When does an NBFC need approval to change its management?
An NBFC needs the Reserve Bank’s prior written approval when the change is a takeover or acquisition of control, when 26 per cent or more of the paid-up equity would change hands, or when more than 30 per cent of the directors would change, excluding independent directors. The approval comes before the shares move.
When is prior approval required?
- 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. What that certificate requires, including Net Owned Funds of ₹10 crore for a new Investment and Credit Company, is on the NBFC page. The filing steps are on the change in management page.
Which changes are only reported?
A shareholding change that stays below 26 per cent does not need this prior approval. A buy-back, or a reduction of capital that a tribunal has already approved, can take a holding past 26 per cent without prior approval. That change is reported to the Reserve Bank within one month of the event. A buy-back of the shares themselves still follows the Companies Act, on the buy-back page.
When is the public notice given?
After 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 gives the notice as well, or the parties give it jointly.
What follows the approval?
The shares are transferred only after the approval, and after the notice period where the notice applies. Directors who are appointed or who resign are filed in DIR-12 within 30 days, on the director page. This approval is not a permission to accept public deposits, and it does not replace the statutory audit of the company.
Frequently asked questions
Four questions cover a smaller board change, a buy-back, the public notice, and the certificate.
Does a change of less than 30 per cent of the directors need this approval?
No. Prior approval is required when more than 30 per cent of the directors change, excluding independent directors. A smaller change of the board does not, by itself, need it.
Does a buy-back that pushes a holding past 26 per cent need prior approval?
No. A buy-back, or a reduction of capital that a tribunal has already approved, can cross 26 per cent without this prior approval. The change is reported to the Reserve Bank within one month.
Is the public notice published before the Reserve Bank replies?
No. The notice comes after the approval, and at least 30 days before the sale or transfer of control takes effect.
Does this approval create the certificate of registration?
No. The company must already hold the certificate. A new Investment and Credit Company needs Net Owned Funds of ₹10 crore before that certificate is issued.
Sources
The triggers are the Reserve Bank’s directions on acquisition or transfer of control of an NBFC.