{"id":3899,"date":"2021-04-06T06:36:05","date_gmt":"2021-04-06T06:36:05","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=3899"},"modified":"2021-04-06T06:37:34","modified_gmt":"2021-04-06T06:37:34","slug":"roles-of-reserve-bank-in-acquisition-of-control-in-nbfc","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/roles-of-reserve-bank-in-acquisition-of-control-in-nbfc\/","title":{"rendered":"A Complete Guide on the Roles of Reserve Bank in Acquisition of Control in NBFC"},"content":{"rendered":"\n<p class=\"has-drop-cap\">NBFC or\nNon-Banking Financial Company is mostly a money loaning or advancing or lending\ncompany that operates as per the provisions of the Reserve Bank of India (RBI).\nSuch financial companies are registered under the Companies Act, 2013. The main\nbusiness area of Non-Banking Financial Companies is credit lending. Moreover,\nthey also involved in the business of leasing, shares, securities, and hire\npurchase. But, there are some exceptions for Non-Banking Financial Companies as\nfar as their business opportunity is concerned. They are not allowed to serve\nbusiness areas such as industry, trading of goods, construction, or\nagriculture. Non-Banking Financial Companies also emphases on the business of\naccepting deposits. Scroll down to check more information regarding the roles\nof the Reserve Bank in the Transfer or Acquisition of control in NBFC.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a77abd2823\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a77abd2823\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/roles-of-reserve-bank-in-acquisition-of-control-in-nbfc\/#First_Step_towards_NBFC_Registration\" title=\"First\nStep towards NBFC Registration\">First\nStep towards NBFC Registration<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/roles-of-reserve-bank-in-acquisition-of-control-in-nbfc\/#Article_of_Association\" title=\"Article\nof Association \">Article\nof Association <\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/roles-of-reserve-bank-in-acquisition-of-control-in-nbfc\/#Notification_Released_in_2014_by_RBI_for_Transfer_or_Acquisition_of_Control_in_NBFC\" title=\"Notification\nReleased in 2014 by RBI for Transfer or Acquisition of Control in NBFC\">Notification\nReleased in 2014 by RBI for Transfer or Acquisition of Control in NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/roles-of-reserve-bank-in-acquisition-of-control-in-nbfc\/#Circular_of_RBI_on_2015-16_for_Transfer_or_Acquisition_of_Control_in_NBFC\" title=\"Circular\nof RBI on 2015-16 for Transfer or Acquisition of Control in NBFC\">Circular\nof RBI on 2015-16 for Transfer or Acquisition of Control in NBFC<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/roles-of-reserve-bank-in-acquisition-of-control-in-nbfc\/#Modification_on_the_Management\" title=\"Modification\non the Management \">Modification\non the Management <\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/roles-of-reserve-bank-in-acquisition-of-control-in-nbfc\/#What_is_the_Procedure_for_Previous_Approval_from_the_RBI_concerning_Transfer_or_Acquisition_of_Control_in_NBFC\" title=\"What is the Procedure for Previous Approval from the RBI concerning Transfer or Acquisition of Control in NBFC?\">What is the Procedure for Previous Approval from the RBI concerning Transfer or Acquisition of Control in NBFC?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/blog\/roles-of-reserve-bank-in-acquisition-of-control-in-nbfc\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"First_Step_towards_NBFC_Registration\"><\/span><strong>First\nStep towards NBFC Registration<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Establishing\na company is the foremost step toward NBFC Registration. Some of the following\ndocuments are required for establishing a company:<\/p>\n\n\n\n<ol><li>AOA (Articles of Association);<\/li><li>MOA (Memorandum of Association);<\/li><li>Address &amp; identity proof of the company&#8217;s\ndirector.<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Article_of_Association\"><\/span><strong>Article\nof Association <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The AOA\n(Articles of Association) enclose the guidelines that control and regulate the\ncompany. Furthermore, it also comprises the ownership percentage and structure\nof ownership. Any alter in the ownership of Non-Banking Financial Companies\nsearches for permission of ROC (Registrar of Companies). It simply means that\nif the company&#8217;s member seeks for the transfer of control in the company, then\nthe intervention of the Registrar of Companies is mandatory for the process\ncompletion.