Requirement for obtaining prior approval of RBI in cases of acquisition/ transfer of control of Non-Banking Financial Companies (NBFCs)

Please refer to DNBS (PD) CC.No.376/03.10.001/2013–14 and Noti­fi­ca­tion No. DNBS(PD) 275/GM(AM)-2014 dat­ed May 26, 2014 on the ‘Non-Bank­ing Finan­cial Com­pa­nies (Approval of Acqui­si­tion or Trans­fer of Con­trol) Direc­tions, 2014’. The Reserve Bank has decid­ed to review the above men­tioned direc­tions based on the rep­re­sen­ta­tions received from the indus­try and the com­ments received on the Draft Direc­tions issued on March 30, 2015. The revised direc­tions are detailed below.

2. Require­ment of pri­or approval of Reserve Bank

(i) Hence­forth, pri­or writ­ten per­mis­sion of the Reserve Bank shall be required for

1. any takeover or acqui­si­tion of con­trol of an NBFC, which may or may not result in change of management;
2. any change in the share­hold­ing of an NBFC, includ­ing pro­gres­sive increas­es over time, which would result in acquisition/ trans­fer of share­hold­ing of 26 per cent or more of the paid up equi­ty cap­i­tal of the NBFC. Pri­or approval would, how­ev­er, not be required in case of any share­hold­ing going beyond 26% due to buy­back of shares/ reduc­tion in cap­i­tal where it has approval of a com­pe­tent Court. The same is how­ev­er required to be report­ed to the Reserve Bank not lat­er than one month from its occurrence;
3. any change in the man­age­ment of the NBFC which would result in change in more than 30 per cent of the direc­tors, exclud­ing inde­pen­dent direc­tors. Pri­or approval would not be required for those direc­tors who get re-elect­ed on retire­ment by rotation.

(ii) Notwith­stand­ing clause (i), NBFCs shall con­tin­ue to inform the Reserve Bank regard­ing any change in their directors/ man­age­ment as required in Non-Bank­ing Finan­cial Com­pa­nies Accep­tance of Pub­lic Deposits (Reserve Bank) Direc­tions, 1998, Non-Sys­tem­i­cal­ly Impor­tant Non-Bank­ing Finan­cial (Non-Deposit Accept­ing or Hold­ing) Com­pa­nies Pru­den­tial Norms (Reserve Bank) Direc­tions, 2015 and Sys­tem­i­cal­ly Impor­tant Non-Bank­ing Finan­cial (Non-Deposit Accept­ing Hold­ing) Com­pa­nies Pru­den­tial Norms (Reserve Bank) Direc­tions, 2015.

3. Appli­ca­tion for pri­or approval

(i) NBFCs shall sub­mit an appli­ca­tion, in the com­pa­ny let­ter head, for obtain­ing pri­or approval of the Bank under para­graph 2, along with the fol­low­ing documents:

1. Infor­ma­tion about the pro­posed directors/ share­hold­ers as per the Annex;
2. Sources of funds of the pro­posed share­hold­ers acquir­ing the shares in the NBFC;
3. Dec­la­ra­tion by the pro­posed directors/ share­hold­ers that they are not asso­ci­at­ed with any unin­cor­po­rat­ed body that is accept­ing deposits;
4. Dec­la­ra­tion by the pro­posed directors/ share­hold­ers that they are not asso­ci­at­ed with any com­pa­ny, the appli­ca­tion for Cer­tifi­cate of Reg­is­tra­tion (CoR) of which has been reject­ed by the Reserve Bank;
5. Dec­la­ra­tion by the pro­posed directors/ share­hold­ers that there is no crim­i­nal case, includ­ing for offence under sec­tion 138 of the Nego­tiable Instru­ments Act, against them; and
6. Bankers’ Report on the pro­posed directors/ shareholders.

(ii) Appli­ca­tions in this regard 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.

4. Require­ment of Pri­or Pub­lic Notice about change in control/ management

i. A pub­lic notice of at least 30 days shall be giv­en before effect­ing the sale of, or trans­fer of the own­er­ship by sale of shares, or trans­fer of con­trol, whether with or with­out sale of shares. Such pub­lic notice shall be giv­en by the NBFCs and also by the oth­er par­ty or joint­ly by the par­ties con­cerned, after obtain­ing the pri­or per­mis­sion of the Reserve Bank.

ii. The pub­lic notice shall indi­cate the inten­tion to sell or trans­fer ownership/ con­trol, the par­tic­u­lars of trans­fer­ee and the rea­sons for such sale or trans­fer of ownership/ con­trol. The notice shall be pub­lished in at least one lead­ing nation­al and in one lead­ing local (cov­er­ing the place of reg­is­tered office) ver­nac­u­lar newspaper.

