What is NBFC Takeover
NBFC refers to the nonbanking financial company which is engaged in the business of financial activity, as defined under the RBI Act. The financial activity refers to activities pertaining to the loans and advances and is also engaged in the acquisition of shares/stocks/bonds/debentures/securities which are issued by Government or local authority or other marketable securities say leasing, hire-purchase, insurance business, chit business. In simple words, it refers to the companies engaged in banking services like accepting deposits, giving cash advances, intermediation, leasing, hire purchase and much more.
Now, one can start its business in NBFC either by way of incorporating an NBFC or the other way is by the NBFC takeover of an already established NBFC. In this article, we shall deal with the NBFC takeover procedure, pre-requisites, and after incorporation of compliances.
Before we proceed you must know what is meant by the term NBFC Takeover?
The NBFC takeover is one of the popular forms of the business strategy. In NBFC takeover the management of the target company is captured, it is taken over either directly or indirectly, with an intention to acquire or gain the control over the board of directors of the target company.
Types of the NBFC Takeover
There are two types of the NBFC takeover. One is “friendly takeover” and other is “hostile takeover”. In case the NBFC takeover is a friendly takeover, it is executed by the acquirer through negotiations and discussions followed by acquiring the shares. In this, the acquirer voluntarily approaches the promoters/ management of the target company for negotiating and acquiring the shares. In a Friendly takeover, both parties are at the win-win position, and is done on a mutual advantage basis of the acquirer and acquired companies.
While in the case of the “hostile takeover” as the name suggests, the scenario is completely different rather opposite. A direct offer is made by the acquirer bypassing the management, to the shareholders of the target company, without taking the prior consent of the existing promoters/ management.
Due Diligence of the NBFC Takeover Company
In case you choose to do the due-diligence of the target, which genuinely you must do, it will give you the insights of the target company and unwind many aspects which are possible you may not be known before doing the due diligence.
What is Due Diligence? How can you do it?
In layman language the due diligence can be termed as the inspection of the truths/facts /the documents including the background verification and such other report generation which shall form the basis of checks for the authenticity of documents produced and facts gathered about the organization and such related transaction of the entity/ target company which is to be acquired/purchased.
Checks for Due Diligence
- Check all the documents to be submitted to the RBI previously and to such other authorities
- Check all the previous records, let say the last 3 year financial statements, cases pending against the company if any, indebtedness if any and such other details which could impact the decision of NBFC takeover.
- Also inspect all such important documents like incorporation certificate, VAT, GST, all other such registrations availed at the time of incorporation or during the ongoing tenure of the company.
- You can proceed and execute a formal memorandum of understanding agreement and it must be signed with a certain token of money.
- Get the details of all the KYC about the directors and promoters left, added and at present working in the company.
Procedure for NBFC Takeover
RBI Approval requirement
Take the prior approval of the RBI. For NBFC takeover the RBI is the governing authority, hence its approval is required to be obtained in the following three cases:
- Whenever the NBFC Takeover procedure is to be initiated.
- In situations wherein, it has led to the change in the management in such a way that it is leading to a change of 30% of the number of directors.
Exception: - In case that 30% change pertains to the 30% of the Independent directors or due to the rotation of directors then in such cases, the prior approval of RBI is not required.
- Whenever the Change in the Shareholding pattern is done in such a manner that it has caused the transfer of 26% of the Paid-up capital of the company to other.
Exception: - The Buyback of the shares or reduction in capital by the approval of a competent court is out of the purview of and do not require prior approval of RBI.
Publication of Public Notice
Enter into Formal Mgreement
Publication of Public notice: (Second Public Notice)
Publish the Public Notice in two regional languages of which one should be English and other in vernacular language should be published for 30 days after approval of RBI, which means the acquirer need to wait for 30 days after approval of RBI, wait for objections, resolve them if any, before taking any further steps.
Both the concerned parties can thereafter enter into formal agreement to purchase share/transfer of shares/ transfer of management or such interest for NBFC Takeover.
Publish the Public Notice in two regional languages of which one should be English and other in vernacular language should be published before 30days of entering into an agreement to purchase share/transfer of shares/ transfer of management or such interest for takeover.
Very obvious things that must be indicated in the public notice are following:
- Intention to sell or transfer ownership/ control;
- All the relevant particulars of the transferee; and
- Reasons for such act of the sale or transfer of ownership/ control
Procedure for NBFC takeover in cases where prior approval is required as mentioned above
Make an application to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the NBFC is located. The application must be printed on the on the letterhead of the company and shall make a request before the authority for the approval of NBFC Takeover. The application shall be accompanied with certain documents in the form of attachments to the application.
- Attachments of the applications:
- Proposed directors/ shareholders details,
- Sources of funds that will be used by the shareholders to acquire the shares in the NBFC (the target company)
- Non association/association declaration:
The complete detail about the association of the proposed directors/ shareholders of being associated with any unincorporated body/ incorporated body which is engaged in accepting the deposits or details of any such application for Certificate of Registration (CoR) of which has been rejected by the Reserve Bank, and the reason of such rejection
The proposed directors/ shareholders are required to give the declaration stating that there is no criminal case, including for offense under section 138 of the Negotiable Instruments Act, against them.
- Bankers’ Report:
Bankers report is also required about the proposed directors/ shareholders
- Financial Statements/Annual Report:
The financial statements for the last three years should also be attached.
Scrutiny and issuance of the NBFC Takeover Certificate
The Regional Office of the Department of Non-Banking Supervision shall scrutinize the application and if any query found, the notice shall be served and details shall be stipulated into the notice, otherwise, the NBFC takeover will be approved.
It takes around 3-4 month by the authorities after application being filed with them. However, in particle grounds, the approval from the RBI is very stringent and tough job to be accomplished. You can seek the help of agencies dealing in the RBI NBFC takeover, and having an expert hand on it.
We the team of Corpbiz can help you and can provide the end to end solution for the same. Kindly click here to contact us
Frequently Asked Questions
This is not a requirement and the whole process is handled online as it is automated. You will receive the Certificate of Incorporation as well as the DIN numbers through e-mail which would be sent by the MCA that is the Ministry of Corporate Affairs.
It takes about thirty five to forty days for the whole process to complete. This depends on whether the paperwork is complete or not and also on the ROC's workload.
Each company should have two parts in their name, with the first part being a unique name while the second part provides the detail activity of the business. For example, "technology" or "healthcare solutions". The second part should be as informative and descriptive as it can be the name of the company should always end with Producer Company Limited.
The most important one is for the directors to have address and identity proof and also the right for them to be able to practice on the property they are operating on. The property owner should also submit a NoC which states that the company can use that location for their operations.
A DSC is issued by 6 certifying authorities such as Mudhra and n-code in India. It is an electronic signature which is used for the verification of the documents in the registration process of the company.
Since all of the companies are legal entities, they all have a continuous existence. The only way a company can close down can be either if it is unable to meet the compliance requirements on an annual basis or if the creditors force it to shut down.
The books of a producer company must be audited from the initial year that it is registered. If the turnover of such a company is greater than five crores, then in that case, they should have a full time company secretary who can manage their affairs.