<\/p>\n\n\n\n<p>However,\nbefore approaching for approval from ROC, the members of the company should\norganize a normal meeting to take a common decision on such matter. In the same\ncondition, Non-Banking Financial Companies need to obtain permission in the\nevent of a transfer of control within the company.<\/p>\n\n\n\n<p>The Reserve Bank of India is the regulatory authority of the Non-Banking Financial Companies. The <strong>RBI<\/strong><sup><a href=\"https:\/\/www.rbi.org.in\/\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup>, on consistent intervals, rolled out various circulars regarding the activities of Non-Banking Financial Companies in India. One such notice is the consent required from the Reserve Bank for Transfer or Acquisition of control in NBFC.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Notification_Released_in_2014_by_RBI_for_Transfer_or_Acquisition_of_Control_in_NBFC\"><\/span><strong>Notification\nReleased in 2014 by RBI for Transfer or Acquisition of Control in NBFC<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In the\npast years, the Reserve Bank of India has released a notification <strong><em>\u201cCC.No.376\/03.10.001\/2013-14\u201d\n<\/em><\/strong>regarding the transfer or acquisition of control in NBFC. As per this\nnotification, the members of the company are searching for the modification in\nthe control of the company are needed to avail prior permission from RBI.<\/p>\n\n\n\n<p>The RBI Act Section 45 IA (4)(c) defines that the certificate of <a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\"><strong>NBFC Registration<\/strong><\/a> cannot be granted to the company if the atmosphere of the new promoter obstructs the interest of the public status or the depositors in any sense. Before this notification, the RBI announced a circular in 2009 that addressed the same interest. However, it only managed the deposit-taking Non-Banking Financial Companies operating across the nation.<\/p>\n\n\n\n<p>As per\nthis notification, in 2013-14, the Reserve Bank of India released another\nstatement that hassled the same area of interest. As per the notification, the\nprior consent of the Reserve Bank of India shall be needed in case of:<\/p>\n\n\n\n<ol><li>Acquisition of shares of Non-Banking Financial\nCompany in the takeover event;<\/li><li>Amalgamation or merger with another company\nallocation the same business;<\/li><li>Any Amalgamation or Merger that outcomes in the\nacquisition of shares over 10% of the paid-up capital;<\/li><li>Addressing the hearing <strong><em>u\/s 391-394 of the Companies Act,\n1956 or under Section 230-233 of Companies Act, 2013<\/em><\/strong> to benefit order\nfor the merger.<\/li><\/ol>\n\n\n\n<p>The\nadditional circular gave the reference of previous notification that leads the\nNon-Banking Financial Company to obey the rules and regulations under Section\n45K. Any transfer of shares in the breaking of the respective sections will\nattract strict penalties.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Circular_of_RBI_on_2015-16_for_Transfer_or_Acquisition_of_Control_in_NBFC\"><\/span><strong>Circular\nof RBI on 2015-16 for Transfer or Acquisition of Control in NBFC<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The RBI\ncarried out an update concerning the transfer and acquisition of control in\nNBFC in 2015. The circular search to replace the earlier notification that was\npublicized in 2014. The Reserve Bank of India inspected the prior guidelines on\ntransfer\/acquisition of control in NBFC released in the year 2014.<\/p>\n\n\n\n<p>During\nthe assessment, the Reserve Bank of India arranged the process of transfer or\nacquisition of control in NBFC in the ambit of the notification released in Mar\n2015. While some recommendations were similar to the previous notification, the\nReserve Bank had made several alterations. The given list exhibits the series\nof advice made by the Reserve Bank of India:<\/p>\n\n\n\n<ul><li>The RBI highlighted the necessity of writ\napproval from the Non-Banking Financial Companies in case of transfer or\nacquisition of control in NBFC;<\/li><li>Writ approval is required for any modification,\nacquisition or transfer of control in NBFCs. The permission of the Reserve Bank\nof India is compulsory regardless of whether there is an alteration or not in\nthe Non-Banking Financial Company&#8217;s management.<\/li><li>Any alter in the company&#8217;s control should\nreflect in the shareholding pattern as well. If the way of shareholding changes\nover time, then writ permission is required from the Reserve Bank.<\/li><li>Writ permission from RBI is crucial in case if\nthe shareholding pattern altered more than 26%. Such a rule would liquefy in\nthe event of alter of shareholding happens due to buyback of share or in the\ncase where there is a legitimate capital reduction procedure.