CHANGE IN MANAGEMENT OF NBFC
Non-Banking Financial Company also known as NBFC Company gives advances and loans to the public as per the Indian Companies Act. It acquires shares, stocks, debenture, bond, and securities from the government as well as the local authority. It is a company that provides banking facilities without meeting the actual definition of a bank.
Different NBFCs include:-
- Asset finance companies.
- Investment companies.
- Infrastructure finance companies.
- House finance companies.
- Loan companies.
- Core investment companies.
Due to reasons like transfer of shareholding, change in directorships, death, retirement, takeover, some strategic planning for the growth of the company, etc there might be a lot changes in the management of the NBFCs.
Thus, Change in management in NBFC requires a Strategic review of the proposal. Change in management of NBFCs is governed vide RBI. There were no such norms for changing the management of NBFC prior to 15 July 2015. We shall discuss the directions for the same in this article.
- Conditions for which prior approval of bank is required:-
Conditions like any takeover, or acquisition of NBFCs resulting in a change of management. When technical schemes like Corporate mergers, Corporate amalgamations, Company takeovers, etc. falls, then prior approval is required.
When there is any change in the shareholding pattern resulting in acquisition or transfer of 26% or more of the paid-equity capital of the NBFC. In this condition, when there is an increase or decrease in shareholding ratio, due to the order passed of authority, it is compulsory for an NBFC to inform RBI within 30 days of the incidence. However, prior approval is not required in any case of shareholding going beyond 26%.
The condition may result in a change of more than 30% of the directors, excluding independent directors. Prior approval is not required, when the director of the company gets re-elected by rotation. In case a company has two directors and requires two more directors on the board then the company will need prior written approval from the RBI.
- Pre-requisites for the change in management of the NBFC:-
It is very important to take note of all the compliances of the target company before moving the application to the RBI. The compliances and returns under the Income Tax (IT) Act, TDS, Goods, and Service Tax Act, Reserve Bank of India shall be checked for a period of 8 previous financial years. Compliance of the change in Directors and shareholding of the Target Company shall be checked since the date of obtaining Certificate of Registration from RBI. It is important to check the background of proposed Directors and shareholders as this is the basic criteria for the RBI for granting approval for change in management.
The proposed management shall have a good bankers report, CIBIL, and clean compliant record. The proposed director should be from a financial background as well.
- Documents required prior approval to change in management:-
Information about change of proposed directors or shareholders as per the format provides by the RBI.
Details about the source of money for acquiring the ownership in NBFC of the proposed owner.
The proposed Director or shareholder must provide a declaration of no criminal record or offenses under section 138 of the Negotiable Instrument Act.
The proposed Director or shareholder must provide a statement for non-involvement with a company whose application for Certificate of Registration (COI) was rejected by Reserve Bank.
Proposed Directors or shareholders of the banker’s report.
Any incomplete information provided to the Reserve Bank will be rejected and will result in a delay in the approval process.
- The requirement of Public Notice about change in management:-
When there is any sale, transfer of ownership, merger, or any Change in management of NBFCs, a public notice shall be given at least 30 days prior to when the company has received the approval for change in the management. The notice should be published in 2 newspapers, one English and one any other regional language where the registered office of the company is situated
