{"id":29943,"date":"2021-05-09T10:30:05","date_gmt":"2021-05-09T05:00:05","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=29943"},"modified":"2021-05-08T16:05:52","modified_gmt":"2021-05-08T10:35:52","slug":"filing-exemptions-related-to-nbfc-and-housing-finance-company","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/filing-exemptions-related-to-nbfc-and-housing-finance-company\/","title":{"rendered":"Filing &#038; Exemptions Related to NBFC and Housing Finance"},"content":{"rendered":"\n<p class=\"has-drop-cap\">In this write-up, we will be focusing on various provisions related to NBFC and <a href=\"https:\/\/corpbiz.io\/housing-finance-company-registration\"><strong>Housing Finance Company<\/strong><\/a>, its exemptions, filing procedure, and amendments. Section 186 of the Companies Act, 2013, mainly emphasizes on the company\u2019s right to make investment, loan, and security. To understand the concept of this section, let explore the term \u201cinvestment\u201d cited in the Act.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/filing-exemptions-related-to-nbfc-and-housing-finance-company\/#Meaning_of_%E2%80%9CInvestment%E2%80%9D_in_Context_of_NBFC_and_Housing_Finance_Company\" >Meaning\nof \u201cInvestment\u201d in Context of NBFC and Housing Finance Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/filing-exemptions-related-to-nbfc-and-housing-finance-company\/#Reasons_Behind_the_Enactment_of_Companies_Amendment_Act_2017\" >Reasons\nBehind the Enactment of Companies (Amendment) Act, 2017<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/filing-exemptions-related-to-nbfc-and-housing-finance-company\/#What_is_the_Amendment_Analysis_of_Section_186\" >What\nis the Amendment Analysis of Section 186?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/filing-exemptions-related-to-nbfc-and-housing-finance-company\/#Underlining_Requirements_Under_Section_186\" >Underlining Requirements Under Section 186<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/filing-exemptions-related-to-nbfc-and-housing-finance-company\/#Exemptions_Conferred_by_RBI_to_NBFC_and_Housing_Finance_Company\" >Exemptions\nConferred by RBI to NBFC and Housing Finance Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/filing-exemptions-related-to-nbfc-and-housing-finance-company\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Meaning_of_%E2%80%9CInvestment%E2%80%9D_in_Context_of_NBFC_and_Housing_Finance_Company\"><\/span>Meaning\nof \u201cInvestment\u201d in Context of NBFC and Housing Finance Company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>As per Section 186(1) of the Act, the following will be deemed as an investment with a few differences.<\/strong><\/em><\/p>\n\n\n\n<ul><li>The subscription or purchase of shares;<\/li><li>The subscription or purchase of warrants; &amp;<\/li><li>The subscription or purchase of debenture bonds or identical\ndebt securities.<\/li><\/ul>\n\n\n\n<p><strong>Exceptions<\/strong><\/p>\n\n\n\n<ul><li>The disbursement of loans or advances; &amp;<\/li><li>Any financial transactions like receivables\u2019 purchase, lease, or other credit facilities.<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/possible-traits-of-ideal-nbfc-software\/\">Know the Possible Traits of Ideal NBFC Software<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Reasons_Behind_the_Enactment_of_Companies_Amendment_Act_2017\"><\/span>Reasons\nBehind the Enactment of Companies (Amendment) Act, 2017<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Owing to the disparities in the\nprevious Act, Government amended the Act by incorporating the necessary\nprovisions. The MCA (Ministry of Corporate affairs) delegates the rectification\ntask of the Companies Act, 2013 to a CLC (Companies Law Committee). Thus, the\nCompanies (Amendment) Act, 2017 came into existence after taking the\nconsideration made by the CLC.<\/p>\n\n\n\n<p>Sections 186 of the 2013 Act\nwent through significant changes amongst all the changes made in the Act.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Amendment_Analysis_of_Section_186\"><\/span>What\nis the Amendment Analysis of Section 186?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Section 186 of the 2013 Act was incorporated with certain relaxations given below:-<\/p>\n\n\n\n<p><strong>Section 186 (2):- It confirms that no organization can\n(directly or indirectly) provide any<\/strong><\/p>\n\n\n\n<ul><li>Loan to any individual or body corporate (BC);<\/li><li>Guarantee or security vis-\u00e0-vis loan to any individual or\nbody corporate; and<\/li><li>Acquire by way of subscription, purchase, or otherwise, the\nsecurities of any other BC.<\/li><\/ul>\n\n\n\n<p>Exceeding 60% of its paid-up\nshare capital along with free reserves &amp; the securities premium account, or\n100% of its free reserve and securities premium account, whichever is more.<\/p>\n\n\n\n<p>The Board\u2019s permission is mandatory for the disbursement of the loan, guarantee, or security under section 186(2). The same requirement applies to investment activities. Please note that a board resolution reflecting member\u2019s consent is compulsory for serve these purposes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Underlining_Requirements_Under_Section_186\"><\/span>Underlining Requirements Under Section 186<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Underlining-Requirements-Under-Section-186.png\" alt=\"Underlining Requirements Under Section 186\" class=\"wp-image-29988\" width=\"484\" height=\"484\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Underlining-Requirements-Under-Section-186.png 1000w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Underlining-Requirements-Under-Section-186-150x150.png 150w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Underlining-Requirements-Under-Section-186-300x300.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Underlining-Requirements-Under-Section-186-768x768.png 768w\" sizes=\"(max-width: 484px) 100vw, 484px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Approval\nof Board- Members\u2019 Approval Via Special Resolution<\/h3>\n\n\n\n<ul><li>Prior approval by special resolution is mandatory in case if the amount of loan, security, investment, or guarantee surpasses the threshold cited under section 186(2). The limit ought to be higher than<ul><li>60% of the paid-up capital (aka PUC) &amp; free reserves &amp; premium securities account; or<\/li><li>100 % of free reserves &amp; premium securities account.