Volume #16 | IssueNo. 303/2024 | August 2024
Power of Positive Deviance
Isn’t ‘Positive Deviance’ an Oxymoron (a figure of speech that combines contradictory words with opposite meanings)? If there is a deviance (non-conformance), how can it be positive? Well, contradictions can be Creative. Collaborative. Disruptive. Innovative. Leading to Sustainable Solutions. Explained by the Theory of Power of Positive Deviance!
The Positive Deviance (PD) approach is “based on the observation that in every community there are certain individuals or groups whose uncommon behaviours and strategies enable them to find better solutions to problems than their peers, while having access to the same resources and facing similar or worse challenges.” …In simple terms it means ‘Solution to a problem lies within the problem itself’. Only an outlier individual or group can find it. They involuntarily and unconsciously apply the Power of PD.
Sample these….
Problem statement: “The legal sector lacks social intermediaries to help people navigate the law on the ground. Getting an FIR registered, visiting a government office, applying for social welfare are all actions that people often have to do by themselves. For those who don’t work in the legal industry, these can be daunting tasks.”
Solution: “What the law needs right now is the equivalent of ASHA workers, and at Outlawed, we are currently creating a platform of paralegals providing services to low-income and vulnerable communities who cannot afford legal aid, in order to enable them to independently access law and justice. We facilitate up-skilling and awareness workshops for government school students, Anganwadi workers, daily wage labourers, etc. Our focus is on building skills such as filing RTI applications, filing PILs, getting a complaint filed with the police, etc”.
……says Outlawed Founder, Vibha Nadig, a young NLSUI lawyer who started this not-for-profit company for the ‘underserved communities’ by involving their own members, trained by volunteer law students. Incidentally the first cohort of paralegals have just graduated in August, 2024!
Problem statement: The year was 1905. Young men were struggling to speak in public, conduct meetings, plan programmes and work in committees. A young gentleman, Ralph C Smedley who worked at YMCA held many informal meetings to give them an opportunity to speak. Yet they lacked self-confidence to communicate.
Solution: Smedley set up the first official club of the Toastmasters International in October, 1924 (after 19 years of relentless efforts!) in Santa Ana, California to help men hone their communication skills in a formal meeting setup.
Thus was born Toastmasters, the world’s largest communication and leadership training organisation consisting of the very people who lacked the two important skills. Learning by practising, learning at one’s own pace, learning from peers ….Thus began a 100 year old journey, thanks to the brave decision of a young man that has changed the lives of many men and women (by the way it wasn’t until 1973 that the first woman was admitted as a club member!).
Problem statement: In the 1980s, a businessman of keen perception, recognized the vexing issues of adulteration and exorbitant prices plaguing the food industry in Bangalore.
Solution: An innovator, food connoisseur and consultant, R Prabhakar who had travelled to different countries and seen the likes of QSRs like McDonald and KFC hit upon the idea of a restaurant which provided quick, hygienic, hot, freshly prepared South Indian food at affordable prices in an open kitchen setting and self-service model with minimalist dining furniture for customers on the go.
The first “Café Darshini” was born in 1983 in Jayanagar, thanks to the non-conformist Prabhakar who defied all nay-sayers back then. The solution was found within the problem itself leading to the unique ‘Darshini’ culture of Bangalore which is exclusive to the city!
Problem statement: At our own firm, we felt challenged when one of the teams couldn’t deliver on time with respect to a particular type of service due to various issues. This happened more than once.
Solution: Recognising the pattern, we used the PD approach and handed over the problem to a newly created SME (subject matter expert) group that was focussed and solution driven. Focus shifted from democratic growth of every individual and team to leveraging the strength of such individuals in SME teams. First team was freed up to do something else they were best at!
We had to break away from the traditional working structure and find a new model that was a win-win for all – individuals, teams, customers and our firm.
Positive Deviance theory is said to have been used in the year 1990, by Jerry Sternin and his wife Monique (from Save the Children organisation) who came to Hanoi, Vietnam to help the Vietnamese government fight child malnutrition. Previous efforts by outsiders to combat child malnutrition in the Vietnamese countryside had all failed. Faced with huge challenges, Jerry requested his volunteers to study the behavior of these families.
