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RBI/2013-2014/56
DNBS (PD) CC. No. 32/SCRC/26.03.001/2013-2014
DNBS (PD) CC. No. 32/SCRC/26.03.001/2013-2014
July 1, 2013
Notification as amended upto June 30, 2013 -
Change in or Take Over of the Management of the Business of the
Borrower by Securitisation Companies and Reconstruction Companies
(Reserve Bank) Guidelines, 2010
As you are aware, in order to have all current
instructions on the subject at one place, the Reserve Bank of India
issues updated circulars/ notifications. The instructions contained in the Notification DNBS/ PD(SC/RC) No.7/ CGM(ASR)/ 2010 dated April 21, 2010 updated as on June 30, 2013, are reproduced. The updated Notification has also been placed on the RBI web-site (http://www.rbi.org.in).
Yours faithfully,
(N.S.Vishwanathan)
Principal Chief General Manager
Principal Chief General Manager
Notification on
Change in or Take Over of the Management of the Business of the
Borrower by Securitisation Companies and Reconstruction Companies
(Reserve Bank) Guidelines, 2010
In view of announcement in the Monetary Policy Statement,
the Reserve Bank of India hereby notifies these guidelines, framed
under Section 9(a) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(SARFAESI Act) to provide for the proper management of the business of
the borrower to enable the Securitisation Company or Reconstruction
Company (SC/RC) to realise their dues from the borrowers, by effecting
change in or take over of the management of the business of the
borrower and related matters.
1. Short Title and Commencement
(a) These guidelines shall be known as "The Change in or
Take Over of the Management of the business of the borrower by
Securitisation Companies and Reconstruction Companies (Reserve Bank)
Guidelines, 2010".
(b) These guidelines shall come into force with effect from April 21, 2010.
Explanation:
For the purpose of these guidelines:
-
‘‘change in management’’ means effecting change by the
borrower at the instance of SC/RC in the person who has responsibility
for the whole or substantially whole of the management of the business
of the borrower and / or other relevant personnel.
-
The term ‘‘Takeover of management" means taking over
of the responsibility for the management of the business of the
borrower with or without effecting change in management personnel of
the borrower by the SC/RC.
2. Object of the Guidelines
The objective of these guidelines is to ensure fairness,
transparency, non-discrimination and non- arbitrariness in the action
of Securitisation Companies or Reconstruction Companies and to build in a
system of checks and balances while effecting change in or take over
of the management of the business of the borrower by the SCs/ RCs under
Section 9(a) of the SARFAESI Act. The SCs/ RCs shall follow these
guidelines while exercising the powers conferred on them under Section
9(a) of the SARFAESI Act, 2002.
3. Powers of SC/RC and Scope of the Guidelines
An SC/RC may resort to change in or take over of the
management of the business of the borrower for the purpose of
realization of its dues from the borrower subject to the provisions of
these guidelines. The SCs/ RCs resorting to take over of management of
the business of the borrower shall do so after complying with the
manner of takeover of the management in accordance with the provisions
of Section 15 of the SARFAESI Act. On realization of its dues in full,
the SC/RC shall restore the management of the business to the borrower
as provided in Section 15(4) of the SARFAESI Act.
4. Eligibility conditions to exercise power for change in or take over of management
In the circumstances set forth in paragraph 5
(a) An SC/RC may effect change in or take over of the
management of the business of the borrower, where the amount due to it
from the borrower is not less than 25% of the total assets owned by the
borrower; and
(b) Where the borrower is financed by more than one
secured creditor (including SC/RC), secured creditors (including SC/RC)
holding not less than 75% of the outstanding security receipts agree to
such action.
Explanation : ‘Total Assets’ means total
assets as disclosed in its latest audited Balance Sheet immediately
preceding the date of taking action.
