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Introduction: The Reserve Bank of India (RBI) has issued crucial guidelines, as per circular RBI/2023-24/127, regarding the appointment and re-appointment of Directors, Managing Directors, or Chief Executive Officers in Asset Reconstruction Companies (ARCs). These guidelines, effective immediately, aim to ensure uniformity in information submission by ARCs seeking RBI approval.

Detailed Analysis:

1. Regulatory Framework: The guidelines are based on Section 3(6) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

2. Submission Process: ARCs must submit complete applications, using the provided forms (Annex I and II), at least ninety days before the vacancy or proposed appointment date.

3. Information Required: Annex I outlines detailed information about the proposed appointee, covering personal details, qualifications, professional background, and financial interests.

4. Documentation: Annex II provides a comprehensive list of documents required, including identity proof, credit information reports, and board resolutions.

5. Supervisory Compliances: Declarations on supervisory compliances, shareholding pattern changes, and SEBI’s LODR guidelines applicability are mandatory.

6. Disclosure of Defaults: Candidates must disclose any defaults in credit facilities, and details of civil or criminal prosecutions initiated against them or listed entities.

7. Fit and Proper Criteria: The guidelines include ensuring candidates meet the ‘fit and proper’ criteria, including checks on professional conduct, disciplinary actions, and compliance with economic laws.

8. Wilful Default and Directorship Limits: Disclosures on wilful default in the last five years and adherence to directorship limits under Section 165 of the Companies Act, 2013/SEBI’s regulations are mandatory.

9. Relevance of Professional Associations: Professionals must disclose if they are members of any professional association and any disciplinary actions against them.

Conclusion: In conclusion, these guidelines emphasize transparency and due diligence in the appointment/re-appointment of key positions in ARCs. The RBI’s move aims to strengthen the governance framework and ensure that individuals holding significant roles meet the necessary criteria. ARCs are urged to adhere to these guidelines for a smoother approval process.

RESERVE BANK OF INDIA 

RBI/2023-24/127
DOR.GOV.REC.79/18.10.006/2023-24

February 27, 2024

All Asset Reconstruction Companies

Dear Sir / Madam

Appointment/re-appointment of Director, Managing Director or Chief Executive Officer in Asset Reconstruction Companies

In terms of Section 3(6) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the guidelines contained in Para 5(i) of the Annex to our circular No. DoR.SIG.FIN.REC.75/26.03.001/2022-23 dated October 11, 2022 on ‘Review of Regulatory Framework for Asset Reconstruction Companies (ARCs)’, ARCs are required to obtain prior approval of the Reserve Bank for appointment/re-appointment of any Director, Managing Director or Chief Executive Officer.

2. In order to have uniformity in the information submitted by ARCs for obtaining such approvals, a form for furnishing the requisite information about the candidate and an indicative list of documents required to be submitted along with the application are enclosed as Annex I and Annex II, respectively. ARCs are advised to submit applications, complete in all respect, along with duly signed Annex I and the documents/information mentioned in Annex II to this Department1 at least ninety days before the vacancy arises / the proposed date of appointment or re-appointment. Reserve Bank may call for additional information/documents for processing the application, if required.

3. These instructions shall come into force with immediate effect.

Yours faithfully

(Scenta Joy)
Chief General Manager

Annex I

Name of ARC:

INFORMATION ABOUT THE
DIRECTOR / MANAGING DIRECTOR / CHIEF EXECUTIVE OFFICER

Sr. No. Particulars Information/details
1. Name of the candidate (proposed
appointee)
2. Proposed designation / Type of directorship

[Such as Whole-time Director / Managing Director / Chief Executive Officer / Non-executive Director (sponsor/non-sponsor), Independent Director, Nominee Director, etc. (to be clearly specified)]

3. Nationality & Passport No.
4. Date of Birth (DD/MM/YYYY)
5. Address, e-mail ID and phone/mobile
number
6. Permanent Account Number (PAN)

Details of income tax returns filed during the last 3 years

PAN:
Date of filing Amount of tax paid (₹)
7. Director Identification Number    (DIN) and current status thereof
8. Educational / Professional qualifications
9. Line of Business or Vocation / Profession

(A brief write-up detailing the relevant knowledge and professional experience of the candidate)

10. Details of bank accounts of the candidate across all jurisdictions

(Please mention details of all accounts such as savings, current, loans and advances, etc.)

Bank Name Type of A/c A/c Number
11. Equity shareholding2, if any, of the candidate in the applicant ARC:

(i) Number of shares

(ii) Face value of shares

(iii) Percentage to total paid-up share capital of the ARC

12. Whether the candidate is a nominee of or related/associated with any of the sponsor/s? If yes, details thereof.
13. List of relatives3 of the candidate, who are connected with the ARC (if any), and nature of such connection

14. Present and past4 occupations (other than those covered at Sr. No. 15)

[Designation/Role, Name and address of the organisation, Employee ID, Tenure (from-to), Name of the regulator (if regulated by a financial sector regulator in India or abroad)]

15. Names of banks, financial institutions (including NBFCs/ARCs) and other entities in which the candidate has been chairman / managing director / director / chief executive officer, etc.

[Name and address of the organisation and its line of activity, Position held, Tenure (from-to), Name of the regulator (if regulated by a financial sector regulator in India or abroad)]

16. List of entities in which the candidate is considered as interested5 or holding substantial interest6 and its regulator
17. Whether the candidate or the entities listed at (15) and (16) above are or have in the past been in default7 in respect of any credit facilities (fund/non-fund-based) obtained from banks / financial institutions

[If yes, please furnish full details such as name of the lender (including the branch name), type of facility, period and quantum of default, etc. and present status thereof]

18. Whether the person is a member of any professional association / body.

If yes, details of disciplinary action against him / her, if any, commenced, pending or resulting in conviction in the past, or whether he/she has been banned from any profession/occupation at any time.