While one set of children were fed twice a day, from a communal bowl with poor hygiene that lacked high protein food, the other set had well-nourished kids thanks to a different pattern of feeding – small helpings spread across the day since children couldn’t digest larger meals at one time, feeding by hand so that the right quantity is consumed and variety in food that made it interesting and fortified. Jerry Sternin was able to identify some bright spots within the same community when others failed to observe, thanks to the phenomenon called Positive Deviance.
I urge you all to use PD approach to identify sustainable and innovative solutions.
As you ponder upon PD and its applicability, do scroll down to catch up with the regulatory updates that dotted August, 2024 through this 303rd issue of Samhita.
For any previous issues of Samhita and the readers’ feedback, please visit sharadasc.com
IT UPDATE
Amendments to FEMA NDI Rules
Ministry of Finance vide Notification dated August 16, 2024 has amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. Following are the highlights of the amendments:
- Definition of control has been inserted. It is aligned with the definition of Control under the Companies Act, 2013. Further, in case of LLPs, control shall mean the right to appoint majority of the designated partners and where such designated partners have control over all the policies of an LLP.
- Definition of Start-up has been substituted to mean a Private Company as recognized by DPIIT.
- Cross border Swap of equity instruments- Rule 9A has been inserted to provide for Cross border swap of equity instruments. It permits swap of equity capital of a foreign company against shares of an Indian company, paving way for various cross border business structures especially through mergers and acquisitions.
- Impact on Downstream Investment provisions – Investments made a company, a trust and a partnership firm incorporated outside India and owned and controlled by a Non-Resident Indian or an Overseas Citizen of India, on a non- repatriation basis shall not be considered for calculation of indirect foreign investment. Earlier this was limited to Indian entities owned or controlled by NRIs. This further simplifies Downstream Investment norms and attracts investment from the NRIs and OCI.
- Impact on investment by FPIs- Requirement for Government approval for aggregate foreign portfolio investment by FPIs up to the sectoral or statutory cap has been done away with as long as there is no transfer of ownership and/ or control of the resident Indian company from resident Indian citizens to a persons resident outside India. Earlier the aggregate threshold limit was up to 49% of the paid-up capital or the sectoral/statutory cap, whichever is lower.
Introduction of new sector for FDI– upto 100% permitted in White Label ATM Operations (“WLAO”) subject to certain conditions. These are basically ATMs which are operated by non-bank entities with due permission from RBI.
MCA Updates
MCA vide notification dated August 05, 2024, has notified the Limited Liability Partnership (Amendment) Rules, 2024, to permit the Centre for Processing Accelerated Corporate Exit (CPACE) to undertake the necessary actions for striking off name of defunct LLP from the register in accordance with sub-sections (1) and (2) of section 79 of the Limited Liability Partnership Act, 2008 read with Rule 37 of the Limited Liability Partnership Rules, 2009. These rules are effective from August 27, 2024.
Vide notification dated August 05, 2024, the MCA has notified Companies (Adjudication of Penalties) Amendment Rules, 2024 for introduction of e-adjudication platform. Highlights of these rules which are effective from September 16, 2024 are as follows:
- A new section 3A has been inserted under the Companies (Adjudication of Penalties) Rules, 2014 which states that all proceedings (including issue of notices, filing replies or documents, evidences, holding of hearing, attendance of witnesses, passing of orders and payment of penalty) of adjudicating officer and Regional Director under these rules shall take place in electronic mode only through the e-adjudication platform developed by the Central Government for this purpose.
- Where the e-mail address of the concerned person is not available in the records, then the notice shall be sent to the last intimated address.
- New Form No. ADJ (Memorandum of Appeal) has been introduced
MCA vide notification dated August 12, 2024 has amended the Companies (Registration of Foreign Companies) Rules, 2014. Pursuant to this amendment, the Form FC-1 for registration of Foreign Company under Section 381 shall be filed with Registrar, Central Registration Centre, instead of the Registrar. These rules are effective from September 09, 2024.
Open MCA notification dated August 12, 2024
MCA vide notification dated August 12, 2024 has amended the Companies (Indian Accounting Standards) Rules, 2015. Indian Accounting Standard (Ind AS) 117 which relates to Insurance Contracts is being inserted to ensure that an entity provides relevant information relating to such Insurance Contracts which would enable help and other users to better understand insurers’ risk exposure, profitability and financial position.
This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows. Corresponding changes have been made in IND-AS 101 (First-time Adoption of Indian Accounting Standards), 103 (Business Combinations), 105 (Non-current Assets Held for Sale and Discontinued Operations), 107 (Financial Instruments Disclosures), 109 (Financial Instruments) and 115 (Revenue from Contracts with Customers).
