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Change in Control or Management of NBFC

As per RBI requirement in NBFC takeover there are some condition in which promoters have to make a full – fledged application to RBI for their approval .In this article we have tried to explain the meaning and purpose of these conditions as described below:

  1. Any takeover or acquisition of ‘control‘ of NBFC, which may or may not result in change of management: In this the term Control means if there is any direct or indirect change in the company which would result as a change in the right to appoint majority of directors or right to control management or policy decisions.

The term change management as per RBI means defining as well as implementing procedures and /or technologies to deal with changes in the business environment and to profit from changing opportunities.

  1. Any change in the shareholding of an NBFC , including progressive increases over time , which would result in acquisitions / transfers of shareholding of 26 percent or more of the paid up equity capital of the NBFC- In this context progressive increase we mean that while looking at the quantum of shareholding we consider the aggregate of shareholding acquired by person.

To make it more clearly we take an example a person acquire 10% of paid up capital at first time and at second time  he acquire 16% of paid up capital even though he is acquiring only 16% but in aggregate acquirer is reaching the threshold i.e26% so before acquiring 16 % they have to take the prior approval of RBI.

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.

But if such acquisition or transfer take place due to buy back of shares and reduction in capital and competent court approval is also there then no prior approval is required but same is reported to the RBI within 1 month from the occurrence 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.

In terms of change in control /Management if there is transfer of ownership by sale of shares or transfer of control, whether with or without share transfer, a public notice should be given in one leading local newspaper at least 30 days prior to effecting such transfer.

So in order to conclude that once RBI approval is granted and public notice is printed then only Share purchase agreement is signed , management is handed over and consideration if remaining shall be paid off within 31 days of public notice in newspaper or as agreed between the parties

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