{"id":8304,"date":"2021-09-09T06:15:11","date_gmt":"2021-09-09T06:15:11","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=8304"},"modified":"2021-09-09T06:15:13","modified_gmt":"2021-09-09T06:15:13","slug":"process-of-nbfc-merger-as-per-companies-act-2013","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/process-of-nbfc-merger-as-per-companies-act-2013\/","title":{"rendered":"Process of NBFC Merger as per Companies Act 2013"},"content":{"rendered":"\n<p class=\"has-drop-cap\">NBFCs or Non-Banking Financial Companies are financial companies that provide all the financial-related services. NBFCs are registered under the <strong><em>Companies Act 2013<\/em><\/strong>. Non-Banking Financial Companies also provide asset financing support, loans for working capital and also give credit facilities &amp; provide investment in different properties that are beneficial in trading money market instruments. It is compulsory to get <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFC Registration Certificate<\/a><\/strong> from RBI (Reserve Bank of India) because, without the certificate, no NBFC can do business in India. It must be registered or incorporated under the <strong><em>Companies Act 1956 or 2013<\/em><\/strong> and must have a <strong><em>NOF<\/em><\/strong> of not less than Rs. 20 million for a systematically important one. Whereas for Non-deposit taking Non-Banking Financial Companies who don\u2019t accept\/hold public deposit RBI consents a NOF of 5 Billion or more as per their current audited balance sheet. In this blog, we will discuss the process of NBFC Merger as per the Companies Act, 2013.<\/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-6a2899d7c90b0\" 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-6a2899d7c90b0\"  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\/process-of-nbfc-merger-as-per-companies-act-2013\/#What_is_NBFC\" title=\"What is NBFC?\">What is NBFC?<\/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\/process-of-nbfc-merger-as-per-companies-act-2013\/#What_is_NBFC_Merger\" title=\"What is NBFC Merger?\">What is NBFC Merger?<\/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\/process-of-nbfc-merger-as-per-companies-act-2013\/#Pros_and_Cons_of_NBFC_Merger\" title=\"Pros and Cons\nof NBFC Merger\">Pros and Cons\nof NBFC Merger<\/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\/process-of-nbfc-merger-as-per-companies-act-2013\/#Things_to_Know_Before_NBFC_Merger_as_per_Companies_Act_2013\" title=\"Things to Know\nBefore NBFC Merger as per Companies Act 2013\">Things to Know\nBefore NBFC Merger as per Companies Act 2013<\/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\/process-of-nbfc-merger-as-per-companies-act-2013\/#Process_of_NBFC_Merger_as_per_Companies_Act_2013\" title=\"Process of\nNBFC Merger as per Companies Act 2013\">Process of\nNBFC Merger as per Companies Act 2013<\/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\/process-of-nbfc-merger-as-per-companies-act-2013\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_NBFC\"><\/span>What is NBFC?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Before\nwe discuss the process of NBFC Merger, let first understand the meaning of\nNBFC. An NBFC or Non-Banking Financial Company is a finance-related company\nregistered under the Companies Act 1956 or 2013 involved in the business of loans\n&amp; advances, Acquisition of shares\/bonds\/debentures\/stocks\/securities issued\nby the local authorities or Government or other marketable securities of a like\nnature, hire-purchase, chit business, leasing, etc. but doesn&#8217;t comprise any\ninstitution whose principal business is that of agriculture activity,\nindustrial activity, sale\/purchase of any gods other than securities or\noffering any services and purchase\/construction\/sale of immovable property. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_NBFC_Merger\"><\/span>What is NBFC Merger?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A merger means the combination of two companies that form into a new company. A merger is a part of a corporate strategy wherein two companies or two Non-Banking Financial Companies merge and create a new one to boost both organisations&#8217; financial &amp; operational strength. The acquiring company can make the most of equity shares of target companies, or the other acquired company may surrender the majority of shares to the acquiring company. According to the RBI (Reserve Bank of India), only the Non-Banking Financial Companies can undertake NBFC Takeover, which has got registered under the Companies Act, 2013.