Buying and Selling of NBFCs in India

INTRODUCTION

In financial terms, the buying of Non- Banking Financial Company (NBFC) is often called takeover of a business entity whether by consent, wherein the seller entity is ready to sell its assets to the entity acquiring or deliberately and secretly acquires the control over the business. When all the assets and liabilities are transferred to the acquirer then the balance sheet of the seller entity shows the null result. There are some business organizations who often experience a memorable success or crushing defeat after such hold and molds because the concept of buying and selling of NBFCs is not new in terms of the economic world.

Similar to conventional banks, the process of buying and selling of NBFCs takes place and in the same process, there might be a chance of bias and ambiguity.

So, the reserve bank of India laid down the procedure for the buying and selling of NBFCs. Buying of NBFCs is much easier and fast-growing method of business instead of establishing a new NBFC. It takes only 45-60 days to execute the deal of this process.

What is the procedure for buying and selling of NBFCs

The approval from Reserve Bank of India should be taken as the prior step under the following conditions of NBFCs arrangements failing which the whole process shall be considered null and void:

• Any buying and selling of NBFC, may or may not result in the change of management.
• Any deviation in the shareholding, resulting in 26% buying or selling of the paid up equity capital of NBFCs, including any progressive increases over time.
• Any amendment in the management by the process of change in more than 30% of the directors, excluding independent directors, of the NBFC.

Prior approval will not be required from RBI

There are following circumstances in which the prior approval from RBI is not required:

• The change of 26% in the share capital of the company that results from the buyback of shares or reduction in capital by the  approval of a competent Court
• Change of 30% in the management due to the change in the Independent Directors or by rotation of the directors of the Board.

Checklist

Certain documents are required for the takeover or buying and selling of NBFCs and need to justify the purpose of any acquisition of control.

Afterward, an application is made to the RBI on the letterhead of the company, for the endowment of the aforesaid approval, along with the following necessary documents:

• Information about the proposed Directors
• Details about the source of fund required for acquiring shares in the NBFC
• A statement for non-association with any entity accepting deposits are required by all the proposed directors
• A statement for non- association with any entity which has been denied of a certificate of registration by the RBI is required by all the proposed directors
• A statement is required by all the proposed directors specifying their non-criminal background as well as non-conviction under section 138 of the negotiable instruments Act
• Bankers report of all proposed directors is also required

After all these formalities, the application shall be submitted to the Regional Office of the Department of Non-Banking supervision in which control of the registration office of the NBFC is located for obtaining the prior approval before undertaking such arrangements.

The Reserve Bank may demand various queries or ask for clarifications regarding various points mentioned in the application for approval. All such queries shall be answered in a timely manner in order to avoid an undue delay in processing the application from the RBIs side. The approximate time of around two to three months is required for getting the approval, depending upon case to case basis.

Prior Public Notice in case of the change in management or control

The public notice shall indicate the following information in comprehensive language:

• the intention of the transferee company to sell or transfer its ownership or control
• the particulars of buying a company in respect of its assets and liabilities lying in the Balance Sheet
• the reasons stated by the transferee company for such sale or transfer of its ownership or control.

Preparation of Share Purchase Agreement

The share purchase agreement is prepared and signed by the buyer and the seller regarding the management of the seller company which it is being handed over to the acquirer and in case if any, consideration remaining, shall be paid off within 31 days of the public notice in the newspaper or as mutually agreed by all the parties.

Transfer of all assets and liabilities of selling Company to the buying Company

In the process of buying and selling of NBFCs, the last step is to sign the purchase agreement in which the assets of the transferor company will be discharged in the balance sheet and the liabilities will be paid off.

The acquirer will only receive a clean bank balance in the name of a company calculated on the basis of net worth as on the date of the takeover.