Note on Trade Receivables Discounting System (TReDS)

1. INTRODUCTION:

TReDS (Trade Receivables Electronic Discounting System) is an online platform that helps micro, small, and medium enterprises (MSMEs) get financing for their trade receivables. It was launched by the Reserve Bank of India (RBI) in 2018.

 

Here’s how TReDS works:

• Sellers: Supply goods or services on credit, issue invoices, and upload them to TReDS.
• Buyers: Log in to TReDS and accept the invoices.
• Financiers: Bid competitive interest rates on the invoices.
• Sellers: Choose a financier’s bid and receive funds in their account the next business day.
• Buyers: On the due date, TReDS sends a payment request to the buyer’s account

 

1. ELIGIBILITY CRITERIA TO SET UP AND OPERATE THE TReDS:

 

Entities desirous of setting up and operating the TReDS should fulfil the following criteria.

 

1. Financial Criteria

• Since the TReDS will not be allowed to assume any credit risk, its minimum paid up equity capital shall be 25 crore.
• The foreign shareholding in the TReDS would be as per the extant foreign investment policy.
• Entities, other than the promoters, will not be permitted to have shareholding in excess of 10 per cent of the equity capital of the TReDS.
• The overall financial strength of the promoters/entity seeking to set up TReDS would be an important criteria of assessment/selection.

 

1. Due diligence of promoters

• RBI would assess the ‘fit and proper’ status of the applicants on the basis of their past record of sound credentials and integrity;
• Financial soundness and track record of at least 5 years in running their businesses.

 

1. Technological capability

The TReDS entity should have sound technological basis to support its operations. As such, the TReDS should, at the minimum, fulfil the following technological requirements.

• TReDS shall be able to provide electronic platform for all the participants.
• Information about bills/ invoices, discounting and quotes shall be disseminated by the TReDS in real time basis, supported by a robust MIS system.
• The TReDS shall have a suitable Business Continuity Plan (BCP) including a disaster recovery site.
• The TReDS shall have an online surveillance capability which monitors positions, prices and volumes in real time so as to check system manipulation.

 

1. SCOPE OF WORK:

We provide following services:-

 

1. Compilation of Documents
2. Preparation of documents for applying for TReDS Platform
3. Regulatory Compliance Review: Ensure compliance with RBI, and relevant TReDS regulations.
4. Legal Framework Development: Draft and review contracts, terms of service, and user agreements.
5. Regulatory Approval Process: Guide licensing and approval process with regulatory bodies (RBI).
6. KYC and AML Compliance: Develop KYC and AML policies and ensure participant verification procedures.
7. Dispute Resolution Mechanism: Establish legal frameworks for arbitration, mediation and Grievance Redressal.
8. Data Privacy and Protection Compliance: Ensure platform adherence to data protection laws (GDPR, local laws).
9. Contractual Obligations and Liabilities: Define rights, obligations, liabilities, and responsibilities of all parties.
10. Ongoing Legal Support and Updates: Offer ongoing legal support and keep up with regulatory changes.
11. Coordinating with the regulatory bodies and drafting various replies as per the observations
12. Preparing for final RBI interview.

 

1. TIMELINE

The timeline for procuring the said TReDS license shall be Six to Eight months approx. (6-8 months), contingent upon the availability of all required documents and fulfillment of the necessary technical infrastructure requirements to operate as a TReDS platform.

 

1. ASSUMPTIONS:

In relation to the above scope of work, we have assumed the following:

• Our advice will be restricted to advice on Indian legal issues and we will not be required to advise on laws other than Indian laws.
• We would be required to review / discuss matter related to taxation, accounting, financial or technical matters along with support of the professionals of the company;

 

1. REPORTING:

We shall report only to you and shall owe no responsibility or duty of care to any other party. Our services are for your benefit and may not be used or relied upon by anyone else without our prior written consent.

 

1. CONFIDENTIALITY:

All communications between the Parties shall be treated as confidential. We will keep confidential and not disclose to any third party any information or documents received from you, unless otherwise required to be disclosed by law and/or agreed between Parties. For the purposes of the foregoing, “Parties” shall mean the Company and LBA (“Ladda Bhutada & Associates).

 

1. PROFESSIONAL FEES:

Sr. No.	Particulars	Amount  (in INR)
1.	For Establishing and operating as a TReDS Platform	Shall be Discuss in Meeting
2.	Success Fees	Shall be Discuss in Meeting

*All government charges and out-of-pocket expenses at actuals.

GST @18% shall be applicable

 

1. PLACE OF RENDERING SERVICES:

The place of rendering services generally shall be our office situated at Office No. 106, B – Wing Sr. No. 55, Sukhniwas, 15^th August Chowk, Mangalwar Peth, Pune – 411011, Maharashtra, India.

 

“Our priority is Client’s satisfaction and we believe in maintaining healthy and long-term relations with our clients.”

 

Thanking you and assuring best professional services.

 

For Ladda Bhutada & Associates,

(Company Secretaries)

 

CS IP Pramodkumar R. Ladda

(Partner)