<\/p>\n\n\n\n<p><strong>Different Types of Merger<\/strong><\/p>\n\n\n\n<ul><li><strong><em>Vertical Merger<\/em><\/strong>: It\u2019s a merger between companies that operate along the same supply chain. This type of merger is the combination of companies along with the distribution &amp; production process of a business. The grounds behind this merger comprise a better flow of information along with supply chain, higher quality control, and merger synergies. A significant vertical merger occurred between <strong><em>Time Warner and America Online<\/em><\/strong> in 2000. The merger was deemed a vertical merger due to the different operations of each company in the supply chain.<\/li><li><strong><em>Horizontal Merger<\/em>: <\/strong>It is a merger between companies that directly battle against each other. These mergers are done to gain market power, i.e., market share, further use economies of scale, and exploit merger synergies. One of the famous examples of this merger was that between <strong><em>Compaq and HP<\/em><\/strong> in 2011. The successful merger between these two entities or companies created a worldwide technology leader valued at over 87 billion US dollars.<\/li><li><strong><em>Market-<\/em>Extension Merger: <\/strong>It&#8217;s a merger between companies that sell similar products or services, but that run in various markets. This merger aims to gain access to a huge market and hence an enormous customer base. For instance, the merger of <strong><em>RBC Centura with Eagle Bancshares Inc.<\/em><\/strong> in 2002 was a market-extension merger that aided RBC with its growing operations in the North American market. <strong><em>Eagle Bancshares owned Tucker Federal Bank<\/em><\/strong>, one of the leading banks in Atlanta, with more than 250 workers and 1.1 billion dollars in assets.<\/li><li><strong><em>Product-Extension Mergers: <\/em><\/strong>This is a merger between companies that sell related goods or services and that run in a similar market. By employing a product-extension merger, the merged company is capable of grouping their products together &amp; gaining access to more clients. It is vital to note that the goods and services of both entities are not identical, but they are related. The point is that they use the same distribution channels &amp; common\/related production processions or supply chains. For instance, the merger between <strong><em>Broadcom and Mobilink Telecom Inc.<\/em><\/strong> is a product-extension merger. Two companies operate in the electronic sector, and the resulting merger permitted the companies to merge technologies. The merger enabled the combination of <strong><em>2G and 2.5G technologies of Mobilink with Broadcom\u2019s 802.11, <\/em><\/strong>Bluetooth, and DSP products. Hence, two companies or entities are able to sell products or goods that balance each other.<\/li><li><strong><em>Conglomerate Merger: <\/em><\/strong>This is a merger between companies or entities that are totally unrelated. There are two different types of Conglomerate Merger:<ol><li><strong><em>Pure Conglomerate Merger<\/em><\/strong>: It involves companies that are completely unrelated and that operate in different markets.<\/li><li><strong><em>Mixed Conglomerate Merger<\/em><\/strong>: It involves companies that are looking to increase product lines\/target markets.<\/li><\/ol><\/li><\/ul>\n\n\n\n<p>The\nmost significant risk in this merger is the immediate shift in business\noperations resulting from the merger, as the two entities or companies operate\nin totally different markets and provide unrelated goods or services. For\ninstance, the merger between <strong><em>ABC (American Broadcasting Company) and The\nWalt Disney Company <\/em><\/strong>was a Conglomerate Merger. ABC is a US commercial\nbroadcast television network (News &amp; Media Company), while Walt Disney\nCompany is an entertainment industry.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pros_and_Cons_of_NBFC_Merger\"><\/span>Pros and Cons\nof NBFC Merger<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Following\nare some pros and cons of NBFC Merger in India:<\/em><\/strong><\/p>\n\n\n\n<p><strong><em>Pros:<\/em><\/strong><\/p>\n\n\n\n<ol><li>It aids in providing economies\nof scale, helps in the development and competes with Government and\nMulti-National Banks so that they can later apply for Bank Licenses.<\/li><li>NBFC Merger helps to avoid the\ntime &amp; cost as may be required to commence NBFC on its own.<\/li><li>They also provide tax benefits.