CS Priyanka Gera

Priyanka GeraREQUIREMENT FOR OBTAINING PRIOR APPROVAL OF RBI IN CASES OF ACQUISITION/ TRANSFER OF CONTROL OF NON-BANKING FINANCIAL COMPANIES (NBFCS)

Introduction

This circular RBI/2015-16/122 dated July 9, 2015 has been issued in continuance of DNBS (PD) CC.No.376/03.10.001/2013-14 and Notification No. DNBS (PD) 275/GM(AM)-2014 dated May 26, 2014 wherein ‘Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014’ have been given.

Addressed to:

All Non-Banking Financial Companies (excluding Primary Dealers)

Key highlights of Directions via RBI/2009-10/162 dated September 17, 2009

  • Under Section 45 IA (4)(c) of the RBI Act, 1934, a certificate of Registration can only be given to a company if the Bank is satisfied, inter alia, that the general character of the management or the proposed management of the non-banking financial company shall not be prejudicial to the public interest or the interests of its depositors
  • To enable RBI to verify that the ‘fit and proper’ character of the management of NBFCs is continuously maintained, it has been decided that any take-over / acquisition of shares of a deposit taking NBFC or merger/amalgamation of a deposit taking NBFC, would require prior permission of RBI
  • These Directions shall be known as the Non-Banking Financial Companies (Deposit Accepting) (Approval of Acquisition or Transfer of Control) Directions, 2009.

Key highlights of Directions via RBI/2013-14/606 dated May 26, 2014

1. In supersession of those instructions (2009), and to enable RBI to ensure that the ‘fit and proper’ character of the management of NBFCs, both deposit accepting and non-deposit accepting, is continuously maintained, it has been decided as under:

The prior written permission of the Reserve Bank of India shall be required for –

  • any takeover or acquisition of control of an NBFC, whether by acquisition of shares or otherwise;
  • any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC that would give the acquirer / another entity control of the NBFC
  • any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC which would result in acquisition/transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC.
  • Prior written approval of the Reserve Bank would also be required before approaching the Court or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs.

2. Any transfer of shares in violation of the notification would result in adverse regulatory action including cancellation of Certificate of Registration (CoR)

3. These Directions shall be known as the ‘Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014

Circular RBI/2015-16/122 dated July 9, 2015

The revised directions are detailed below:

A. Requirement of prior approval of Reserve Bank- prior written permission of the Reserve Bank shall be required for:

  • any takeover or acquisition of control of an NBFC, which may or may not result in change of management;
  • any change in the shareholding of an NBFC, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 26 per cent or more of the paid up equity capital of the NBFC. Prior approval would, however, not be required in case of any shareholding going beyond 26% due to buyback of shares/ reduction in capital where it has approval of a competent Court. The same is however required to be reported to the Reserve Bank not later than one month from its occurrence
  • any change in the management of the NBFC which would result in change in more than 30 per cent of the directors, excluding independent directors. Prior approval would not be required for those directors who get re-elected on retirement by rotation.

Notwithstanding clause (A), NBFCs shall continue to inform the Reserve Bank regarding any change in their directors/ management as required

B. Application for prior approval

(i) NBFCs shall submit an application, in the company letter head, for obtaining prior approval of the Bank under paragraph 2, along with the following documents:

  • Information about the proposed directors/ shareholders as per the Annex;
  • Sources of funds of the proposed shareholders acquiring the shares in the NBFC;
  • 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.

(ii) Applications in this regard may be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the NBFC is located.

C. Requirement of 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.
  • 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.

D. The directions contained above are applicable with immediate effect

E. Any violation of the aforementioned directions would result in adverse regulatory action including cancellation of CoR.

F. These Directions shall be known as the ‘Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2015

The circulars can be downloaded by the following links:

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=9934&Mode=0

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8899&Mode=0

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8899&Mode=0#f1

(Author can be reached at Pri.gera05@gmail.com)

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One response to “Prior RBI Approval In Cases of Acquisition/ Transfer of Control of NBFCs”

  1. Gaurav Choudhary says:

    What is remedy if not taken prior permission.

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