<\/li><\/ul><\/li><li>The special resolution should reflect the overall amount up to which Board can authenticate the said investment, loan, security, or guarantee.<\/li><li>Exceptions:-<ul><li>The company provides loans to its joint venture or a wholly subsidiary company;<\/li><li>The company provide security or guarantee to its joint venture or a wholly subsidiary company; and<\/li><li>The holding company purchase securities via subscription or otherwise of its wholly subsidiary company (WOS)<\/li><\/ul><\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Approval\nof Public Financial Institution (PFI)<\/h3>\n\n\n\n<ul><li>Prior approval from PFI is mandatory, from which it has availed a loan.<\/li><li>Exceptions:-<ul><li>The aggregate of loan, security, investments, or guaranteed stays under the given limit.<\/li><li>The default in repayment of the loan is unacceptable.<\/li><\/ul><\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Rate\nof Interest<\/h3>\n\n\n\n<p>The interest rate ought to be\nmore than the existing Government Security\u2019s revenue closest to the loan\nperiod.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">No\nDefault Related to Deposits<\/h3>\n\n\n\n<p>The disbursement of loans,\ninvestments, security, or guarantee is not possible under the influence of past\nrepayment defaults. Companies with clean track record of repayment are eligible\nto undertake such activities.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Financial\nStatement Disclosure <\/h3>\n\n\n\n<p>The company\u2019s financial\nstatement must reflect all the data of preceding investment, loan, security, or\nguarantee along with the purpose for which these finances are made to the\nconcerned person.<\/p>\n\n\n\n<p>Section 186(11): Non\nApplicability of Section 186:- As per Section 186(11), the Non Applicability of\nSection 186 is only possible, where&nbsp;<\/p>\n\n\n\n<p><strong>A loan or the guarantee or any security or investment is\nmade by:<\/strong><\/p>\n\n\n\n<ul><li>Banking company;<\/li><li>Insurance company;<\/li><li>Housing finance company;<\/li><li>A company involved with the business of providing Infrastructural Companies or of Financing of Companies<\/li><\/ul>\n\n\n\n<p>Section&nbsp;186(1) will not\ncome into effect if the investment made by the given firms:-<\/p>\n\n\n\n<ol><li>A company whose core business is the acquisition of stock, share, debenture or other Securities<\/li><li>An&nbsp;<a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFC<\/strong><\/a><\/li><li>It\u2019s mandatory to take erstwhile investment into account while making investments in Right Share u\/s 62(1)(a) of companies act, 2013.<\/li><\/ol>\n\n\n\n<p>\u201cThe investment company\u201d refers to a company that is involved with a business of acquiring shares, securities, and debentures. If the assets of the company exist in the form of shares, debentures, or other securities equivalent to 50% of its total assets or if its earning is from the investment business comprises 50% of its gross income.<\/p>\n\n\n\n<p>The segment below talks about\nthe implication of Chapter IIIB of the Reserve Bank of India Act 1934 on the\nNBFC and Housing Finance Company.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Exemptions_Conferred_by_RBI_to_NBFC_and_Housing_Finance_Company\"><\/span>Exemptions\nConferred by RBI to NBFC and Housing Finance Company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>Reserve Bank<\/strong><\/em><sup><a href=\"https:\/\/www.rbi.org.in\/\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> has got rid of certain exemptions for Housing Finance Companies and routed them to the level equivalent to NBFCs (Non-Banking Financial Companies). It seems that new development in Finance Act, 2019 has encouraged them to undertake such measures. It\u2019s worth noting that the said Act governs the HFCs (Housing Finance Companies) in India.<\/p>\n\n\n\n<p>Reserve Bank of India has also\nconfirmed that the Chapter IIIB of the Reserve Bank of India Act, 1934 would no\nlonger applicable to the NBFC and Housing Finance Company. On 13th August 2019,\nthis apex institution conferred housing finance companies (HFCs) with the\nstatus of non-banks.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The 2017 Amendment Act consolidates all the necessary provisions that were not included in the erstwhile Act. In consultation with CLC, MCA has made this Act more practical for the NBFC and Housing Finance Company. Apart from that, Reserve Bank has also declared the withdrawal of certain exemptions pertaining to Housing Finance Companies and included it in the category of non \u2013 banks.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/underlining-growth-prospects-for-nbfcs-in-real-estate-realm\/\">Underlining Growth Prospects for NBFCs in Real Estate Realm<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this write-up, we will be focusing on various provisions related to NBFC and Housing Finance Company, its exemptions, filing procedure, and amendments. Section 186 of the Companies Act, 2013, mainly emphasizes on the company\u2019s right to make investment, loan, and security. To understand the concept of this section, let explore the term \u201cinvestment\u201d cited [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":29986,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[1727],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":3947,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/29943"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=29943"}],"version-history":[{"count":19,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/29943\/revisions"}],"predecessor-version":[{"id":29990,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/29943\/revisions\/29990"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/29986"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=29943"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=29943"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=29943"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}