • Port Tariff Authority
  • Electricity Regulatory Commissions for respective states and union territories
  • Transport and Highways for road projects
  • Based on the area of the project, any other authority that may be constituted by the state government or local government.

Regulatory Compliances for Project Finance governed by the Material laws:

There are so many other legislations apart from the above-stated that regulate the project financing and transactions related to it. These compliances are governed by the following-

  • The Indian Contract Act, 1872
  • The Transfer of Property Act, 1882
  • The Code of Civil Procedure (CPC), 1908
  • Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002
  • The Companies Act, 2013
  • Insolvency and Bankruptcy Code, 2016

Regulatory Compliances for Project Finance regulated by International treaties:

There are other International laws and treaties signed by India with other countries that provide with regulatory compliances for project finance. And in case the investors are from a foreign country then these must be abided at all costs-

  • Comprehensive Economic Co-operation Agreements
  • Comprehensive Economic Partnership Agreements
  • Tax Treaties for Double Tax Avoidance Agreements (DTAA) signed by India with other countries
  • Free trade Agreement
  • Preferential Trade Agreements

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.