Back with more!
I am posting after almost 6 months - in the meantime, I have
moved law firms and have a new set of responsibilities. My NBFC focus at work
has decreased a little but I continue to monitor the sector.
Amongst interesting developments, there is the RBI 'moratorium' on registering new NBFCs instituted
through the First Bi-monthly Monetary Policy Statement, 2014-15. This was in
view of the fact that the law relating to NBFCs is due for a complete overhaul
which remains pending.
The RBI has now issued a notification relating to mergers and acquisitions
involving NBFCs. This now makes mergers and acquisitions relating to NBFCs
(whether deposit accepting or not) subject to prior approval of the RBI. The policy rationale behind this approach is to ensure that
the acquirer / resulting entity following the merger/ acquisition is a “fit and
proper person” that has the necessary qualifications to carry on the business
of the NBFCs, and such that a transaction is not prejudicial to public interest
or the interest of depositors. Interestingly, the RBI notification defines “control” as
having the same meaning assigned to it in the SEBI Takeover Regulations.
Therefore, any type of control over management and policy decisions of the
company, whether through acquisition of shares or through other means such as
shareholder agreements could fall within the purview of the RBI approval
requirement. Hence, even acquisitions of minority stakes in NBFCs may be
subject to scrutiny if they are accompanied by significant rights granted to
acquirers/ investors through protective provisions such as board
nominations, quorum rights, veto rights and the like that may be contained in
shareholders’ (or similar) agreements or in the articles of association of
companies. In other words, the approval requirement may be triggered not just
for outright acquisitions or takeovers but also investments that are
accompanied by significant protective rights to the investors.
Labels: Change in control, Registration