The International Financial Services Centers Authority (IFSCA) on 23/06/2023 has introduced a comprehensive framework for shipping lease activities in International Financial Services Centers (IFSCs). This framework aims to provide guidelines and regulations for entities interested in undertaking permissible activities as lessors in IFSCs.
Eligibility Criteria and Legal Structure
To operate as a lessor in an IFSC, an applicant must meet certain eligibility criteria outlined in the Finance Company Regulations. The applicant can set up operations in the form of a Company, Limited Liability Partnership (LLP), Trust, or Branch as specified by the IFSCA. If the applicant is a company, the promoter must be located in a Financial Action Task Force compliant jurisdiction. The same requirement applies to partners or trustees in the case of LLPs or Trusts.
Compliance with Statutes and Regulations
Entities operating in IFSCs for shipping lease activities must comply with all applicable statutes, including the Merchant Shipping Act, 1958. This compliance extends to circulars, notifications, and regulations issued by competent authorities under the Shipping Act, the Ministry of Shipping, or the Director General of Shipping.
To become a lessor in an IFSC, applicants must submit an application form in the specified format to the IFSCA along with the required application fees. They must obtain a Certificate of Registration from the IFSCA under the Finance Company Regulations before undertaking any activity as a lessor. Additionally, entities registered or authorized with the IFSCA for operating leases must separately seek permission if they wish to undertake activities referred to in the framework.
Part I: Ship Operating Lease
Under the ship operating lease category, lessors in IFSCs are permitted to engage in various activities, including operating leases, voyage charters, asset management support services, sale and leaseback transactions, and other related activities. It is important to classify transactions as leases according to the Indian Accounting Standards (Ind AS 116) on Leases.
Capital Requirement and Fees
Entities operating as lessors under the ship operating lease category must maintain a minimum owned fund of USD 200,000 or its equivalent in freely convertible foreign currency. The IFSCA may specify additional capital requirements based on the nature and scale of business. The applicable fees, including application fees, registration fees, and recurring fees, are determined by the IFSCA and are subject to the fee structure circular.
Part II: Ship Financial Lease
The ship financial lease category allows lessors in IFSCs to undertake financial leases, hybrid leases, and engage in activities permitted under ship operating lease. Similar to ship operating lease, entities must maintain a minimum owned fund of USD 3 million or its equivalent. Additional capital requirements may also be specified by the IFSCA.
Prudential and Other Requirements
Entities undertaking activities in ship leasing must adhere to prudential regulations, know your customer and anti-money laundering regulations, and corporate governance and disclosure requirements. These regulations aim to ensure the financial stability, transparency, and compliance of lessors in IFSCs.
General Conditions, Compliance, and Action in Case of Default
Lessors must conduct their business transactions in a freely convertible foreign currency. They are required to maintain books of accounts, records, and documents as per applicable laws. The submission of reports, financial information, and compliance with regulatory requirements is mandatory. The IFSCA may take appropriate actions if a lessor fails to fulfill the conditions specified in the framework.