5. The direc­tions con­tained above are applic­a­ble with imme­di­ate effect, i.e., the same will apply on any takeover or acqui­si­tion of con­trol, any change in the share­hold­ing or any change in the man­age­ment occur­ring after the date of this circular.

6. Any vio­la­tion of the afore­men­tioned direc­tions would result in adverse reg­u­la­to­ry action includ­ing can­cel­la­tion of CoR.

7. Noti­fi­ca­tion No. DNBS.(PD) 029/CGM(CDS)-2015 dat­ed July 09, 2015 is enclosed.

Yours faith­ful­ly,

(C D Srinivasan)
Chief Gen­er­al Manager

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RESERVE BANK OF INDIA
DEPARTMENT OF NON-BANKING SUPERVISION
CENTRAL OFFICE
CENTRE I, WORLD TRADE CENTRE,
CUFFE PARADE, COLABA,
MUMBAI 400 005.

Noti­fi­ca­tion No. DNBS.(PD) 029/CGM(CDS)-2015 dat­ed July 09, 2015

The Reserve Bank of India, hav­ing con­sid­ered it nec­es­sary in the pub­lic inter­est, and being sat­is­fied that for the pur­pose of enabling it to reg­u­late the cred­it sys­tem to the advan­tage of the coun­try, it is nec­es­sary to give the direc­tions as set out below, in exer­cise of the pow­ers con­ferred by sec­tions 45K and 45L of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the pow­ers enabling it in this behalf gives to every non-bank­ing finan­cial com­pa­ny the direc­tions here­inafter specified.

Short title and com­mence­ment of the Directions

1. (1) These Direc­tions shall be known as the ‘Non-Bank­ing Finan­cial Com­pa­nies (Approval of Acqui­si­tion or Trans­fer of Con­trol) Direc­tions, 2015’.

(2) These Direc­tions shall be applic­a­ble to every non-bank­ing finan­cial com­pa­ny whether accept­ing deposits or not, except Pri­ma­ry Dealers.

(3) These Direc­tions shall come into force with imme­di­ate effect.

Def­i­n­i­tions

2. For the pur­pose of these Direc­tions, unless the con­text oth­er­wise requires,-

(a) “con­trol” shall have the same mean­ing as is assigned to it under clause (e) of sub-reg­u­la­tion (1) of reg­u­la­tion 2 of Secu­ri­ties and Exchange Board of India (Sub­stan­tial Acqui­si­tion of Shares and Takeovers) Reg­u­la­tions, 2011.

(b) “NBFC” means a non-bank­ing finan­cial com­pa­ny as defined in clause (f) of sec­tion 45‑I of the Reserve Bank of India Act, 1934.

3. Require­ment to obtain pri­or approval of Reserve Bank of India for acqui­si­tion or trans­fer of con­trol of NBFCs –

(i) The pri­or writ­ten per­mis­sion of the Reserve Bank of India shall be required for –

a) any takeover or acqui­si­tion of con­trol of an NBFC, which may or may not result in change of management;

b) any change in the share­hold­ing of an NBFC, includ­ing pro­gres­sive increas­es over time, which would result in acquisition/ trans­fer of share­hold­ing of 26 per cent or more of the paid up equi­ty cap­i­tal of the NBFC.

Pro­vid­ed that, pri­or approval would not be required in case of any share­hold­ing going beyond 26% due to buy­back of shares/ reduc­tion in cap­i­tal where it has approval of a com­pe­tent Court. The same is to be report­ed to the Bank not lat­er than one month from its occurrence;

c) any change in the man­age­ment of the NBFC which would result in change in more than 30 per cent of the direc­tors, exclud­ing inde­pen­dent directors.

Pro­vid­ed that, pri­or approval would not be required in case of direc­tors who get re-elect­ed on retire­ment by rotation.

(ii) Notwith­stand­ing clause (i), NBFCs shall con­tin­ue to inform the Reserve Bank regard­ing any change in their directors/ man­age­ment as required in Non-Bank­ing Finan­cial Com­pa­nies Accep­tance of Pub­lic Deposits (Reserve Bank) Direc­tions, 1998, Non-Sys­tem­i­cal­ly Impor­tant Non-Bank­ing Finan­cial (Non-Deposit Accept­ing or Hold­ing) Com­pa­nies Pru­den­tial Norms (Reserve Bank) Direc­tions, 2015 and Sys­tem­i­cal­ly Impor­tant Non-Bank­ing Finan­cial (Non-Deposit Accept­ing or Hold­ing) Com­pa­nies Pru­den­tial Norms (Reserve Bank) Direc­tions, 2015.

