{"id":5322,"date":"2021-05-20T06:24:55","date_gmt":"2021-05-20T06:24:55","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=5322"},"modified":"2023-03-17T09:56:18","modified_gmt":"2023-03-17T09:56:18","slug":"housing-finance-company-and-nbfc-its-exemptions-filing","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/housing-finance-company-and-nbfc-its-exemptions-filing\/","title":{"rendered":"An Overview of Housing Finance Company and NBFC: Its Exemptions &#038; Filing"},"content":{"rendered":"\n<p class=\"has-drop-cap\">In this article, we are going to focus on different provisions concerning NBFC and Housing Finance Company, its filing process, amendments, and exemptions<strong><em>. Companies Act 2013; Section 186<\/em><\/strong> primarily highlights the entity&#8217;s right to make investment, security, and loan. So, to know the ambit of Section 186 of the Companies Act, 2013, we have first to understand the term &#8220;Investment.&#8221;<\/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-6a3a3b6654d18\" 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-6a3a3b6654d18\"  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\/housing-finance-company-and-nbfc-its-exemptions-filing\/#Meaning_of_Investment_Concerning_the_NBFC_and_Housing_Finance_Company\" title=\"Meaning\nof Investment Concerning the NBFC and Housing Finance Company\">Meaning\nof Investment Concerning the NBFC and Housing Finance Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/housing-finance-company-and-nbfc-its-exemptions-filing\/#Why_is_it_Necessary_to_Enact_the_Companies_Amendment_Act_2017_for_NBFC_and_Housing_Finance_Company\" title=\"Why is\nit Necessary to Enact the Companies (Amendment) Act, 2017 for NBFC and Housing\nFinance Company?\">Why is\nit Necessary to Enact the Companies (Amendment) Act, 2017 for NBFC and Housing\nFinance Company?<\/a><\/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\/housing-finance-company-and-nbfc-its-exemptions-filing\/#Amendment_Examination_of_Section_186\" title=\"Amendment\nExamination of Section 186\">Amendment\nExamination of Section 186<\/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\/housing-finance-company-and-nbfc-its-exemptions-filing\/#Highlighting_Requirements_Under_Section_186\" title=\"Highlighting Requirements Under Section 186\">Highlighting Requirements Under Section 186<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/housing-finance-company-and-nbfc-its-exemptions-filing\/#Exemptions_are_given_out_by_RBI_to_NBFC_and_Housing_Finance_Company\" title=\"Exemptions\nare given out by RBI to NBFC and Housing Finance Company\">Exemptions\nare given out by RBI to NBFC and Housing Finance Company<\/a><\/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\/housing-finance-company-and-nbfc-its-exemptions-filing\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Meaning_of_Investment_Concerning_the_NBFC_and_Housing_Finance_Company\"><\/span>Meaning\nof Investment Concerning the NBFC and Housing Finance Company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Under\nSection 186(1) of the Act, the following will be measured as an investment with\na few irregularities:<\/p>\n\n\n\n<ul><li>The purchase or subscription of\nshares;<\/li><li>The purchase or subscription of\nwarrants;<\/li><li>The purchase or subscription of\nindistinguishable debt securities or debenture bonds.<\/li><\/ul>\n\n\n\n<p><strong><em>Exceptions:<\/em><\/strong><\/p>\n\n\n\n<ul><li>The expenditure of advances or loans;<\/li><li>Any financial transactions such as lease, receivables purchases, or other credit resources. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_is_it_Necessary_to_Enact_the_Companies_Amendment_Act_2017_for_NBFC_and_Housing_Finance_Company\"><\/span>Why is\nit Necessary to Enact the Companies (Amendment) Act, 2017 for NBFC and Housing\nFinance Company?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Due to the inconsistencies in the earlier Companies Act, the Government changed the Act by registering the essential provisions. The <strong><em>Ministry of Corporate Affairs (MCA)<\/em><\/strong> represents the rectification job of the Companies Act, 2013 to a <strong><em>Companies Law Committee (CLC)<\/em><\/strong>. Hence, the Companies (Amendment) Act, 2017 came into existence after taking the consideration made by the Companies Law Committee. Section 186 went through major changes amongst all alters made in the Companies Act.