The Reserve Bank of India (“RBI”) has, vide its circular dated July 9, 2015, revised its directions on the requirement for non-banking financial companies (“NBFC”) to obtain prior approval of the RBI in cases of acquisition / transfer of control of such NBFCs, whether they are deposit taking or not. The Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2015 (“Revised Directions”) have come into effect immediately.

  1. Under the Revised Directions, prior written approval of RBI would be required by NBFCs for:
  1. any takeover or acquisition of control of the NBFC, which may or may not result in change of its management;
  2. any change in shareholding, including progressive increases over time, which would result in acquisition / transfer of shareholding of 26% (twenty-six percent) or more of its paid up equity capital. However, no such approval will be mandated in case of increase in shareholding beyond 26% (twenty-six percent) consequent to buyback of shares / reduction in capital where it has approval of a competent court and the reporting of such buy-back or reduction in capital is made to the RBI within 1 (one) month from its occurrence;
  3. any change in the management which would result in change in more than 30% (thirty percent) of the directors, excluding independent directors. If the directors get re-elected on retirement by rotation then no such approval will be required.
  1. The term “control” as used in the Revised Directions is ascribed the same meaning as under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
  2. The Revised Directions also mandate NBFCs and the other party concerned to issue detailed joint or separate public notice(s) at least 30 (thirty) days prior to effecting a sale of, or transfer of ownership by sale of shares, or transfer of control, whether with or without sale of shares. The public notice has to be issued after obtaining the permission of RBI. The Circular also prescribes the information that needs to be submitted along with the application for obtaining the prior approval of the RBI.
  3. The provisions of the Revised Directions are in addition to, and not in derogation of the provisions of any other laws, rules, regulations or directions which are in force.

The RBI grants a certificate of registration to a company to be registered as an NBFC if it is satisfied, inter alia, that the general character of the management or the proposed management of the NBFC shall not be prejudicial to the public interest or the interests of its depositors. In this connection, to enable RBI to ensure that the 'fit and proper' character of the management of NBFCs, both deposit accepting and non-deposit accepting, is continuously maintained, NBFCs are required to follow the directions. The intent of the public notice prior to consummating the sale of shares or transfer of control is to make the shareholders aware of the impending sale or transfer of ownership / control, the particulars of the transferee and the reasons for such sale or transfer of ownership / control