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Asset Reconstruction Company Registration

End-to-end assistance in registration with Registrar of Company (RoC).
Complete support in business plan development.
Consultations and advisory for compliance and management.
Complete support in obtaining a license from RBI.
Resolution of all queries regarding documents and procedural requirements.

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    What is Asset Reconstruction Company?

    Asset Reconstruction Company or ARC are financial entities registered under the Companies Act 2013. The purpose of these entities is scrutinization of NPAs and they need to be registered with RBI which is the regulatory body for such entities. Section 3 of the SARFAESI Act describes the ARC as specialized financial institutions for buying bad loans or NPAs. These institutions ensure enhanced liquidity in the market and a cleaner balance sheet for their banks.

    After buying the bad loans from financial institutions or banks, ARC becomes the owner of such assets and get the responsibility of the lender in the transaction. Now, they can move with the recovery process of bad loans in place of the original lender. The applicable rules and regulations of these entities are as per the SARFAESI Act.

    A company willing to obtain Asset Reconstruction Company Registration certificate must apply to RBI within six months of its commencement under the SARFAESI Act.  The business of asset reconstruction or scrutinization cannot be carried without the registration certificate of RBI.

    Eligibility Criteria to Get Asset Reconstruction Company Certificate

    A company must fulfill the following conditions to get registered as an ARC.

    The company must not have incurred any losses in the financial years prior to it.
    To realise the acquirement of financial assets, the company must have enough infrastructure and adequate arrangements.
    The company must be able to give periodic returns on the investment made in the company by financial buyers or other investors.
    The company directors should be experienced in financial management, reconstruction management, and scrutinization of assets.
    The directors must possess a clean image in public and should not have any convictions related to any case of moral turpitude.
    The sponsor or promoter of ARC must meet all the criteria of RBI.
    The company must comply with the regulatory norms of RBI.
    The company must have a net owned fund of 100 crores or more as specified by RBI.

    Procedure to Get Registration Certificate of Asset Reconstruction Company

    Compile all the necessary documents and prepare the application for ARC registration as specified by RBI.
    Before applying for RBI registration get the company registered with RoC.
    Apply for registration to the RBI. Before granting the registration certificate to the company, RBI may verify the records, books, and assets of the Reconstrutuoion company to determine its eligibility for the registration certificate.
    If all the conditions are satisfied, the RBI will release a certificate of registration to the new Asset Reconstruction Company.

    Note: RBI may even reject applications if they find any fault in it or the previous record of the company. Muds Management helps businesses in creating an impeccable application and compile all the necessary documents to ensure that the registration process is successful.

     
     
    Document Required

    Documents Required For Asset Reconstruction Company Registration

    Copies of AOA and MOA of the company.
    Certified copy of the incorporation certificate of the company.
    A copy of the resolution by the company’s board stating it has not accepted any deposit.
    Details of promoters or administrators and all the related documents of their educational and professional qualifications.
    Detailed information on the director’s profile, previous experience, etc.
    A copy of the audit certificate from a verified auditor.
    The audited balance sheet of the previous three years with auditor’s and director’s report.
    A statement expressing details of the owned fund.
    Information related to party transactions.

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      Funding Resources for ARC

      1. The ARC could issue bonds or debentures related to funds to meet its funding requirements. Issuing security receipts is one of the primary sources of funding for ARC.
      2. According to the SARFAESI Act, security receipts are the securities issued by a qualified reconstructional company to any certified Qualified Institutional Buyer (QIB) regarding any particular scheme. The receipt gives a title, right, or interest to the QIB in the financial assets acquired by the ARC. The security receipts have impaired assets for back up.
      3. The Qualified Buyer or QIB means a financial entity which can be a financial institution, bank, insurance firm, state-owned industrial development corporation, state-owned financial corporation, trustee, or any other asset reconstruction firm certified under SARFAESI Act.
      4. An ARC is not allowed to raise funds through investors who are not a designated qualified buyer.

      Acquisition and Valuation rules for ARC:

      The ARCs shall acquire NPAs at a ‘fair price’ following the “Arm length principle”.
      The SARFAESI Act allows ARCs to acquire financial assets (NPAs) by way of a bank agreement. In exchange for NPAs transferred to ARCs, banks and FIs may receive bonds/debentures. A portion of the value may be paid as Security Receipts (SRs).

      Asset Restructuring and Resolution Strategies for ARCs

      The SARFAESI act has stipulated some resolution measures for the reconstruction of Non-profitable assets brought by ARCs. Let’s get through them one by one,

      Take over or restructure the management of the borrower’s company.
      Facilitate settlements or sale and lease of the borrower’s company.
      Debt rescheduling and restructuring.
      Strengthening the security interests of the company.
      Take possession/lease/sale of the sponsored asset of the borrower such as land or building etc.

       

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      Frequently Asked Questions on Asset Reconstruction Company Registration

      Asset Reconstruction Company or ARC are financial entities registered under the Companies Act 2013. The purpose of these entities is scrutinization of bad assets and they need to be registered with RBI which is the regulatory body for such entities. Section 3 of the SARFAESI Act describes the ARC as specialized financial institutions for buying bad loans or NPAs. These institutions ensure are enhanced liquidity in the market and a cleaner balance sheet for the seller banks. After buying the bad loans from financial institutions or banks, ARC becomes the owner of such assets and get the responsibility of the lender in the transaction. Now, they can move with the recovery process of bad loans in place of the original lender. The applicable rules and regulations of these entities are as per the SARFAESI Act.

      • The ARCs acquire NPAs at a ‘fair price’ according to the arm length principle.
      • The SARFAESI Act allows ARCs to acquire financial assets (NPAs) by way of a bank agreement. In exchange of NPAs transferred to ARCs, banks and Financial Institutions may receive bonds/debentures. A portion of the value may be paid as Security Receipts (SRs).

      A Qualified Buyer (QB) could be a Financial Institution, a Bank, an Insurance Firm, a State Financial Corporation, a Trustee, a State Industrial Development Corporation, or any other investment asset management company on behalf of a mutual fund, a Foreign Institutional Investor registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or any of its regulations, any category of financial entity certified by SARFAESI act.

       

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