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How to Process Change in Management of NBFC

Narendra Kumar

| Updated: Apr 18, 2018 | Category: Change in Business, NBFC

Change in Management of NBFC

Change in Management of NBFC

NBFC is a Non-Banking Financial Company, the principal (Change in Management of NBFC) business of which is:

  • lending money or
  • investing in shares/stocks/bonds/debentures or
  • leasing hire purchase, or
  • doing an insurance business, chit business or
  • Receiving deposits under any scheme or arrangement.

Note: NBFC is regulated by Reserve Bank of India.

Change in management of NBFC happens now and then, due to situations such as resignation, death, retirement or takeover. Thus, Change in management in NBFC requires Strategic review of the proposal, the Due diligence of the target company, MoU between the target company and acquirer, Plan for ICD during a change in the management process, Nod from RBI for Change in management and MCA Compliance for Change in management.

Before any change in the management, Reserve Bank specifies the conditions for which prior approval of the bank is required:

  • Any takeover or acquisition of NBFCs, resulting in a change of management;
  • Any change in the shareholding pattern resulting in acquisition/transfer of 26% or more of the paid-equity capital.
  • More than 30 % change of directors, excluding independent directors.

The above conditions are subject to the following exceptions:

  • When there is a change in shareholding, due to the order of competent authority, it is mandatory for a company to inform RBI within 30 days of the occurrence.
  • When the director of the company gets re-elected by rotation, then prior approval is not required.

Further, RBI states that all NBFCs shall intimate regarding the change in management as required by law.

NBFCs Change in Management

Where there is any change in management, NBFC is required to submit an application to Reserve Bank of India on the letterhead of the Company, along with the requisite documents:

  • Information about change of proposed directors/ shareholders;
  • Detail of source of fund for acquiring the shares in NBFC of the proposed shareholder;
  • The proposed director/shareholder must provide a statement no criminal record, or offenses under section 138 of the Negotiable Instrument Act.
  • The proposed director/shareholder must provide a statement for non-involvement with a company whose application for Certificate of Registration was rejected by RBI;
  • Proposed directors/ shareholders banker’s report

The requirement of Public Notice in case of 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. Such public notice shall be given by the concerned NBFC as well as the other party to the transaction. The notice should be published in 2 newspapers, of which one should be in the English language and other in a regional language where the register office of the company is situated. The Notice should clearly specify the intention of such a change in management.

Information to be provided to the Reserve Bank of India

The proposed directors/shareholders of the company should provide appropriate information in Annexures provided by Reserve Bank of India. This information should be completely and accurately filled. Any incomplete information will be rejected and the approval process may be delayed.

The objective of the Reserve bank of India is to attain maximum transparency and efficiency in the workings of the financial market. Previous written consent of the Reserve Bank is a need for any takeover or acquisition of control of an NBFC, which may or may not result in a change of management. Due to the rise of NBFCs in the financial and credit market, RBI plays pivotal role assuring the workings are uninterrupted.

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

Business Plan Consultant


4 Comments

Avatar

kwinkle     May 9, 2019 at 4:38 pm

is it applicable to Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies?

    Soniya Khanna

    Soniya Khanna     May 10, 2019 at 11:03 am

    Hi
    Thanks for A2A.
    Yes, it is applicable on Non Systemically Important NBFCs.
    For more information please visit enterslice.com/takeover-of-nbfc.

Avatar

DEEKSHA TIWARI     June 5, 2019 at 11:14 am

Can you please share format of the above documents and what forms to be filled before ROC

    Narendra Kumar

    Narendra Kumar     June 6, 2019 at 10:24 am

    HI Deeksha,
    To get the complete information pls call @ 9870310368 or you can fill the inquiry form then our expert will help you.
    Thanks

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