<\/li><li>Directors can&#8217;t be replaced without the approval\nof the Reserve Bank. If an important modification occurred in the management by\nreplacing more than 30% of members (excluding independent director), then the\nReserve Bank of India&#8217;s approval becomes compulsory in such an event. But, the\nReserve Bank of India doesn&#8217;t interfere in the matter of re-election or\nretirement of the directors.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Modification_on_the_Management\"><\/span><strong>Modification\non the Management <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Apart\nfrom the above guidelines, the Non-Banking Financial Company has to regularly\nintimate the RBI to modify the management and members in the company. This\nwould also be mandatory under the NBFCs approval of Public Deposits Direction,\n1998.<\/p>\n\n\n\n<p>The\nregulations such as <strong><em>Non-Systemically Important NBFCs (Non-Deposit Accepting Holding)\nPrudential Norms (RBI) Directions, 2015 and Systemically Important NBFCs\n(Deposit Accepting or Holding) Prudential Norms RBI Directions, 2015<\/em><\/strong>\ndirects Non-Banking Financial Companies to disclose the ownership change.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Procedure_for_Previous_Approval_from_the_RBI_concerning_Transfer_or_Acquisition_of_Control_in_NBFC\"><\/span>What is the Procedure for Previous Approval from the RBI concerning Transfer or Acquisition of Control in NBFC?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol><li>The Non-Banking Financial Company must make a\nwrit application on the company&#8217;s letterhead for availing permission from the\nReserve Bank of India (RBI) for NBFC Takeover. At the time of applying, the\nNon-Banking Financial Company should add the above-mentioned alters of control\nin the Non-Banking Financial Company;<\/li><li>The specified documentations have to provide by\nthe applicant along with an application;<\/li><li>Detailed information about the proposed members\nor directors. This will encircle information related to key management administrators\nserving the company.<\/li><li>Information concerning the funds&#8217; source in the\nNBFCs;<\/li><li>A written declaration is prepared by the members\nabout their non-connection with the companies that accept the public deposit;<\/li><li>A declaration is prepared by the members and\ndirectors of the company about their non-connection with any type of companies;<\/li><li>A declaration from directors show that they have\nno pending cases u\/s section 138 of the reachable instruments act;<\/li><li>A banker\u2019s report;<\/li><li>The application should be submitted to the\nregional office of the Reserve Bank of India, where the Non-Banking Financial\nCompany is carrying out its operation.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Non-Banking Financial Company should obey all the compliance and bylaws concerning the status of shareholding and alter in the directors, members, top management in specific. After getting the consent of the Reserve Bank of India, the Non-Banking Financial Company is liable for sharing the matter through notification with the public. Supervising such a requirement would land the NBFC in the legal penalties area that also comprises the overturning of the Registration Certificate.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/maintenance-of-liquidity-coverage-ratio-under-nbfc\/\">A Complete Guide on Maintenance of Liquidity Coverage Ratio under NBFC\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>NBFC or Non-Banking Financial Company is mostly a money loaning or advancing or lending company that operates as per the provisions of the Reserve Bank of India (RBI). Such financial companies are registered under the Companies Act, 2013. The main business area of Non-Banking Financial Companies is credit lending. Moreover, they also involved in the [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":3902,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58],"tags":[565],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3899"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=3899"}],"version-history":[{"count":12,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3899\/revisions"}],"predecessor-version":[{"id":3912,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3899\/revisions\/3912"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/3902"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=3899"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=3899"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=3899"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}