RBI has vide its circular dated 9th July, 2015 mandated that prior written permission of RBI will be required for
- any takeover or acquisition of control of an NBFC, which may or may not result in change of management;
- 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;
- 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.
RBI has further clarified the procedure regarding making application for prior permission as follows:
(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:
- Information about the proposed directors/ shareholders as per the Annex;
- Sources of funds of the proposed shareholders acquiring the shares in the NBFC;
- Declaration by the proposed directors/ shareholders that they are not associated with any unincorporated body that is accepting deposits;
- 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;
- 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
- 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.
Further RBI has mandated that prior public notice of 30 days in advance is required to be given for change in control/ management of NBFC.
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.