The latest Ind AS 117 has replaced the currently notified Ind AS 104, insurance contracts. However, IRDAI is required to come up with a roadmap for the implementation of this Standard.
Open MCA notification dated August 12, 2024
RBI Updates
NBFC-P2P Lending Platforms have been adopting violative practices such as violation of the prescribed funds transfer mechanism, promoting peer to peer lending as an investment product with features like tenure linked assured minimum returns, providing liquidity options and at times acting like deposit takers and lenders instead of being a platform. Such violations, when observed, have been dealt with bilaterally by the Reserve Bank of India for remediation. The RBI vide notification dated August 16, 2024 has issued modifications in the Master Directions- Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 to ensure proper implementation of the Directions.
The amended provisions have been explained in the notification.
With effect from August 09, 2019, the regulatory for Housing Finance Companies (HFCs) has been changed from National Housing Bank (NHB) to Reserve Bank. Post which there have been regulations treating HFCs as NBFCs. RBI has reviewed and amended the Master Direction – Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021 to further harmonize the applicable provisions. Prudential norms, maintenance of liquid assets, securing of deposits are some of the aspects which have been reviewed.
The revised regulations are applicable w.e.f January 01, 2025.
SEBI Updates
SEBI vide Circular dated August 19, 2024 has introduced modalities for migration of Venture Capital Funds (VCFs) registered under erstwhile SEBI (Venture Capital Funds) Regulations, 1996 to Alternative Investment Funds (AIFs) under the SEBI (Alternative Investment Funds) Regulations, 2012. Application for such migration shall be made to SEBI along with original certificate of registration issued under VCF regulations along with other details as specified in the Circular. This would also enable the Migrated VCFs to avail the facility of dealing with unliquidated investments of their schemes upon expiry of tenure.
NSE vide circular dated August 22, 2024 has notified additional eligibility criteria for SMEs desirous of listing their securities on NSE Emerge platform. A requirement to have positive Free Cash Flow to Equity (FCFE) for atleast 2 out of 3 financial years preceding the application has been notified. The above criteria shall be applicable for all DRHPs filed on or after September 01, 2024. The method for calculating FCFE has been provided in the Circular.
Note: FCFE = Cash flow from Operations – Purchase of Fixed Assets + Net Borrowings – Interest x (1-T)
The move aims to bolster investor confidence and ensure the integrity of the SME listing process, following concerns about fraudulent practices in some companies’ financial statements- Business Standard
IBBI Updates
Insolvency and Bankruptcy Board of India (“IBBI”) being the designated Authority under the Companies (Registered Valuers and Valuation) Rules, 2017 for registration, regulation, and development of Registered valuers under Section 247 of the Companies Act, 2013, has vide Circular dated August 12, 2024 mandated the generation of a unique Valuation Report Identification Number (“VRIN”) to each valuation report made by Registered Valuers under the provisions of IBC.
An online module has been made available at the IBBI portal following consultations between IBBI and the RV Organisations. The RVs and RVEs shall access the module through the existing login credentials to obtain a unique VRIN before submitting their valuation report. This VRIN shall be carried on the first page of every report for verification purposes. The stakeholders can also verify the authenticity of the report through IBBI website using VRIN.
The circular shall apply to all valuation reports dated on or after the issue date of the said circular ie. August 12, 2024. In cases where a VRIN is not included, the Insolvency Professional is to reject the said valuation reports.
Under the Insolvency and Bankruptcy Code, 2016, (“the IBC Code”) the commercial wisdom of the Committee of Creditors (“CoC”) is crucial in achieving the goal of maximizing the value of distressed assets. The CoC members, primarily representing financial creditors, are generally regulated by financial sector authorities apart from the IBBI.
To promote effective and timely decision-making, self-regulating guidelines have been introduced by the IBBI on August 06, 2024 to prevent value erosion by reducing delays, enhancing transparency, and encouraging a coordinated decision-making approach.
These guidelines are intended to ensure a timely resolution process under the IBC Code, benefiting the maximization of the corporate debtor’s asset value. Effective immediately, CoC members must adhere to the following principles:
- Objectivity and Integrity
- Independence and Impartiality
- Professional Competence and Participation
- Cooperation and Timeliness
- Confidentiality
- Cost Management
- Meetings and Information Sharing
The IBBI guidelines provide for measures to adhere to above principles.