5. Grounds for effecting change in or takeover of management
Subject to the eligibility conditions set forth in
paragraph 4, SC/RC shall be entitled to effect change in management or
take over of the management of business of the borrower on any of the
following grounds :
(a) the borrower makes a willful default in repayment of the amount due under the relevant loan agreement/s;
(b) the SC/RC is satisfied that the management of the
business of the borrower is acting in a manner adversely affecting the
interest of the creditors (including SC/RC) or is failing to take
necessary action to avoid any event which would adversely affect the
interest of the creditors;
(c) SC/RC is satisfied that the management of the business
of the borrower is not competent to run the business resulting in
losses/ non- repayment of dues to the SC/RC or there is a lack of
professional management of the business of the borrower or the key
managerial personnel of the business of the borrower have not been
appointed for more than one year from the date of such vacancy which
would adversely affect the financial health of the business of the
borrower or the interests of the SC/RC as a secured creditor;
(d) the borrower has without the prior approval of the
secured creditors (including SC/RC), sold, disposed of, charged,
encumbered or alienated 10% or more (in aggregate) of its assets
secured to the SC/RC;
(e) there are reasonable grounds to believe that the
borrower would be unable to pay its debts as per terms of repayment
accepted by the borrower ;
(f) the borrower has entered into any arrangement or
compromise with creditors without the consent of the SC/RC which
adversely affects the interest of the SC/RC or the borrower has
committed any act of insolvency;
(g) the borrower discontinues or threatens to discontinue any of its businesses constituting 10% or more of its turnover;
(h) all or a significant part of the assets of the
borrower required for or essential for its business or operations are
damaged due to the actions of the borrower,
(i) the general nature or scope of the business,
operations, management, control or ownership of the business of the
borrower are altered to an extent, which in the opinion of the SC/RC,
materially affects the ability of the borrower to repay the loan;
(j) the SC/RC is satisfied that serious dispute/s have
arisen among the promoters or directors or partners of the business of
the borrower, which could materially affect the ability of the borrower
to repay the loan;
(k) failure of the borrower to acquire the assets for
which the loan has been availed and utilization of the funds borrowed
for other than stated purposes or disposal of the financed assets and
misuse or misappropriation of the proceeds;
(l) fraudulent transactions by the borrower in respect of the assets secured to the creditor/s.
Explanation A: For the purpose of this paragraph, wilful default in repayment of amount due, includes -
(a) non-payment of dues despite adequate cash flow and availability of other resources, or
(b) 'routing of transactions through banks which are not lenders/ consortium members' so as to avoid payment of dues, or
(c) siphoning off funds to the detriment of the
defaulting unit, or misrepresentation / falsification of records
pertaining to the transactions with the SC/RC
Explanation B: The decision as to
whether the borrower is a wilful defaulter or not, shall be made by the
SC/RC keeping in view the track record of the borrower and not on the
basis of an isolated transaction/incident which is not material. The
default to be categorized as wilful must be intentional, deliberate and
calculated.
6. Policy regarding change in or take over of management
(A) Every SC / RC shall frame policy guidelines regarding
change in or take over of the management of the business of the
borrower, with the approval of its Board of Directors and the borrowers
shall be made aware of such policy of the SC/RC.
(B) Such policy shall generally provide for the following:
(i) The change in or take over of the management of the
business of the borrower should be done only after the proposal is
examined by an Independent Advisory Committee to be appointed by the
SC/RC consisting of professionals having technical / finance / legal
background who after assessment of the financial position of the
borrower, time frame available for recovery of the debt from the
borrower, future prospects of the business of the borrower and other
relevant aspects shall recommend to the SC/RC that it may resort to
change in or take over of the management of the business of the
borrower and that such action would be necessary for effective running
of the business leading to recovery of its dues;
(ii) The Board of Directors including at least two
independent directors of the SC/RC should deliberate on the
recommendations of the Independent Advisory Committee and consider the
various options available for the recovery of dues before deciding
whether under the existing circumstances the change in or take over of
the management of the business of the borrower is necessary and the
decision shall be specifically included in the minutes.
(iii) The SC/RC shall carry out due diligence exercise
and record the details of the exercise, including the findings on the
circumstances which had led to default in repayment of the dues by the
borrower and why the decision to change in or take over of the
management of the business of the borrower has become necessary.
(iv) The SC/RC shall identify suitable personnel /
agencies, who can take over the management of the business of the
borrower by formulating a plan for operating and managing the business
of the borrower effectively, so that the dues of the SC/RC may be
realized from the borrower within the time frame.
