RBI’s prior approval is required for change in shareholding by Securitisation Company / Reconstruction Company (SC / RC)

In terms of Sec­tion 3(6) of the SARFAESI Act, 2002, every Secu­ri­ti­sa­tion Com­pa­ny / Recon­struc­tion Com­pa­ny (SC / RC) is required to obtain pri­or approval of the Reserve Bank for any sub­stan­tial change in its man­age­ment. For the pur­pose of this sec­tion, the expres­sion “sub­stan­tial change in man­age­ment” means the change in the man­age­ment by way of trans­fer of shares or amal­ga­ma­tion or trans­fer of the busi­ness of the com­pa­ny. Hence, one of the terms and con­di­tions stip­u­lat­ed to the SC/RCs, while grant­i­ng them the Cer­tifi­cate of Reg­is­tra­tion, states that pri­or approval of Reserve Bank will have to be tak­en by the SC/RCs for any change in their share­hold­ing pattern.

2. In order to smoothen the func­tion­ing of SC/RC com­pa­nies, it has been decid­ed that, hence­forth only the fol­low­ing changes in the share hold­ing pat­tern of the SC/RC will require Reserve Bank’s pri­or approval:

1. any trans­fer of shares by which the trans­fer­ee becomes a sponsor.
2. any trans­fer of shares by which the trans­fer­or ceas­es to be a sponsor.
3. an aggre­gate trans­fer of ten per­cent or more of the total paid up share cap­i­tal of the SC/RC by a spon­sor dur­ing the peri­od of five years com­menc­ing from the date of cer­tifi­cate of registration.

3. All oth­er terms and con­di­tions as stip­u­lat­ed to the SC/RC, while grant­i­ng them the Cer­tifi­cate of Reg­is­tra­tion, will con­tin­ue to apply.

4. SCs/RCs may note the above instruc­tions for metic­u­lous compliance.

5. A noti­fi­ca­tion DNBR(PD-SC/RC).No.01/CGM(CDS)/2014–2015 dat­ed Feb­ru­ary 24, 2015, amend­ing ‘The Secu­ri­ti­sa­tion Com­pa­nies and Recon­struc­tion Com­pa­nies (Reserve Bank) Guide­lines and Direc­tions, 2003’ is enclosed.

Yours sin­cere­ly,

(C D Srinivasan)
Chief Gen­er­al Manager

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Reserve Bank of India
Depart­ment of Non-Bank­ing Regulation
Cen­tral Office
World Trade Centre
Mum­bai 400 005

Noti­fi­ca­tion DNBR(PD-SC/RC) No. 01/CGM (CDS)/ 2014–2015 dat­ed Feb­ru­ary 24, 2015

The Reserve Bank of India, hav­ing con­sid­ered it nec­es­sary in the pub­lic inter­est, and being sat­is­fied that, for the pur­pose of enabling the Reserve Bank to reg­u­late the finan­cial sys­tem to the advan­tage of the coun­try and to pre­vent the affairs of any Secu­ri­ti­sa­tion Com­pa­ny or Recon­struc­tion Com­pa­ny from being con­duct­ed in a man­ner detri­men­tal to the inter­est of investors or in any man­ner prej­u­di­cial to the inter­est of such Secu­ri­ti­sa­tion Com­pa­ny or Recon­struc­tion Com­pa­ny, in exer­cise of the pow­ers con­ferred under Sec­tion 3, 9, 12 and 13 of the Secu­ri­ti­sa­tion and Recon­struc­tion of Finan­cial Assets and Enforce­ment of Secu­ri­ty Inter­est Act, 2002, here­by directs that ‘The Secu­ri­ti­sa­tion Com­pa­nies and Recon­struc­tion Com­pa­nies (Reserve Bank) Guide­lines and Direc­tions, 2003’ con­tained in Noti­fi­ca­tion No.DNBS.2/CGM(CSM)-2003 dat­ed April 23, 2003(hereinafter called direc­tions) shall stand amend­ed with imme­di­ate effect, as follows :-

2. Inser­tion of new para­graph 24

After para­graph 23, the fol­low­ing para­graph 24 shall be inserted

“24. Bank’s pri­or approval for any sub­stan­tial change in man­age­ment by way of trans­fer of shares”

Notwith­stand­ing any­thing to the con­trary con­tained in the terms and con­di­tions stip­u­lat­ed in the cer­tifi­cate of reg­is­tra­tion issued under sec­tion 3 of the Act, SC/RCs shall obtain pri­or approval of Reserve Bank for trans­fers that result in sub­stan­tial change in man­age­ment in the fol­low­ing cas­es only-

1. any trans­fer of shares by which the trans­fer­ee becomes a sponsor.
2. any trans­fer of shares by which the trans­fer­or ceas­es to be a sponsor.
3. an aggre­gate trans­fer of ten per­cent or more of the total paid up share cap­i­tal of the SC/RC by a spon­sor dur­ing the peri­od of five years com­menc­ing from the date of cer­tifi­cate of registration.

Expla­na­tion:- For the pur­pos­es of this clause, a trans­fer shall be deemed to be a trans­fer of more than ten per­cent of the total paid up share cap­i­tal of the SC/RC if the aggre­gate of all the trans­fer of shares made by the spon­sor pri­or to that trans­fer, and includ­ing that trans­fer, is 10% or more of the total paid up share cap­i­tal of the SC/RC.

(C D Srinivasan)
Chief Gen­er­al Manager