19. Details     of   civil   or   criminal   prosecution

(including under Section 138 (1) of the Negotiable Instruments Act, 1881), if any, against the candidate and/or against any of the entities listed in (15) and (16) above initiated, pending or resulting in conviction in

the past for violation      of economic laws/
regulations.

20. If the candidate has indulged in any breach of AML/CFT guidelines at any time, details thereof.
21. Whether the candidate attracts any of the disqualification envisaged under the Section 164 of the Companies Act, 2013?

If yes, please give details thereof.

22. (a)    If convicted by a criminal court of an offence involving moral turpitude, details thereof.

(b)   If convicted by any other court of law, details thereof along with outcome of such proceedings.

23. If the candidate or any of the entities listed at (15) and (16) above has been subject to any    investigation  or   vigilance/disciplinary
enquiry by any of the previous employers orgovernment departments or agencies, details thereof along with outcome of such proceedings.
24. If the candidate or the entities listed at (15) and (16) above have at any time been found guilty of violation of rules / legislative requirements by customs / excise / income

tax / foreign      exchange / other revenue

authorities / investigative agencies (including issuance of show cause notice), details thereof.

25. If reprimanded, censured, restricted, suspended, barred, enjoined, or otherwise sanctioned by any regulator such as RBI, SEBI, IRDAI, PFRDA, MCA, professional

organisations, government agencies or court because of professional conduct or activities, the details thereof8.

26. If the candidate is a professional (such as a chartered accountant,    an  advocate,  etc.)

and    is   undertaking   or   has   undertaken

professional work in any ARC, please provide the details (including the name of the ARC and the period of association)

27. Whether the candidate has been declared a wilful defaulter at any time in the last five years by any bank. If yes, details and present status thereof.
28. Whether the number of directorship held by the candidate exceeds the limits prescribed under Section 165 of the Companies Act, 201 3/SEB I’s    (Listing    Obligations    and

Disclosure     Requirements)    Regulations,
2015 (as applicable).

29. Any other information considered relevant for assessing the person as ‘fit and proper’.
Declaration by the proposed appointee
1. I confirm that I am not associated with any unincorporated body which is accepting public deposits.

2. I confirm that I am not associated with any company, the application for Certificate of Registration (CoR) of which has been rejected by the Reserve Bank of India, National Housing Bank or any other financial sector regulator.

Undertaking by the proposed appointee
1.   I confirm that the above information is, to the best of my knowledge and belief, true and complete.

2.   I undertake to keep the Company fully informed, as soon as possible, of all events which take place after submission of this application or after my appointment, which are relevant to the information provided herein above.

3.    I also undertake to execute a ‘Deed of Covenant’ with the Company.

Place: Date: Signature of the proposed appointee
Submission of Nomination and Remuneration Committee (NRC)
Confirmation that necessary due diligence in respect of the proposed appointee has been carried out by the NRC.
Remarks of the NRC about having satisfied itself that the information provided herein is true and complete.
Place: Date: Signature of Chair of the NRC Name:

Duly filled in form must be signed by the candidate (proposed appointee) and countersigned by the chairperson of the Nomination and Remuneration Committee of the ARC.

Annex II

An indicative list of documents / information to be furnished along with the application

Sr No.

Requirements to be complied with and documents to be submitted
to RBI
Page No.
i. Covering Letter by the ARC submitting the application for prior approval for appointment / re-appointment of Director, Managing Director or CEO, duly signed by the authorised signatory (with Company’s seal)
ii. Identity document of the candidate – PAN Card / Election Card / Driving License / Passport/ Aadhaar Card (any one)
iii. Credit Information Report (Score + Full Report) (not older than 6 months)

[Explanation for adverse remarks/features, if any, in the report should also be submitted]

iv. Banker’s Report for all accounts (both deposit and loan/advance accounts) where the candidate is an account holder (in the bank’s sealed cover)
v. Board    Resolution   proposing   the   appointment/re-appointment   of the director/MD/CEO, including the proposed tenure
vi. Declaration on the status of supervisory compliances by the ARC
vii. a) Confirmation whether there has been any change in the shareholding pattern which has led to the proposed appointment

(b) Shareholding pattern of the ARC.

viii. Composition of the Board before appointment of the proposed director (with designation, date of appointment, tenure, DIN, etc)
ix. Confirmation whether SEBI’s LODR guidelines are applicable to the ARC or not?

Notes:

1 At the address / email ID mentioned below.

2 Please also include details of preference shares, compulsorily convertible debentures, etc., if any, separately.

3 Refer to Section 2(77) of the Companies Act, 2013.

4 At least during the last 10 years

5 Refer to Section 184 of the Companies Act, 2013.

6 Substantial interest means the beneficial interest held by an individual or his/her spouse or minor child, whether singly or taken together, in the shares of a company/ capital of a firm, the aggregate amount paid-up on which exceeds ten percent of the paid-up share capital of the company or total capital subscribed by all the partners of a partnership firm.

7 ‘Default’ means that the concerned facility has/had been classified as a non-performing asset by the bank/FI.

8 Though it shall not be necessary for a candidate to mention herein about the orders and findings which have been later on reversed / set aside in toto, it would be necessary to make a mention of the same in case the reversal / setting aside is on technical reasons like limitation or lack of jurisdiction, and not on merit. If the order is temporarily stayed and the appeal proceedings are pending, the same should also be mentioned.

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