Change in management of an NBFC
A change in the management of an NBFC needs the Reserve Bank’s prior written approval when it is a takeover, when shareholding of 26 per cent or more would change hands, or when more than 30 per cent of the directors would change. Company Suggestion files that application before the shares move.
When is prior approval required?
The Reserve Bank’s direction on acquisition or transfer of control names three cases. The approval comes first. The transaction comes after.
- Any takeover or acquisition of control, whether or not the day-to-day managers change.
- Any change in shareholding, including a series of increases, that results in acquisition or transfer of 26 per cent or more of the paid-up equity capital.
- Any change in management that changes more than 30 per cent of the directors, excluding independent directors.
The company must already hold its certificate of registration. This approval does not create that certificate.
Which changes do not need prior approval?
A shareholding change that stays below 26 per cent does not need this prior approval. A buyback, or a reduction of capital that a tribunal has already approved, can take the holding past 26 per cent without prior approval. That change is still reported to the Reserve Bank within one month of the event.
After an approval for a sale or a transfer of control, the company gives a public notice at least 30 days before the change. The notice states the intention and the reason. It is published in one leading English newspaper and one newspaper in the vernacular language. The other party to the transaction gives the notice as well, or the parties give it jointly.
Which papers does the application need?
The application is on the company’s letterhead and is signed by a director the board has authorised.
- The board resolution for the proposed change and for the director who will sign
- The proposed directors’ or shareholders’ profiles, and their source of funds
- A declaration that the proposed persons have no criminal record, including no offence under section 138 of the Negotiable Instruments Act
- The shareholding before and after the change
What are the steps?
Company Suggestion handles the change in four steps.
- The proposal is tested against the 26 per cent and 30 per cent lines.
- The application is filed with the Reserve Bank and is not acted on while it is pending.
- After approval, the 30-day public notice is published.
- The shares are transferred, and DIR-12 is filed for the directors who change.
Frequently asked questions
4 questions cover the rules that decide this registration.
Does every share transfer need approval?
No. Prior approval is required when the change would result in acquisition or transfer of 26 per cent or more of the paid-up equity capital, including a series of smaller transfers that together cross that line.
What change of directors needs approval?
A change in more than 30 per cent of the directors, excluding independent directors. A smaller change of the board does not, by itself, need this prior approval.
When is the public notice given?
After the Reserve Bank’s approval, and at least 30 days before the sale or the transfer of control. It goes in one leading English newspaper and one newspaper in the local language.
Does an ROC form replace the Reserve Bank’s approval?
No. DIR-12 and the share-transfer papers are filed after the approval. They do not take its place.