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The Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2015 (hereinafter referred to as ‘Directions’) was revised by RBI on July 9, 2015 stating that every non-banking financial company whether accepting deposits or not will be covered within the scope of the above directions. The directions are more stringent as compared to the notification issued by the RBI in May 26,2014.
Requirement for obtaining prior approval of RBI:
Application for Prior Approval
Requirement of Prior Public Notice about change in control/management
The entire procedure of NBFC Takeover is covered in the following steps
Sr. No. |
PARTICULARS |
PROCEDURE |
1. |
MEMORANDUM OF UNDERSTANDING |
The foremost step is the signing of the Memorandum of Understanding (MOU) with the proposed company. The MOU signifies that both the companies have agreed to the takeover. The directors of both- the acquirer company and the target company, sign the MOU. The requirements and the responsibilities of both the companies are mentioned in the MOU specifically. At the time of signing the MOU, the acquirer company gives the token money to the target company. |
2. |
BOARD MEETING |
Once the MOU has been signed, both the companies shall convene Board Meeting to discuss the following matter: · Reply to any query of RBI that may be raised in relation to the approval application · Fixing the date, time and place for convening the Extra Ordinary General Meeting (EGM) · Passing the resolution of EGM |
3. |
PUBLIC NOTICE |
Once approval has been obtained from the RBI, a public notice shall be made in two newspapers within 30 days in order to invite any objection of the public with respect to the takeover |
4. |
SHARE TRANSFER AGREEMENT |
At the expiration of the 31st day of publishing the notice in the newspaper, both the companies shall sign the share transfer agreement. At the time of signing, the balance consideration shall be paid by the acquirer company to the target company. |
5. |
NO OBJECTION CERTIFICATE FROM CREDITORS |
Prior to transferring the business to the acquirer company, the target company shall obtain NOC from its creditors. |
6. |
TRANSFER OF ASSETS |
Once NOC has been obtained from the creditors and no creditor has raised any objection in regard to the takeover, the assets of the target company will be transferred to the acquirer company, as approved by the RBI. The transfer, however, should not be in contravention to any clause of the company. |
7. |
EVALUATION OF THE ENTITY |
The evaluation of the entity post-takeover shall be done in accordance with the rules provided by the RBI. Post evaluation, a certificate starting the method for valuation shall be obtained from a Chartered Accountant |
8. |
NOTICE TO THE REGIONAL OFFICE |
Once the valuation is done and approval has been taken, the NBFC shall submit an application on the letterhead of the company to the Regional Office. Post takeover, any changes in the management should be continuously intimated to the RBI.
The contents of the application made to the Regional Office of the RBI shall be as follows:
· Acquirer company’s sources of funds · Information regarding proposed shareholders and directors · Declaration by all the proposed directors and shareholders in regards to their non-association with any entity that accepts deposits · Statement by all the proposed directors and shareholders that no criminal proceedings have been initiated against them in the past or are pending in any court of law. |
9. |
TRANSFER OF THE UNDERTAKING |
Subsequent to the above-mentioned procedure, all the assets as shown in the balance sheet of the target company shall be liquidated and the liabilities would be paid off. The acquirer company will then receive the balance in the bank account in the name of the target company. The balance will be as calculated on the basis of net worth, as on the date of the takeover. |
It means
Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2015’ shall be applicable to every non-banking financial company whether accepting deposits or not, except Primary Dealers.
(i)NBFCs shall submit an application, in the company letter head, for obtaining prior approval of the Bank, along with the following documents:
(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.
"Control" shall have the same meaning as is assigned to it under clause (e) of sub-regulation (1) of regulation 2 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
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, a public notice of atleast 30 days shall be given shall be given by the NBFCs and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Reserve Bank. It 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.
Prior permission of RBI is required for acquisition/takeover of any NBFC for which proper application is to be made to RBI. Proper Procedure is to be followed after getting RBI Approval such as Memorandum of Understanding between both the parties, Newspaper Advertisement, Drafting of various agreements etc. We at Compliance Calendar LLP has a team of professionals who can provide you proper consultation and guidance for NBFC Takeover/Acquisition in an efficient, hassle free a timely manner. If you are looking to acquire Non-Banking Financial Company (NBFC), you are welcome to connect with us at info@ccoffice.in or call us at +91-9988424211 to book your one-time free consultation and we will be more than happy to help you out.