Non Banking Finance Company plays a vital role in the Indian economy as it provides loan to

> Start-ups as business loan

> Salaried employees as Personal loan to fulfil their essential requirements

> Farmers as Agriculture Loan

> People in need of Assets as Assets Finance Loan and etc.

To set up a Non Banking Finance Company (NBFC), Reserve bank of india approval is required along with following important eligibility criteria :-

> A company incorporated under the Companies Act, 1956/2013(Whichever applicable)

> It should have a minimum net owned fund of ₹ 200 lakh

> CIBIL of all the Directors  more than 700. Else a good justification for the Lower Score

> Finance Background of one of the Directors for running the Operations of NBFC

Registration of a Non-Banking Finance Company (NBFC) required Two Stage process. Firstly, we need to incorporate a Company whether Private Limited or Public Company with Ministry of Corporate Affairs as per the Companies Act 2013 with the Object of NBFC and thereafter apply to the Reserve Bank of India for License. It will take around 5-6 months average time in the whole process depending upon the profile of applicant.

To cut the time frame, Numerous of Financial Organizations are interested in to buy NBFCs. This comes under the provision of acquisition/ transfer of control of Non-Banking Financial. Prior approval of Reserve Bank of India is required for acquisition/ transfer of control of Non-Banking Financial Companies as per notification dated July 09, 2015. Following Circumstances required prior written permission/approval from Reserve Bank of India.

RBI FOR Management Change of Nbfcs

Please be note following eligibility criteria before proceeding with approval from Reserve Bank of India in respect of acquisition/ transfer of control of Non-Banking Financial.

Important Eligibility Criteria (As per RBI)

> CIBIL of all the Proposed Directors/ shareholders more than 700. Else a good justification for the Lower Score

> Finance Background of one of the Proposed Directors for running the Operations of NBFC

> No criminal case, including for offence under section 138 of the Negotiable Instruments Act, against Proposed Directors/ shareholders is pending

> Proposed directors/ shareholders are not associated with any company, whose application for Certificate of Registration (CoR) has been rejected by the Reserve Bank;

Brief steps to be followed for acquisition/ transfer of control of Non-Banking Financial Companies

Step1:- Proper due diligence of the Target company

Proper due diligence is needs to be done with help of professionals in respect of Companies Act 2013, Income Tax Act and Other Statutory Act as applicable to NBFC to remain as Complained NBFC. NBFCs should carry the business in the public interest. NBFC has Board approved Fair Practice code policy, Recovery policy, Grievance Redressal Policy and take care that all the said policy should be uploaded on the Company’s Website and placed at Company’s Premises. NBFCs should comply the prohibitory order  if any issued by the Reserve Bank of India

Step 2:- Signing of MOU

The next step to proceed further is to draft memorandum of understanding between the parties. Make sure that Payment Terms along with Token amount  should be clearly mentioned in MOU and all points/terms and conditions should be coverup in respect of the deal so that no issue is left for dispute.

Step 3:- Submitting application

An Application in the Company’s letter head is to be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the NBFC is located for obtaining prior approval of the Bank­­ with following documents

> Information about the proposed directors/ shareholders as prescribed format

> Sources of funds of the proposed shareholders acquiring the shares in the Non Banking Finance Company;

> Declaration by the proposed directors/ shareholders that they are not associated with any unincorporated body that is accepting deposits;

> Declaration by the proposed directors/ shareholders that they are not associated with any company, the application for Certificate of Registration (CoR) of which has been rejected by the Reserve Bank;

> Declaration by the proposed directors/ shareholders that there is no criminal case, including for offence under section 138 of the Negotiable Instruments Act, against them; and

> Bankers’ Report on the proposed directors/ shareholders.

Step 4:- Taking Follow up with RBI

This is crucial phase in the Management Transfer, where RBI may ask for some queries and does enquiry of the NBFC and have to submit the reply within the time frame provided by the RBI.

Step 5:- Approval Granted!

On being satisfied by RBI Officials, Approval is granted!

Step 6:- Prior Public Notice about change in control/ management

A public notice of at least 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the NBFCs and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Reserve Bank.

The public notice shall indicate the intention to sell or transfer ownership/ control, the particulars of transferee and the reasons for such sale or transfer of ownership/ control. The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.

Please Note :- Any violation of the aforementioned directions would result in adverse regulatory action including cancellation of CoR.

*****

DISCLAIMER:

The entire contents of this article have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, the author assumes no responsibility therefore. Users of this information agrees that the information is not a professional advice and is subject to change without notice. The author assumes no responsibility for the consequences of use of this information. IN NO EVENT THE AUTHOR SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM OR ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION.

THE AUTHOR – CS MONIKA MALHOTRA (PRACTICING COMPANY SECRETARY) CAN BE REACHED AT [email protected] or +91-9599561517

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