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Vol. 11 Issue 4.1 April 2, 2015
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The Reserve Bank of India (‘RBI’) has issued draft directions in relation
to mergers and acquisitions pertaining to non banking finance
companies (‘NBFCs’) for public comments
On March 30, 2015, the RBI released a draft of the NBFC (Approval of Acquisition or
Transfer of Control) Directions, 2015, soliciting feedback from all stakeholders.
Earlier, the RBI had issued a notification on May 26, 2014[1] listing various merger
and acquisition transactions involving NBFCs (deposit taking as well as non-deposit-
taking NBFCs) which would require a prior written approval from the RBI. The
present draft seeks to modify this list of transactions based on various
representations received by the RBI; refer table below.
2014 Notification 2015 Draft
1. Any takeover or acquisition of
control[2] of an NBFC, whether by
acquisition of shares or otherwise;
2. Any merger / amalgamation of an
NBFC with another entity or any
merger / amalgamation of an
entity with an NBFC that would
give the acquirer / another entity
the control of the NBFC;
3. Any merger / amalgamation of an
NBFC with another entity or any
merger / amalgamation of an
entity with an NBFC which would
result in acquisition / transfer of
shareholding in excess of 10
percent of the paid up capital of
the NBFC; and
4. Implementation of schemes /
arrangements involving mergers
or amalgamations of NBFCs with
other companies or vice versa
pursuant to sections 391 to 394 of
the Companies Act, 1956 or
sections 230 to 233 of the
Companies Act, 2013; the RBI
approval should be procured even
before the scheme is filed with the
jurisdictional High Court / National
Company Law Tribunal
(‘NCLT’).
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 which would result in
acquisition / transfer of
shareholding of 26 per cent or
more of the paid up equity capital
of the NBFC;
3. Any change in the management of
the NBFC which would result in
change in more than 30 per cent
of the directors.
The base date for determining whether a particular transaction will require a prior
RBI approval, in the context of the 2015 draft, is proposed as the date of registration
of the NBFC or the date in relation to the last change approved by the RBI,
whichever is later. Unlike the 2014 Notification, the definition of the term ‘control’,
however, has not been included within the 2015 Draft.
Notwithstanding the fact that a prior approval will be required for the
abovementioned transactions, the 2015 Draft indicates that NBFCs should continue
to inform the RBI regarding any change in its directors / management as required in
the Non-Banking Financial (Non Deposit Accepting or Holding) Companies
Prudential Norms (Reserve Bank) Directions, 2007 and the Non-Banking Financial
(Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank)
Directions, 2007.
Procedurally, NBFCs will have to submit an application to the Regional Office of the
Department of Non Banking Supervision in whose jurisdiction the registered office of
Share
Connect
Base Erosion and Profit Sharing (BEPs):
Intangibles
Taxand’s Global Guide to M&ATax 2013
BMR Advisors rated Tier 1 firm,
International Tax Review, World Tax
Guide 2015 for the eighth consecutive
year
BMR Advisors ranked Tier
1 for Transactional and M&A
Tax excellence by International Tax
Review Annual transactional Tax Survey
2014.
BMR Advisors has been ranked
number one (by deal count) most
active transaction advisor for Private
Equity, M&A in India for the year 2013
by Venture Intelligence.
Madhav Kanhere
Pooja Jodhani
Bobby Parikh, Mumbai
+91 22 6135 7010
Shefali Goradia, Mumbai
+91 22 6135 7170
Russell Gaitonde, Mumbai
+91 22 6135 7045
Rajeshree Sabnavis, Mumbai
+91 22 6135 7050 [email protected]
the NBFC is located, along with the following documents:
Information about the proposed directors / shareholders;
Sources of funds of the proposed shareholders acquiring the shares of the
NBFCs;
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 NBFC, the application for Certificate of Registration of which has been
rejected by the RBI;
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;
Bankers Report of the proposed directors / shareholders.
Additionally, a public notice of at least 30 days will be required to be given before
effecting the sale / transfer of ownership by sale of shares, or transfer of control
through a sale of shares or otherwise. Such public notice will need to be given by the
NBFC(s) as well as the other parties to the transaction or jointly by the parties
concerned, after the RBI has granted its approval. The public notice should indicate
the intention to sell or transfer ownership / control, the particulars of the transferee
and the reasons for such sale or transfer of ownership / control; it will need to be
published in a leading national newspaper and a leading local vernacular language
newspaper.
Any transfer of shares in violation of the 2015 draft (once notified) could result in
adverse regulatory action including the cancellation of Certificate of Registration.
BMR Comments
The 2015 Draft has been placed in the public domain until April 15, 2015 for
views / comments from all interested parties and the general public. The 2015
Draft has simplified the list of transactions which will require a prior RBI
approval by (a) streamlining overlapping conditions which were contained in
the 2014 Notification, and (b) basing the list on the three parameters of
change in ownership, change in management and change in control. The
increase in the change in ownership threshold from 10 percent to 26 percent is
also a welcome move.
[ 1 ] Notification No. DNBS.(PD) 275/GM(AM)-2014 – Non-banking Financial Companies (Approval of
Acquisition or Transfer of Control) Directions, 2014
[ 2 ] The term ‘control’ is defined with reference to clause (e) of sub-regulation (1) of regulation 2 of
Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 to include the right to appoint majority of the directors or to control the management
or policy decisions exercisable by a person or persons acting individually or in concert, directly or
indirectly, including by virtue of their shareholding or management rights or shareholders agreements
or voting agreements or in any other manner.
BMR Business Solutions Pvt. Ltd.
36B, Dr. RK Shirodkar Marg, Parel, Mumbai 400012, India
Tel: +91 22 6135 7000 | Fax: +91 22 6135 7070
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Disclaimer:
This newsletter has been prepared for clients and Firm personnel only. It provides general information and guidance as on date of
preparation and does not express views or expert opinions of BMR Advisors. The newsletter is meant for general guidance and no
responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this newsletter will be
accepted by BMR Advisors. It is recommended that professional advice be sought based on the specific facts and circumstances. This
newsletter does not substitute the need to refer to the original pronouncements.
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