HOW TO TAKEOVER NBFC IN INDIA

A Takeover is a process through which one Company purchases the other Company. The Company making the purchase is the Acquirer Company while the one being bought is the Target Company

NBFC TAKEOVER TYPES

There are two type of takeover

• Friendly Takeover

It is a type of takeover which takes place between the companies with their mutual consent. Acquirer Company offers the target company for being acquired and the same offer is being accepted by the target company.

• Hostile Takeover

Acquisition of the target company by the acquirer by going directly to the company's shareholders or fighting to replace management to get the acquisition approved. Usually this kind of takeover occurs when an entity attempts to take control of a firm without the consent or cooperation of the target company's Board of Directors.

STEPS FOR THE TAKEOVER

Step-1 Memorandum of Understanding

The first step is the signing of the Memorandum of Understanding (MOU) with the proposed Company. It specifies that both the companies agree to enter into an agreement of takeover. It is signed by the Directors of both the Acquire Company and the Target Company. The MOU also mentions the responsibilities and requirement of each company. During the signing of MOU token money is paid by the Acquirer Company to the target company.

 Step-2 Convene Board Meeting

The next step after the signing of the MOU is to convene a Board meeting. Both the Companies in this Board meeting will discuss on the following matters:

1. Public Notice

After receiving the approval from RBI, a public notice shall be made within 30 days of the approval in two newspapers. The Public notice is made to check if there is any objection of the public in regard to the takeover.

2. The Signing of the Share Transfer Agreement

After the expiry of the 31st day of the notice in the newspaper, share transfer agreement shall be signed, and the acquired company shall pay the remaining amount.

3. NOC from Creditors

Before the transfer of business from the Target Company to the Acquirer Company, NOC is to be obtained by the Target Company.

4. Transfer of Assets

In case no objections are received from the public, transfer of assets will take place. But the transfer should not contravene any clause of the agreement.

Step 3 Valuation the entity

RBI has set up rules for assessment. The technique adopted for cost assessment is Discounted Cash Flow (DCF) Method. This will present the net present value of the entity. After the evaluation, the Chartered Accountant shall obtain a certificate briefing the method adopted for valuation.

 Step 4 Notice to Regional Office

After the process of valuation and approval of the Takeover scheme, NBFC shall apply to the Regional Office of RBI. The application shall be on the letterhead of the company.RBI should also be continuously notified.

Application made to the Regional Office shall contain following details:

• Information about the proposed Directors and shareholders.
• Sources of Funds of Acquirer.
• Declaration by the shareholders and directors regarding their association with any unincorporated entity which is accepting deposit.
• Declarations by the directors regarding no criminal proceedings have been initiated against them in the Court of Law.

Requirement of prior approval of Reserve Bank as per Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014’.

Henceforth, prior written permission of the Reserve Bank shall be required for

1. any takeover or acquisition of control of an NBFC, which may or may not result in change of management;
2. any change in the shareholding of an NBFC, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 26 per cent or more of the paid up equity capital of the NBFC. Prior approval would, however, not be required in case of any shareholding going beyond 26% due to buyback of shares/ reduction in capital where it has approval of a competent Court. The same is however required to be reported to the Reserve Bank not later than one month from its occurrence;
3. any change in the management of the NBFC which would result in change in more than 30 per cent of the directors, excluding independent directors. Prior approval would not be required for those directors who get re-elected on retirement by rotation.

(ii) Notwithstanding clause (i), NBFCs shall continue to inform the Reserve Bank regarding any change in their directors/ management as required in Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998, Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015 and Systemically Important Non-Banking Financial (Non-Deposit Accepting Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015.

Documents required for the application for prior approval

(i) NBFCs shall submit an application, in the company letter head, for obtaining prior approval of the Bank under paragraph 2, along with the following documents:

1. Information about the proposed directors/ shareholders as per the Annex;
2. Sources of funds of the proposed shareholders acquiring the shares in the NBFC;
3. Declaration by the proposed directors/ shareholders that they are not associated with any unincorporated body that is accepting deposits;
4. Declaration by the proposed directors/ shareholders that they are not associated with any company, the application for Certificate of Registration (CoR) of which has been rejected by the Reserve Bank;
5. Declaration by the proposed directors/ shareholders that there is no criminal case, including for offence under section 138 of the Negotiable Instruments Act, against them; and
6. Bankers’ Report on the proposed directors/ shareholders.

(ii) Applications in this regard may be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the NBFC is located.

Requirement of Prior Public Notice about change in control/ management

i. A public notice of at least 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the NBFCs and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Reserve Bank.

ii. The public notice shall indicate the intention to sell or transfer ownership/ control, the particulars of transferee and the reasons for such sale or transfer of ownership/ control. The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.

PROCESSING TIME

45-60 WORKING DAYS