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Management Transfer of NBFCs

NBFC Management Transfer

Management Transfer of NBFCs

It is very often usual Non-Banking Financial Companies (NBFCs) to transfer their management. Management transfer becomes necessary because of various reasons on the face of a fast changing economic scenario. What is this NBFC Management Transfer?

“The NBFC Management Transfer takes place when there is change on account of retirement, resignation, takeovers, or death.”
– Shweta Gupta (Founder and CEO, MUDS Management Pvt Ltd)

In other words, NBFC Management Transfer is meant by any takeover or acquisition of control of an NBFC. However, NBFC Management Transfer needs to be handled as per the guidelines of the Reserve Bank of India.

The Reserve Bank has made the norms for NBFC Management Transfer very stringent by making it mandatory to seek Prior Approval from it. On 9 July 2015, the RBI has issued the NBFC (Approval of Acquisition or Transfer of Control) Directions, 2015 (Amended Directions) indicating the circumstances in which a prior approval of the RBI would be required where there is a change of control or management of an NBFC.

An important question is as to the essential requirements under NBFC Management Transfer.  A prior public notice of at least 30 days is an essential requirement in the situation of any sale, transfer of ownership, or control, or any such change in management. Such notice shall be given by the concerned NBFC as well as the other party in the transaction or jointly by both the parties after getting the prior permission of the RBI.

The public notice shall be given in one leading English language newspaper and one leading local vernacular newspaper where the registered office of the company is situated. The notice must also contain the reasons and intention of such change in management or acquisition of the control.

There are different Annexure prescribed by the RBI in its notifications requiring information pertaining to the directors/promoters / shareholders of the NBFC. The NBFCs are required to provide the necessary information to the RBI for approval. If the information is found to be incorrect, the application shall not be entertained, and there will be a delay in approval

All the applications for obtaining the Prior Approval may be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the NBFC is located.

Prior written permission of the Reserve Bank is a must for any NBFC Management Transfer. As per RBI requirement for NBFC Management Transfer, there are some conditions in which promoters have to make a full – fledged application to RBI for their prior approval.

The conditions in which the Prior Approval of the RBI is as below:
  1. Any  takeover or acquisition of control of NBFCs, whether or not resulting in the change in management of the company;
  2. Any change in the shareholding of an NBFC resulting in acquisition/transfer of shareholding of 26% or more of the paid-equity capital. In the same case when there is intra-group acquisition /transfer of shareholding of 26% or more of the paid up equity capital in the NBFC then also prior RBI approval is required.
However, Prior approval is not necessary in case of an increase in shareholding beyond 26% due to the buyback of shares or reduction in the capital where approval of a competent court has already been granted. However, the change needs to be notified to RBI within one month of the event.
  1. Any change in management of the NBFC which result in the change in more than 30% of the directors including change due to retirement by rotation require prior approval of RBI excluding independent director.

The above Conditions are subject to the following exceptions:

  • In case the change in shareholding is effected as a result of the order of a competent court, the company is required to inform the Reserve Bank not later than one month of its occurrence.
  • In case the directors get re-elected by rotation, the prior approval would not be required.
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