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Amendment_Examination_of_Section_186\"><\/span>Amendment\nExamination of Section 186<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Section\n186 was incorporated with some relaxations, and you can check the same below:<\/p>\n\n\n\n<p><strong><em>Section\n186 (2) tells that no company can directly or indirectly provide any:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Loan to any person or body corporate;<\/li><li>Protection and guarantee in\nassociation with a loan to any individual or body corporate;<\/li><li>Obtain by way of purchase,\nsubscription or otherwise, the safety of any other body corporate.<\/li><\/ul>\n\n\n\n<p>More\nthan 60% of its paid-up capital (share) along with reserves and the safety\npremium account, or 100% of its safety and reserve premium account, whichever\nis more.<\/p>\n\n\n\n<p>The permission of the Board is compulsory for the expenditure of the security, advance, guarantee, or loan under Section 186(2). A similar necessity applies to investment activities. Please remember that a Board Resolution shows the member&#8217;s approval is obligatory for serving such purposes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Highlighting_Requirements_Under_Section_186\"><\/span>Highlighting Requirements Under Section 186<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"821\" height=\"507\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/05\/Consent-of-Board.png\" alt=\"Requirements Under Section 186\" class=\"wp-image-5337\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/05\/Consent-of-Board.png 821w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/05\/Consent-of-Board-300x185.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/05\/Consent-of-Board-768x474.png 768w\" sizes=\"(max-width: 821px) 100vw, 821px\" \/><\/figure><\/div>\n\n\n\n<ul><li><strong><em>Consent of Board<\/em><\/strong><\/li><\/ul>\n\n\n\n<ol><li>The consent of the Board is\nrequired regardless of the amount of investment, loan, security, or guarantee.<\/li><li>The consent of the Board should\nbe united at the meeting of the Board.<\/li><li>Simple resolution by the spreading\nor of the directors&#8217; committee is not sufficient.<\/li><\/ol>\n\n\n\n<ul><li><strong><em>Consent of Members through Special Resolution<\/em><\/strong><\/li><\/ul>\n\n\n\n<p>1. Prior consent by such resolution is essential when the aggregator of the loan, security, investment, or guarantee is more than the prescribed limit under Section 186(2).<\/p>\n\n\n\n<p>2. The limit should be higher from: <\/p>\n\n\n\n<ul><li>60% of the paid-up share capital and free reserves and premium securities account;<\/li><li>100% of free reserve and premium account for securities.<\/li><\/ul>\n\n\n\n<p>3. The special resolution should include the total amount up to which Board can allow the proposed investment, loan, guarantee, or security.<\/p>\n\n\n\n<p>4. Exceptions:<\/p>\n\n\n\n<ul><li>The company or an entity provides a loan to its <strong><em>WOS (Wholly Subsidiary Company or JV (Joint Venture)<\/em><\/strong>;<\/li><li>The company give security or guarantee to its WOS (Wholly Subsidiary Company or JV (Joint Venture);<\/li><li>The holding company obtain the securities of its WOS (Wholly Subsidiary Company through subscription or otherwise.<\/li><\/ul>\n\n\n\n<ul><li><strong><em>Consent of PFI<\/em><\/strong><\/li><\/ul>\n\n\n\n<ol><li>Prior consent should be taken\nfrom the Public Financial Institution (PFI) from which it has taken a loan.<\/li><li>Exceptions:<\/li><\/ol>\n\n\n\n<ul><li>The aggregate of loans, security, investments, or guarantee doesn\u2019t surpass the prescribed limit.<\/li><li>There is no defaulting in the repayment of loan instalments.<\/li><\/ul>\n\n\n\n<ul><li><strong><em>Interest Rate<\/em><\/strong><\/li><\/ul>\n\n\n\n<p>The interest rate must be more than the prevailing revenue of Government Security nearby to the loan period.<\/p>\n\n\n\n<ul><li><strong><em>No Default Concerning Deposits<\/em><\/strong><\/li><\/ul>\n\n\n\n<p>The expenditure of loans, security, investment, or guarantee is not possible in the effect of earlier repayment defaults. Entities with a track record of repayment are capable of undertaking such activities.<\/p>\n\n\n\n<ul><li><strong><em>Disclosure of Financial\nStatement<\/em><\/strong><\/li><\/ul>\n\n\n\n<p>The company should disclose all the details of investment made; a loan is provided, security or guarantee is given and the aim to be utilized by the recipient in their financial statement.