A Complete Overview of Buying and Selling of NBFCs

 The Reserve Bank of India has laid down certain guidelines and process of buying and selling of NBFCs. Buying of NBFCs is a simple and fast growing business in India, and it takes only 60 days to close the NBFCs along with all the press included. In this blog we will discuss the conditions relating to the buying and selling of NBFCs.

Overview

In finance terms, buying of NBFCs is called taking over of a business by consent, where the seller entity has decided to sell its entity acquiring and secretly acquires the control over the business. 

During the process there are several business entities who face success or defeat after such a hold because buying and selling of NBFCs is not new in the financial market.

There could be a possibility of confusion and biases in the process of buying and selling of NBFC. Therefore, the RBI has prescribed certain procedures for it. Before selling or buying of the NBFCs it is important to check if prior RBI approval is required or not for executing the sale.

Conditions to be fulfilled for buying and selling of NBFCs

Before buying or selling of NBFCs it is important to take approval of RBI, in case of its failure the whole process will be null and void.

1. Buying and selling of NBFC may or may not cause a change in the management.

2. Any deviation in the shareholding causes 26% buying or selling of the paid up equity capital of NBFCs, including any progressive gains over time.

3. Any amendment in the management by change in more than 30% of the directors, excluding independent directors of the NBFC.

Circumstances that don’t require RBI approval

There are certain circumstances where approval of RBI is not required and they are as follows-

1. Change of 26% in the company’s share capital that results from the buyback of shares or reduction in the capital by an approval from a competent court.

2. Change in 30% of the management due to the change in the independent directors or due to the rotation of the directors of the board.

Documentation for Buying and Selling of NBFCs

Following are the documents required for buying and selling of NBFCs. Ann application is to be made to RBI on the company’s letterhead-

1. Information regarding the proposed directors

2. Information regarding the source of funds required for acquiring shares in the NBFC.

3. A statement of non-association with any entity accepting deposits required by all the proposed directors.

4. A statement for non-association with any entity that is denied a certificate of registration by the Reserve Bank is needed by all proposed Directors.

5. A statement by all the proposed directors is required specifying their non-criminal background under section 138 of the Negotiable Instruments Act.

6. Banker’s report is needed of all the proposed directors.

Once these formalities are completed the application must be submitted to the regional office of the department where the control of NBFC registration is located for taking the prior approval before undertaking such arrangements.

Public Notice in case of alteration in management

The public notice must contain the following information-

1. Transferee’s company intention to sell or transfer its ownership or control.

2. The particulars of buying a  company in respect of its assets and liabilities in the balance sheet.

3. The reasons furnished by the transferee company for the sale or transfer of its ownership or control.

Buying and selling of NBFC: Share purchase agreement

Before buying or selling of the NBFCs share purchase agreement between the parties is to be made and signed by both the parties, which is being handed over to the acquirer, and in case of any remaining consideration, will be paid off within 31 days of the public notice in the newspaper or as mutually agreed upon by all parties.

Transfer of all assets and liabilities

The last procedure includes signing of purchase agreement where all assets and liabilities of the company are to be transfered. The acquirer shall obtain a clean bank balance in the company’s name computed on the basis of net worth on the date of the takeover.

Contact BIAT Consultants for expert services on buying and selling of the NBFCs.