<\/li><li>They help in giving enough fuel\nto compete with conventional banks; they help in increasing the market share,\nexpanding the goodwill &amp; decreasing their <strong><em>NPA (Non-Performing Assets)<\/em><\/strong>.<\/li><\/ol>\n\n\n\n<p><strong><em>Cons:<\/em><\/strong><\/p>\n\n\n\n<ol><li>There are functional changes\ndue to the immense scale of NBFC businesses.<\/li><li>They may create trouble among\nemployees because of a merger in the organisation; there is always an operation\nrisk, and management problems cannot be ignored.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Things_to_Know_Before_NBFC_Merger_as_per_Companies_Act_2013\"><\/span>Things to Know\nBefore NBFC Merger as per Companies Act 2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Following\nare some important points to remember before the process of NBFC Merger:<\/em><\/strong><\/p>\n\n\n\n<ul><li>A takeover of NBFC is an essential way of increasing business. It is great to obtain through for those entities who fail to register Non-Banking Financial Companies; however, precaution requires to be exercised before starting takeovers.<\/li><li>&nbsp;<strong><a href=\"https:\/\/swaritadvisors.com\/due-diligence\" class=\"text-primary\">Due Diligence<\/a><\/strong> is essential to conduct comprehensive research into the background of target entities.<\/li><li>Before purchasing a company, it is necessary to check by making a proper checklist of different factors, which requires a detailed examination for more alignment with the significant goals for this Takeover and consider whether this new target company will aid in pleasing those objectives.<\/li><li>It is crucial to estimate the financial position of the company which getting firm wishes to acquire and needs to cautiously assess and evaluate the maximum amount of payment which would be essential for Takeover as per the cash flows &amp; confirm the perfect payment mode as the company will decline the offer below market value, so it is better to estimate the correct pricing before providing the deal.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Process_of_NBFC_Merger_as_per_Companies_Act_2013\"><\/span>Process of\nNBFC Merger as per Companies Act 2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following is the process of NBFC Merger as per Companies Act 2013;<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/These-are-Process-of-NBFC-Merger-as-per-Companies-Act-2013.png\" alt=\"These are the process of NBFC Merger as per Companies Act 2013\" class=\"wp-image-8316\" width=\"501\" height=\"450\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/These-are-Process-of-NBFC-Merger-as-per-Companies-Act-2013.png 1002w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/These-are-Process-of-NBFC-Merger-as-per-Companies-Act-2013-300x269.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/These-are-Process-of-NBFC-Merger-as-per-Companies-Act-2013-768x690.png 768w\" sizes=\"(max-width: 501px) 100vw, 501px\" \/><\/figure><\/div>\n\n\n\n<ul><li><strong><em>Sign the MOU and Get Approval from BODs<\/em><\/strong><ol><li>The NBFC Merger process is activated when both companies sign the <strong><em>MOU (Memorandum of Understanding). <\/em><\/strong>It describes that both companies are ready for the agreement of Takeover. The directors of the Target Company and Acquiring Company come together &amp; sign them. The MOU contains the needs &amp; responsibilities of all companies, and when the MOU get approved, the Acquiring Company pays the amount of token to the Target Company so as to confirm the transaction.<\/li><li>Approval from the bank for the merger is taken.<\/li><li>Prepare all documents of directors in companies for KYC.<\/li><li>Prepare the business plan.<\/li><\/ol><\/li><li><strong><em>RBI Approval<\/em><\/strong><ol><li>A company needs approval from <strong>RBI<\/strong><sup><a class=\"text-primary\" href=\"https:\/\/www.rbi.org.in\/\"><strong>[1]<\/strong><\/a><\/sup> if there is a change in management after the Acquisition. For example, if there is any discrepancy in the shareholding of a Non-Banking Financial Company that turns more than 26% (after the Acquisition) of the paid-up equity capital.<\/li><li>If the Takeover of NBFC tends to alter the management of around 30% of the number of directors.<\/li><li>Approval of RBI is not required if the shareholding change is due to some buyback offer or directors\u2019 rotation.<\/li><\/ol><\/li><li><strong><em>Submit Document to RBI<\/em><\/strong><ol><li>Details of the proposed directors or shareholders.<\/li><li>Details about the sources of funds.<\/li><li>Report of bankers for directors or shareholders.