<\/p>\n\n\n\n<p>Section\n186(11): Non-applicability of Section 186: According to Section 186(11), it is\nthe only possible, where a loan or the guarantee or any investment or security\nis made by:<\/p>\n\n\n\n<ul><li>Banking Company;<\/li><li>Housing Finance Company;<\/li><li>Insurance Company;<\/li><li>A company concerned with the\nbusiness of offering infrastructural companies or Financing of Companies.<\/li><\/ul>\n\n\n\n<p><strong><em>Section 186(1) will not come into effect if the investment made by the given entities:<\/em><\/strong><\/p>\n\n\n\n<ul><li>An entity whose primary business is the acquisition of share, stock, debenture, or other securities;<\/li><li>An NBFC;<\/li><li>It is compulsory to take former investment into account while making an investment in Right Share u\/s 62(1)(a) of the<strong>&nbsp;Companies Act, 2013<\/strong><sup><sup><a class=\"text-primary\" href=\"https:\/\/en.wikipedia.org\/wiki\/Companies_Act_2013\"><strong>[1]<\/strong><\/a><\/sup><\/sup>.<\/li><\/ul>\n\n\n\n<p>Investment Company mentions to a company that is concerned with a business of procuring shares, debentures, and securities. If the company&#8217;s assets exist in the form of debentures, shares, or other securities identical to 50% of its assets, earning is from the investment business includes 50% of its total income. In the next segment, we are going to talk about the inference of <strong><em>Chapter IIIB of the RBI Act, 1934<\/em><\/strong> on the NBFC and Housing Finance Company.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Exemptions_are_given_out_by_RBI_to_NBFC_and_Housing_Finance_Company\"><\/span>Exemptions\nare given out by RBI to NBFC and Housing Finance Company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\nRBI has got rid of prescribed exemptions for Housing Finance Companies and\nrouted them to an equal level to NBFCs (Non-Banking Financial Companies). It\nlooks that new improvement in Finance Act, 2019 has inspired them to undertake\nsuch measures. It is worth nothing that the said Act governs the Housing\nFinance Companies in India.<\/p>\n\n\n\n<p>Also, RBI has confirmed that the <strong><em>Chapter IIIB of the RBI Act, 1934 <\/em><\/strong>would no longer applicable to the <a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\"><strong>NBFC<\/strong><\/a> and Housing Finance Company. In August 2019, this peak institution conferred HFCs (Housing Finance Companies) with the status of non-banks.<\/p>\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 Amendment Act, 2017 combined all the essential provisions that were not comprised in the former Act. In discussion with CLC, MCA has made this Act more practical for the NBFC and <a class=\"text-primary\" href=\"https:\/\/swaritadvisors.com\/housing-finance-company-registration\"><strong>Housing Finance Company<\/strong><\/a>. Apart from that, the Reserve Bank of India (RBI) has also affirmed the withdrawal of definite exemption concerning Housing Finance Companies and included it in the classification of non-banks.<\/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\/nbfcs-request-rbi-for-restructuring-loans-and-fresh-liquidity-support-during-covid-19\/\">NBFCs request RBI for Restructuring Loans and Fresh Liquidity Support during Covid-19\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article, we are going to focus on different provisions concerning NBFC and Housing Finance Company, its filing process, amendments, and exemptions. Companies Act 2013; Section 186 primarily highlights the entity&#8217;s right to make investment, security, and loan. So, to know the ambit of Section 186 of the Companies Act, 2013, we have first [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":5332,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58],"tags":[652],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/5322"}],"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=5322"}],"version-history":[{"count":34,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/5322\/revisions"}],"predecessor-version":[{"id":12653,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/5322\/revisions\/12653"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/5332"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=5322"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=5322"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=5322"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}