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NBFC must comply with both the RBI and the Companies Act 2013 requirements to operate. Even though both regulators work best together when possible, this is not always the case due to the existence of NBFCs and ongoing oversight by top banks. The term “debenture” encompasses debenture stock, bonds, and any other instrument of a firm that evidences a debt, whether or not it places a charge on the company’s assets. If you are an Unlisted NBFC and intend to issue Non-Convertible Debentures (NCDs) on a Private Placement basis, you should follow the procedure discussed below.
Section 42 of the Companies Act of 2013 (the “Act”), a business may conduct a private placement with a selected group of people. Companies engage in private placement when they offer or invite a select group of people to subscribe for their shares using a private placement offer letter as opposed to through a public offering.
Securities may only be privately placed with chosen or designated individuals (as determined by the company’s board of directors). A private placement firm is prohibited from advertising its securities to the general public or using any marketing, media, or distribution agents or channels to alert the public to the offer. The offer will be regarded as a public offer and not a private placement by the corporation if it is promoted or advertised.
NBFCs must implement a board-approved resource planning policy, which should, among other things, address the planning horizon and the frequency of private placement.
The following guidelines shall apply to the issues:
The circular does not apply to the tax-exempt bonds that NBFCs provide.
The Internal Debt Management Department of the RBI’s guidelines on Issuance of Non-Convertible Debentures (Reserve Bank) Directions, 2010, dated June 23, 2010, shall apply to NCDs with maturities of up to one year.
Having become an NBFC in accordance with RBI rules, the issue of NCDs must be secured NCDs where the subscription amount per investor is Rs 1 Crore or less (the term is greater than one year). As a result, Sections 42 and 71 of the Companies Act 2013 are also applicable concurrently. I’ve made an effort to include the clauses and points that only apply to NBFCs:
The following requirements must be met before the firm can name debenture trustees under Section 71:
If a firm takes money or makes an offer in violation of the Act and Rules, the company, its directors, and its promoters may be subject to fines. If there was more money involved in the invitation or offer than that, the fine may be up to Rs. 2 crore. Additionally, the business must return all subscription fees to customers within 30 days of receiving the court judgment imposing the fine.
Private high-net-worth individuals who are interested in investing in NCDs are given access to private placements, which are not available to the general public. NBFCs, following the guidelines from the Reserve Bank of India, can raise money through the private placement of NCDs.
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