<\/li><li>An affidavit and declaration of non-criminal background.<\/li><li>Financial record of last three years.<\/li><\/ol><\/li><li><strong><em>Received RBI Approval<\/em><\/strong><ul><li>Conduct a board meeting to discuss matters concerning public notice, date, time of EGM.<\/li><li>Publish a public notice in two languages (English is compulsory) after thirty days of RBI approval &amp; invite any objection to the proposed arrangement. The following need should be completed before Takeover:<ol><li>Get NOC or No-Objection Certificate from creditors.<\/li><li>Comes into a formal agreement for the purchase share or management transfer or transfer of shares or such interest for the Takeover of NBFC.<\/li><li>Notice to the regional office of RBI.<\/li><li>Company valuation as per rules prescribed by the Reserve Bank of India.<\/li><li>Transfer of Assets; they are in compliance with signed agreements.<\/li><\/ol><\/li><li>After 30 days or a month of the signing of the formal agreement, publish a 2<sup>nd<\/sup> public notice in two languages; the notice should capture:<ol><li>Intention to transfer\/sell ownership or control;<\/li><li>All vital particulars of the transferee;<\/li><li>Reasons for <strong><a class=\"text-primary\" href=\"https:\/\/swaritadvisors.com\/nbfc-takeover-agreement\">NBFC Takeover Agreements<\/a><\/strong>\/the transfer of ownership or control.<\/li><\/ol><\/li><\/ul><\/li><li><strong><em>NCLT Approval: <\/em><\/strong>File an application to NCLT under Section 230-233 of the Companies Act 2013 looking for consent for a scheme of Merger or Amalgamation. Following are some documents that should be submitted to NCLT for consent:<ol><li>Application with NCLT for conducting the general meeting.<\/li><li>Tribunal will give an order to conduct a meeting of shareholders.<\/li><li>Meetings of shareholders will be conducted by the company for approval of the merger.<\/li><li>Submit a certified copy of the current audited balance sheet and P&amp;L statement.<\/li><li>SEBI approval, in case of a listed company.<\/li><li>Prepare the merger scheme with a descriptive statement.<\/li><li>Creditor list with their outstanding dues.<\/li><li>Authorised liquidator report.<\/li><li>Get a report of valuation.<\/li><li>Information of statutory proceedings by or against the company.<\/li><\/ol><\/li><\/ul>\n\n\n\n<p><strong><em>NCLT\nmay look for the following observations in the application:<\/em><\/strong><\/p>\n\n\n\n<ol><li>They can ask questions on the\nmaterial statements of the bank latest financial position auditor report and\nany such observation.<\/li><li>The creditor\/member or any\nclass of them are fairly shown by those who attended the meeting.<\/li><li>The scheme should be in the\npublic interest if possible.<\/li><li>The scheme is in the company\u2019s\ninterest and its members &amp; creditors.<\/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>Takeovers and Mergers are on the growth and are a vital source of increase the development in an exponential way. It has become one of the crucial sources of business enlargement in a short time. NBFC Takeover proves to be a hope for all those entities who fail to register an NBFC of their own.<\/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-utilize-voice-ai-for-better-customer-experiences\/\">How can NBFCs utilize Voice AI to formulate Differentiated Customer Experiences?<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>NBFCs or Non-Banking Financial Companies are financial companies that provide all the financial-related services. NBFCs are registered under the Companies Act 2013. Non-Banking Financial Companies also provide asset financing support, loans for working capital and also give credit facilities &amp; provide investment in different properties that are beneficial in trading money market instruments. It is [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":8305,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58],"tags":[844],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/8304"}],"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=8304"}],"version-history":[{"count":32,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/8304\/revisions"}],"predecessor-version":[{"id":8346,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/8304\/revisions\/8346"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/8305"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=8304"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=8304"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=8304"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}