The Factoring Regulation Act, 2011

(1) This Act may be called the Factoring RegulationAct, 2011. (2) It extends to the whole of India. (3) It shall come into force on such date 1as the Central Government may, by notification in theOfficial Gazette, appoint: Provided that different dates may be appointed for different provisions of this Act, and any referencein any such provision to the commencement of this Act shall be construed as a reference to the cominginto force of that provision.

In this Act, unless the context otherwise requires, (a) assignment means 1[transfer by agreement to a factor of an undivided interest, in whole orin part, in the receivables of an assignor due from a debtor and includes such transfer where either theassignor or the debtor is situated or established outside India]. Explanation.For the purposes of this clause, undivided interest of any assignor in anyreceivable shall not include creation of rights in receivables as security for loans and advances orother obligations by a bank or a financial institution; (b) assignee means a factor in whose favour the receivable is transferred; (c) assignor means any person who is the owner of any receivable; (d) bank means, (i) a banking company; (ii) a corresponding new bank; (iii) the State Bank of India; (iv) a subsidiary bank; (v) such other bank which the Central Government may by notification specify for the purposesof this Act on the recommendations of the Reserve Bank; or (vi) a Multi-State Co-operative Society registered under the Multi-State Co-operative SocietiesAct, 2002 (39 of 2002) and licensed to undertake business of banking by the Reserve Bank underthe provisions of the Banking Regulation Act, 1949 (10 of 1949); (e) banking company shall have the meaning assigned to it in clause (c) of section 5 of theBanking Regulation Act, 1949 (10 of 1949); (f) business enterprise means any enterprise or medium enterprise, micro enterprise or smallenterprise as defined in clauses (e), (g), (h) and (m) of section 2 of the Micro, Small and MediumEnterprises Development Act, 2006 (27 of 2006), respectively engaged in any business activity; (g) corresponding new bank shall have the meaning assigned to it in clause (da) of section 5 ofthe Banking Regulation Act, 1949 (10 of 1949); (h) debtor' means any person liable to the assignor, whether under a contract or otherwise, topay any receivable or discharge any obligation in respect of the receivable whether existing, accruing,future, conditional or contingent; (i) factor means a non-banking financial company as defined in clause (f) of section 45-I of theReserve Bank of India Act, 1934 (2 of 1934) which has been granted a certificate of registrationunder sub-section (1) of section 3 or anybody corporate established under an Act of Parliament or anyState Legislature or any Bank or any company registered under the Companies Act, 1956 (1 of 1956)engaged in the factoring business; (j) factoring business means the business of 2[acquisition by way of assignment of receivablesof assignor for a consideration for the purpose of collection of such receivables or for financing,whether by way of making loans or advances or otherwise, against such assignment, but]does notinclude (i) credit facilities provided by a bank 3[ or a non-banking financial company] in its ordinary course of business against security ofreceivables; (ii) any activity as commission agent or otherwise for sale of agricultural produce or goods ofany kind whatsoever or any activity relating to the production, storage, supply, distribution,acquisition or control of such produce or goods or provision of any services. Explanation.For the purposes of this clause (i) the expression agricultural produce shall have the meaning assigned to it under clause(a) of section 2 of the Agricultural Produce (Grading and Marking) Act, 1937 (1 of 1937); and (ii) the expressions goods and commission agent shall have the meanings assigned tothem respectively under clause (d) and Explanation (ii) of clause (i) of section 2 of the ForwardContracts (Regulation) Act, 1952 (74 of 1952); (k) financial contract means any spot, forward, future, option or swap transaction involvinginterest rates, commodities, currencies, shares, bonds, debentures or any other financial instrument,any repurchase of securities and lending transaction or any other similar transaction or combination ofsuch transactions entered into in the financial markets; (l) netting agreement means any agreement among the system participants for the purpose ofdetermination by the system provider of the amount of money or securities due or payable ordeliverable as a result of setting off or adjusting the payment obligations or delivery obligationsamong the system participants, including the claims and obligations arising out of the termination bythe system provider, on the insolvency or dissolution or winding up of any system participant or suchcircumstances as the system provider, may specify in its rules or regulations or bye-laws (by whatevername called), of the transactions admitted for settlement at a future date so that only a net claim bedemanded or a net obligation be owned; (m) notification means a notification published in the Official Gazette; (n) prescribed means prescribed by rules made under this Act; (o) property means, (i) the immovable property; (ii) the movable property; (iii) any debt or any right to receive payment of money, whether secured or unsecured; (iv) the receivables; (v) the intangible assets, being know-how, patent, copyright, design, trade mark, licence, franchise or any other business or commercial right of similar nature; 4[(p) receivables means the money owed by a debtor and not yet paid to the assignor for goodsor services and includes payment of any sum, by whatever name called, required to be paid for thetoll or for the use of any infrastructure facility or services; (pa) regulations means regulations made by the Reserve Bank under this Act;] (q) Reserve Bank, means the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934); (r) State Bank of India means the State Bank of India constituted under section 3 of the State Bank of India Act, 1955 (23 of 1955); (s) Subsidiary Bank shall have the meaning assigned to it in clause (k) of section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); 5[(sa) Trade Receivables Discounting System means a payment system authorised by theReserve Bank under section 7 of the Payment and Settlement Systems Act, 2007 (51 of 2007) for thepurpose of facilitating financing of trade receivables;] (t) words and expressions used and not defined in this Act but defined in the Reserve Bank of India Act, 1934 (2 of 1934), the Banking Regulation Act, 1949 (10 of 1949), the Companies Act, 1956 (1 of 1956), the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), the Credit Information Companies (Regulation) Act, 2005 (30 of 2005), or the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006), shall have the meanings respectively assigned to them in those Acts.

(1) No factor shall commence or carry on the factoring business unless itobtains a certificate of registration from the Reserve Bank to commence or carry on the factoring businessunder this Act. (2) Every factor shall make an application for registration to the Reserve Bank in such form andmanner as it may specify: 1***** (3) Every applicant for grant of a certificate of a registration as a factor shall comply, for the purposeof registration, with all the requirements to be fulfilled by an applicant for grant of certificate ofregistration as non-banking financial company under the Reserve Bank of India Act, 1934 (2 of 1934) andall the provisions of that Act, so far as they relate to the registration of non-banking financial companies,shall (except those provided for under this Act) mutatis mutandis apply. 2[(4) The Reserve Bank may grant the certificate of registration in such manner as may be specifiedby regulations.] (5) Save as otherwise provided in this Act, every factor including factors not subject to requirement ofregistration under section 5, shall be governed by the Reserve Bank of India Act, 1934 (2 of 1934), the rules and regulations made thereunder and the directions or guidelines issued by the Reserve Bank, fromtime to time.

All provisions of ChapterIIIB of the Reserve Bank of India Act, 1934 (2 of 1934) relating to non-banking financial companieswhich have been granted a certificate of registration under sub-section (5) of section 45-IA of the ReserveBank of India Act, 1934 shall (except those specifically provided for under this Act) mutatis mutandisapply to a factor which has been granted a certificate of registration under section 3.

Nothing contained in section 3 shall apply to a bank or any corporationestablished under an Act of Parliament or State Legislature, or a Government Company as defined undersection 617 of the Companies Act, 1956 (1 of 1956).