Others
The International Financial Services Centres Authority (IFSCA) has notified new regulations for listing on the international exchanges in IFSC. These regulations permitting foreign and domestic entities to list in IFSC are effective as of August 30, 2024. Highlights of the same are as follows:
- Eligibility criteria:
(i) Operating revenue of USD 20 million in the last financial year or averaged over last three financial years; or
(ii) Pre-tax profit of USD 1 million in the last financial year or averaged over the last three financial years; or
(iii) Post issue market capitalization of at least USD 25 million: or
(iv) Any other eligibility criteria specified by the Authority - Issuers will be required to file offer document with IFSCA for seeking observations (Exemption provided for issuers with proposed issue size of USD 50 million or less)
- Financial statements shall be prepared in accordance with US GAAP, IFRS or Ind AS. In case of any other accounting standard, the financial statements shall be reconciled with IFRS.
- Fixed price or book building mechanism shall be followed for Pricing. Indian Companies intending to list shall also comply with pricing requirements under FEMA NDI Rules, 2019.
- Credit Rating shall be mandatory for listing of Debt Securities
- Continuous disclosure requirements similar to those applicable under SEBI LODR has been notified such as advance intimation about board meetings, disclosure of price sensitive information and submission of quarterly and annual financial statements.
Open IFSCA notification dated August 20, 2024
Open IFSCA Press Release dated August 28, 2024
The Ministry of Finance vide notification dated August 28, 2024 has amended the Securities Contracts (Regulation) Act, 1956 to specify that the minimum threshold requirement for public shareholding in those companies listed on recognized stock exchanges shall be 10% as against 25% applicable for other listed companies. This amendment is effective immediately and is surely an attractive criterion for listing in IFSC.
IT Updates
Several grievances have been received from the taxpayers where they have cited instances of demise of the deductee/collectee during the said period (i.e. on or before 31.05.2024) before the option to link PAN and Aadhaar could have been exercised. In such cases, tax demands are standing against the deductor/collector as a result of failure to link PAN and Aadhaar of the deceased person. Keeping in mind the fiscal prudence for the financial year, the Department vide circular dated August 08, 2024 has clarified that there shall be no liability on the deductor/collector to deduct/ collect the tax in the above cases.
The Directorate of Income Tax (Systems) has issued detailed guidance on August 12, 2024 on managing high-risk PAN cases identified under the CRIU/VRU functionalities. These cases have been flagged for potential action under Sections 148/148A of the Income Tax Act, 1961. The instruction outlines the steps for tax officers to access and manage these cases through the Insight portal’s “Verification” module. It also details the various case-level activities available, such as initiating proceedings, reassigning cases, or marking them as requiring no further action.
GST Updates
GST Department has issued guidelines for CGST audits. It provides instructions to officers and emphasises on maintaining ease of doing business during investigations. Zones have been advised to refer matter to policy wing of the Board, where different interpretations of the CGST Act, rules, or notifications leads to potential litigation.
GSTN has notified the release of a new statement in GST portal for ensuring correct reporting of Reverse Charge Mechanism (RCM) transactions. A new statement called “RCM Liability/ITC Statement” has been introduced on the GST Portal for the same. This statement will enhance accuracy and transparency for RCM transactions by capturing the RCM liability shown in Table 3.1(d) of GSTR-3B and its corresponding ITC claimed in Table 4A (2) and 4A (3) of GSTR-3B for a return period. This statement will be applicable from tax period August 2024 onwards for monthly filers and from the quarter July-September 2024 period for quarterly filers.
CBIC has initiated special All-India drive against fake GST registrations for 2nd time. The National Coordination Committee, comprising senior officers from both central and state tax authorities, recognized the need for continued efforts to clean up the tax base and combat the issuance of fake invoices. The drive may be conducted by all Central and State tax authorities for a period of two months starting from August 16, 2024. The CBIC has also provided guidelines covering aspects such as method for identification of fake GSTINs, actions to be taken, feedback and Reporting Mechanism etc.
September 2024
Quote of the day
"Motivation may change your day but consistency will change your life."
Disclaimer: The contents of this Newsletter are only a summary and has not dealt with any issue in detail. Any action taken or proposed to be taken must be in consultation with professionals and not merely based on the articles / news updates. S. C. Sharada & Associates disclaims all liability on action taken without professional advice.