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India – Banking & Finance Updates.

17 July, 2014

 

Legal News & Analysis – Asia Pacific – India – Banking & Finance

 

  • Pursuant to a notification by RBI dated September 17, 2009, prior approval of RBI was required for acquisition / transfer of control of NBFCs accepting deposits (‘NBFC D’). No such approval was required for acquisition / transfer of control of non depositing accepting NBFCs (‘NBFC ND’), although they were required to issue a public notice and intimate RBI regarding such change of control.

 

By way of a notification dated May 26, 2014, RBI has issued the NBFCs (Approval of Acquisition or Transfer of Control) Directions, 2014, which stipulate that prior permission of RBI is required for acquisition / transfer of control of both NBFC D and NBFC NDs, before approaching a court or tribunal (as applicable) under Sections 391-394 of 1956 Act, or Sections 230 – 233 of the 2013 Act (as applicable) to seek orders for mergers or amalgamations with other companies or NBFCs, specifically in the following cases:

 

i. Any takeover or acquisition of control of an NBFC, whether by way of acquisition of shares or otherwise (control having the same definition as the SEBI (Substantial Acquisition of Shares and Takeover) Regulations) 2011;

 

ii. 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 control of the NBFC; and

 

iii. Any merger / amalgamation of an NBFC with another entity or any merger / amalgamation of an entity with an NBFC that would result in acquisition / transfer of shareholding in excess of 10% of the paid-up capital of the NBFC.

 

  • Pursuant to a circular dated May 2, 2011 (‘2011 Circular’), shares of an Indian company held by a non-resident investor can be pledged in favour of (only) a bank in India to secure the credit facilities being extended to the resident investee company for, bona-fide, business purposes, subject to certain conditions stipulated in the 2011 Circular.

 

RBI has now delegated to AD Banks, the power to allow the pledge of equity shares of an Indian company held by non-resident investor(s) in accordance with the FDI Policy, in favour of NBFCs, to secure the credit facilities extended to the resident investee company for, bona-fide, business purposes / operations vide its circular dated June 6, 2014, subject to the following conditions:

 

i. The relevant equity shares must be listed on a recognised stock exchange in India;


ii. The concerned Indian company has to comply with the relevant SEBI disclosure norms; and


iii. In the event of invocation of the pledge, transfer of shares should be in accordance with the credit concentration norms stipulated by RBI for NBFCs. If there is a breach of such credit concentration norms upon invocation of the pledge, then the shares must be sold by the pledgee, and the breach must be rectified within a period of 30 days from the date of invocation of pledge.

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com


Shuva Mandal, AZB & Partners 

shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com


Percy Billimoria, AZB & Partners 

percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

 

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