(v) Such plan will also include procedure to be adopted by
the SC/RC at the time of restoration of the management of the business
to the borrower in accordance with paragraph 3 above, borrower’s
rights and liabilities at the time of change in or take over of
management by the SC/RC and at the time of restoration of management
back to the borrower, rights and liabilities of the new management
taking over management of the business of the borrower at the behest of
SC/RC. It should be clarified to the new management by the SC/RC that
the scope of their role is limited to recovery of dues of the SC/RC by
managing the affairs of the business of the borrower in a prudent
manner.
Explanation:
To ensure independence of members of
Independent Advisory Committee (IAC), such members should not be
connected with the affairs of the SC/RC in any manner and should not
receive any pecuniary benefit from the SC/RC except for services
rendered for acting as member of IAC.
7. Procedure for change in or take over of management
(a) The SC/RC shall give a notice of 60 days to the
borrower indicating its intention to effect change in or take over of
the management of the business of the borrower and calling for
objections, if any.
(b) The objections, if any, submitted by the borrower
shall be initially considered by the IAC and thereafter the objections
along with the recommendations of the IAC shall be submitted to the
Board of Directors of the SC/RC. The Board of Directors of SC/RC shall
pass a reasoned order within a period of 30 days from the date of
expiry of the notice period, indicating the decision of the SC/RC
regarding the change in or take over of the management of the business
of the borrower, which shall be communicated to the borrower.
8. Reporting
SCs/ RCs shall report to the Bank all cases where they
have taken action to cause change in or take over of the management of
the business of the borrower for realization of its dues from the
borrower in terms of circular DNBS (PD) CC. No. 12 / SCRC / 10.30.000/ 2008-2009 dated September 26, 2008.
9. A Notification DNBS(PD-SC/RC) 7/ CGM(ASR)/ 2010 dated
April 21, 2010 amending paragraph 7(2) of the “The Securitisation
Companies and Reconstruction Companies (Reserve Bank) Guidelines and
Directions, 2003” is enclosed.
Yours faithfully
(A.S. Rao)
Chief General Manager In-Charge
Chief General Manager In-Charge
Encl: 2
Reserve Bank of India
Department of Non-Banking Supervision
Central Office
World Trade Centre
Mumbai 400 005
Department of Non-Banking Supervision
Central Office
World Trade Centre
Mumbai 400 005
Notification DNBS(PD-SC/RC) No. 7 /CGM (ASR)/-2010 dated April 21, 2010
The Securitisation Companies and Reconstruction
Companies (Reserve Bank) Guidelines and Directions, 2003
Companies (Reserve Bank) Guidelines and Directions, 2003
The Reserve Bank of India, having
considered it necessary in the public interest, and being satisfied
that, for the purpose of enabling the Reserve Bank to regulate the
financial system to the advantage of the country and to prevent the
affairs of Securitisation Company or Reconstruction Company from being
conducted in a manner detrimental to the interest of investors or in
any manner prejudicial to the interest of such Securitisation Company
or Reconstruction Company, hereby in exercise of the powers conferred
under clause (b) of sub-section (1) of Section 3 of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, directs that ‘The Securitisation Companies and
Reconstruction Companies (Reserve Bank) Guidelines and Directions,
2003’ (hereinafter called guidelines) shall stand amended, as follows,
namely:
1. Paragraph 7(2) of the guidelines shall be substituted as under:
“(2) (i) Change or take Over of Management
The Securitisation Company or Reconstruction Company
shall take the measures specified in Sections 9(a) of the Act, in
accordance with instructions contained in Circular DNBS/PD (SC/RC) No.17 /26.03.001/2009-10 dated April 21, 2010 as amended from time to time.
(ii) Sale or Lease of a part or whole of the business of the borrower
No Securitisation Company or Reconstruction Company shall
take the measures specified in Section 9(b) of the Act, until the Bank
issues necessary guidelines in this behalf.
(A. S. Rao)
Chief General Manager In-Charge
Chief General Manager In-Charge
Ozg NBFC Consultant
Ozg Center | Delhi | Mumbai | Chennai | Bangalore | Kolkata
Back Office Phone # 09811415831-37-61-72-84-92-94