4. Appli­ca­tion for pri­or approval

(i) NBFCs shall sub­mit an appli­ca­tion, in the com­pa­ny let­ter head, for obtain­ing pri­or approval of the Bank under para­graph 3, along with the fol­low­ing documents:

1. Infor­ma­tion about the pro­posed directors/ share­hold­ers as per the Annex;
2. Sources of funds of the pro­posed share­hold­ers acquir­ing the shares in the NBFC;
3. Dec­la­ra­tion by the pro­posed directors/ share­hold­ers that they are not asso­ci­at­ed with any unin­cor­po­rat­ed body that is accept­ing deposits;
4. Dec­la­ra­tion by the pro­posed directors/ share­hold­ers that they are not asso­ci­at­ed with any com­pa­ny, the appli­ca­tion for Cer­tifi­cate of Reg­is­tra­tion (CoR) of which has been reject­ed by the Reserve Bank;
5. Dec­la­ra­tion by the pro­posed directors/ share­hold­ers that there is no crim­i­nal case, includ­ing for offence under sec­tion 138 of the Nego­tiable Instru­ments Act, against them; and
6. Bankers’ Report on the pro­posed directors/ shareholders.

(ii) Appli­ca­tions in this regard 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.

5. Require­ment of Pri­or Pub­lic Notice about change in control/ management

i. A pub­lic notice of at least 30 days shall be giv­en before effect­ing the sale of, or trans­fer of the own­er­ship by sale of shares, or trans­fer of con­trol, whether with or with­out sale of shares. Such pub­lic notice shall be giv­en by the NBFCs and also by the oth­er par­ty or joint­ly by the par­ties con­cerned, after obtain­ing the pri­or per­mis­sion of the Reserve Bank.

ii. The pub­lic notice shall indi­cate the inten­tion to sell or trans­fer ownership/ con­trol, the par­tic­u­lars of trans­fer­ee and the rea­sons for such sale or trans­fer of ownership/ con­trol. The notice shall be pub­lished in at least one lead­ing nation­al and in one lead­ing local (cov­er­ing the place of reg­is­tered office) ver­nac­u­lar newspaper.

6. Appli­ca­tion of oth­er laws not barred- The pro­vi­sions of these Direc­tions shall be in addi­tion to, and not in dero­ga­tion of the pro­vi­sions of any oth­er laws, rules, reg­u­la­tions or direc­tions, for the time being in force.

7. Repeal and sav­ing- (i) Non-Bank­ing Finan­cial Com­pa­nies (Approval of Acqui­si­tion or Trans­fer of Con­trol) Direc­tions, 2014 dat­ed May 26, 2014, shall stand repealed.

(ii) Notwith­stand­ing such repeal, any action tak­en, pur­port­ed to have been tak­en or ini­ti­at­ed under the direc­tions here­by repealed shall con­tin­ue to be gov­erned by the pro­vi­sions of the said directions.

