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With the evolution of newer business models, the NBFCs are also witnessing many changes in their operations, management, and regulations. The RBI is simultaneously making the business of the NBFC smoother while retaining the basic compliance requirement. Non-systematically important, smaller NBFCs have been liberalized from the RBI regulations, while systemically important, larger NBFCs have been continuously monitored and strengthened to bring them on a par with the global standards. In this article, we will discuss the NBFC Takeover Procedure in details.
Mergers and takeovers around the world are making its presence strongly felt over the whole corporate scenario. The NBFCs are also under the impact of these compromises and arrangements. On the basis of the representations received from the industry, the Reserve Bank of India lays down the NBFC takeover procedure.
RBI has prescribed the whole procedure in relation to the NBFC Takeover or change in the management of NBFCs. Minor changes in the management or control are outside the purview of the takeovers. For any significant change, prior approval of the RBI shall be obtained. Failing that, the whole process shall be considered null and void.
If the entity falls under the criteria of the above requirement for prior approval, the next step to be followed is to make an application to the RBI for the grant of the aforesaid approval on the letterhead of the company along with the following necessary documents:
Thereafter, the application for approval shall be submitted to the Regional Office of the Department of Non-Banking Supervision in whose control the Registered Office of the NBFC is located. All the queries aroused by the RBI in respect to the concerned takeover shall be timely answered so as to avoid any unforeseen delay in the approval. Applications for NBFC takeover procedure, approval usually goes through a processing time of three to four months in the normal course of business.
In the case of the transfer of the ownership by a sale of shares, or transfer of control, whether with or without share transfer, a public notice shall be given in one leading national and one leading local newspaper at least 30 days prior to effecting such sale or transfer.
Once the above conditions are satisfied, the Share Purchase Agreement is prepared and signed, the management is handed over, and the consideration remaining, if any, shall be paid off within 31 days of the public notice in the newspaper or as mutually agreed upon by all the parties. Subsequently, all assets of the target company as shown in the balance sheet will be liquidated and liabilities will be paid off, and the acquirer will receive a clean bank balance in the name of a company which will be calculated on the basis of net worth as on the date of the takeover.
The process is little lengthy but is well defined. The systematic approach is needed for timely completion. Complying with the laws, conforming to the rules and regulations, and promptness in action is needed. The Acquirer Company shall beforehand gather all the necessary information with respect to the Transferee Company so as to avoid any ambiguity in the future. It shall also be kept in mind that only an NBFC registered under the Act shall undertake to acquire the control of another NBFC.
Do you wish to apply for NBFC Registration? Or are you looking for an NBFC Takeover advisory? Would you like to know about NBFC/Fintech consulting or know more about peer to peer lending? Please feel free to contact Enterslice, India leading online legal and tax advisory firm.
Read our article:What is the Objective of Business Takeover?
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