(C.D.Srinivasan)
Chief Gen­er­al Manager

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ANNEX

INFORMATION ABOUT THE PROPOSED PROMOTERS/ DIRECTORS/
SHAREHOLDERS OF THE COMPANY

Sr. No.	Par­tic­u­lars Required	Response
1	Name
2	Des­ig­na­tion	Chairman/ Man­ag­ing Director/ Director/ Chief Exec­u­tive Officer
3	Nation­al­i­ty
4	Age (to be sub­stan­ti­at­ed with date of birth)
5	Busi­ness Address
6	Res­i­den­tial Address
7	E‑mail address/ Tele­phone number
8	PAN Num­ber under Income Tax Act
9	Direc­tor Iden­ti­fi­ca­tion Num­ber (DIN)
10	Social secu­ri­ty number/Passport No.*
11	Educational/professional qual­i­fi­ca­tions
12	Pro­fes­sion­al Achieve­ment rel­e­vant to the job
13	Line of busi­ness or vocation
14	Any oth­er infor­ma­tion rel­e­vant to the Company
15	Name/s of oth­er com­pa­nies in which the per­son has held the post of Chairman/ Man­ag­ing Director/ Director/ Chief Exec­u­tive Officer
16	Name/s of the reg­u­la­tors (RBI,SEBI,IRDA,PFRDA,NHB or any oth­er for­eign reg­u­la­tor) of the enti­ties men­tioned in which the per­sons hold directorships
17	Name/s of the NBFCs, if any, with which the per­son is asso­ci­at­ed as Pro­mot­er, Man­ag­ing Direc­tor, Chair­man or Direc­tor includ­ing a Resid­uary Non-Bank­ing Finan­cial Com­pa­ny, which has been pro­hib­it­ed from accept­ing deposits/ pros­e­cut­ed by RBI ?
18	Detail of pros­e­cu­tion, if any, pend­ing or com­menced or result­ing in con­vic­tion in the past against the per­son and/or against any of the enti­ties he is asso­ci­at­ed with for vio­la­tion of eco­nom­ic laws and regulations
19	Cas­es, if any, where the per­son or rel­a­tives of the per­son or the com­pa­nies in which the per­son is asso­ci­at­ed with, are in default or have been in default in the last 5 years in respect of cred­it facil­i­ties obtained from any enti­ty or bank
20	If the per­son is a mem­ber of a pro­fes­sion­al association/ body, details of dis­ci­pli­nary action, if any, pend­ing or com­menced or result­ing in con­vic­tion in the past against him/ her or whether he/ she has been banned from entry of any pro­fes­sion­al occu­pa­tion at any time
21	Whether the per­son attracts any of the dis­qual­i­fi­ca­tion envis­aged under Sec­tion 164 of the Com­pa­nies Act, 2013
22	Has the per­son or any of the com­pa­nies, he/ she is asso­ci­at­ed with, been sub­ject to any inves­ti­ga­tion at the instance of the Gov­ern­ment Depart­ment or Agency
23	Has the per­son at any time been found guilty of vio­la­tions of rules/ regulations/ leg­isla­tive require­ments by Customs/ Excise/ Income Tax// For­eign Exchange/ Oth­er Rev­enue Author­i­ties, if so, give particulars
24	Expe­ri­ence in the busi­ness of NBFC (num­ber of years)
25	Equi­ty share­hold­ing in the company
(i)	No. of shares	……………………………
(ii)	Face val­ue	Rs. ………………………..
(iii)	Per­cent­age to total paid up equi­ty share cap­i­tal of the company	……………………………
26	Name/s of the com­pa­nies, firms and pro­pri­etary con­cerns in which the per­son holds sub­stan­tial interest
27	Names of the prin­ci­pal bankers to the con­cerns at 26 above
28	Names of the over­seas bankers *
29	Whether num­ber of direc­tor­ships held by the per­son exceeds the lim­its pre­scribed under Sec­tion 165 of the Com­pa­nies Act, 2013
		Sig­na­ture :
	Date :	Name :
	Place:	Des­ig­na­tion :
		Com­pa­ny Seal :
* For for­eign promoters/ directors/ shareholders Note: (i) Sep­a­rate form should be sub­mit­ted in respect of each of the pro­posed promoters/ directors/ shareholders

ANNEX

INFORMATION ABOUT CORPORATE PROMOTER

Sr. No.	Par­tic­u­lars Required	Response
1	Name
2	Busi­ness Address
3	E‑mail address/ Tele­phone number
4	PAN Num­ber under Income Tax Act
5	Name and con­tact details of com­pli­ance officer
6	Line of business
7	The details of their major share­hold­ers (more than 10%) and line of activ­i­ty, if corporates
8	Names of the prin­ci­pal bankers/ over­seas bankers *
9	Name/s of the reg­u­la­tors (RBI,SEBI,IRDA,PFRDA,NHB or any oth­er for­eign regulator)
10	Name/s of Company/ies in the Group as defined in the Pru­den­tial Norms Directions
11	Name/s of the company/ies in the Group that are NBFCs
12	Spec­i­fy the names of com­pa­nies in the group which have been pro­hib­it­ed from accept­ing deposits/ pros­e­cut­ed by RBI ?
13	Detail of pros­e­cu­tion, if any, pend­ing or com­menced or result­ing in con­vic­tion in the past against the cor­po­rate for vio­la­tion of eco­nom­ic laws and regulations
14	Cas­es, if any, where the cor­po­rate, is in default or have been in default in the last 5 years in respect of cred­it facil­i­ties obtained from any enti­ty or bank
15	Whether the cor­po­rate has been sub­ject to any inves­ti­ga­tion at the instance of the Gov­ern­ment Depart­ment or Agency
16	Has the Cor­po­rate at any time been found guilty of vio­la­tions of rules/ regulations/ leg­isla­tive require­ments by Customs/ Excise/ Income Tax// For­eign Exchange/ Oth­er Rev­enue Author­i­ties, if so, give particulars
17	Has the pro­mot­er corporate/ major­i­ty share­hold­er of the pro­mot­er cor­po­rate, if a cor­po­rate, ever applied to RBI for CoR which has been rejected
		Sig­na­ture :
	Date :	Name :
	Place:	Des­ig­na­tion :
		Com­pa­ny Seal :

RBI/2015–16/122
DNBR (PD) CC.No. 065/03.10.001/2015–16

July 09, 2015