ARCs Flashcards
Section 3- Registration of asset reconstruction company
(1) No asset reconstruction company shall commence or carry on the business of
securitisation or asset reconstruction without—
(a) obtaining a certificate of registration granted under this
section; and
(b) having net owned fund of not less than three hundred crore rupees or such other higher amount as the Reserve Bank, may, by notification, specify;
(2) Every asset reconstruction company shall make an
application for registration to the Reserve Bank in such form and manner as it may specify.
Section 3(3) of SARFAESI
- There should be proper arrangement for realisation of Financial Asset and periodical repayment to qualifi ed buyers.
- Director shall have professional experience in matters related to Finance,
Reconstruction and Securitisation. - Director shall not be convicted from moral turpitude.
- Sponsors should be fit and proper person by RBI as may be specified.
- ARC should comply with prudential norms specified by RBI.
- ARC should comply with RBI conditions and guidelines.
Section 3(4) & 3(5) - Certificate of Registration
(4) The Reserve Bank may, after being satisfied that the conditions specified in sub-section (3) are fulfilled, grant a certificate of registration to the asset reconstruction company to commence or carry on business of securitisation or asset reconstruction, subject to such conditions, which it may consider fit to impose.
(5) The Reserve Bank may reject the application made under sub-section (2) if it is satisfied that the conditions specified in sub-section (3) are not fulfilled:
Provided that before rejecting the application, the applicant shall be given a reasonable opportunity of being heard.
Section 3(6)- Prior Approval of RBI
Certain Transaction require prior approval of RBI.
a. Substantial change in the management including appointment of any director
/ MD/CEO.
b. Change in location of its registered office.
c. Change in name.
Provided that the decision of the Reserve Bank, whether the change in management of a asset reconstruction company is a substantial change in its management or not, shall be final.
Section 4- Cancellation of CoR
- Ceases to carry business of Seecuritisation or Asset reconstruction
- Ceases to receive or hold any investment from Qualifi ed Buyer.
- Fail to comply with conditions of Registration of ARC.
- Fail to comply with Directions of RBI.
- Fail to maintain proper appropriate Accounts as per any law or order issued by RBI.
- Fail to submit information during investigation BOA and other documents.
- Fail to obtain approval of RBI where it is otherwise required
(cases where prior approval of RBI is required).
Before cancellation of registration opportunity of being heard should be given to ARC.
Appeal against such cancellation can be filed to CG within 30 days from the date such order is communicated to ARC. CG will also give opportunity of being heard before rejecting the appeal.
Section 12(1)- Power of Reserve Bank to determine policy and issue directions.
If the RBI is satisfied that in the public interest or to regulate financial system of the country to its advantage or to prevent
the affairs of any ARC from being
conducted in a manner detrimental to the interest of investors or in any manner prejudicial to the interest of such ARC, it is necessary or expedient so to do, it may determine the policy and give directions to all or any ARC in matters relating to:
income recognition, accounting
standards, making provisions for bad and doubtful debts, capital
adequacy based on risk weights for assets and also relating to
deployment of funds by the ARC, as the case may be, and such company shall be bound to follow the policy so determined and the directions so issued.
Section 5-Acquisition of rights or interest in financial assets.
- ARCs may acquire financial assets by issuing debentures, bonds and such other instruments as may be specified.
- If the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (1) by the ARC such ARC shall, on such acquisition, be deemed to be the lender and all the rights of
such bank or financial institution shall vest in such company in relation to such financial assets.
Section 7- Issue of security by raising of receipts or funds by asset reconstruction company
ARC may raise fund to acquire Financial Asset by issuing security receipt to Qualified
Buyers. Money raised from Qualified Buyers will be kept in a separate scheme and any Financial Asset acquired from such scheme will be paid to that particular Qualified Buyer only.
Section 8- Exemption from registration of security receipt.
(a) any security receipt issued by the asset reconstruction
company, as the case may be, under sub-section (1) of
Section 7, and not creating, declaring, assigning, limiting or
extinguishing any right, title or interest, to or in immovable
property except insofar as it entitles the holder of the security receipt to an undivided interest afforded by a registered instrument; or
(b) any transfer of security receipts, shall not require compulsory registration.
Section 9-Measures for assets reconstruction.
- Rescheduling of Debt.
- Settlement of Debt with Borrower.
- Enforcement of Security Interest.
- Takeover of the Asset (possession) Borrower.
- Sale or lease of the Asset.
- Takeover of Business of Borrower i.e. Management.
- Running Management of the Borrower.
- Conversion of Debt into Shares – If any conversion has already taken place then it will be treated as valid conversion
Section 5A(1)- Transfer of pending applications to any one of Debts Recovery Tribunals in certain cases.
If any dispute is pending with multiple DRTs then in that case ARC may proceed to DRAT and if satisfied DRAT may transfer all dispute to single DRT.
- ARC may file an application to the appellate tribunal having jurisdiction over any such DRT’s before which cases are pending.
- The Appellate Tribunal passes an order for transfer of the pending applications to anyone of the Debt Recovery Tribunals.
- Order passed shall be binding on all Debt Recovery Tribunal.
- Any recovery certifi cate shall be executed.
Section 6-Notice to obligor and discharge of obligation of such obligor.
Notice to obligor may (discretionary) be sent by Bank or Financial Institute after
transfer of FA to ARC. Along with this it may also be intimated to concerned person (guarantor) and concerned authority (ROC) Registrar.
The obligor shall (mandatory) make payment to ARC related to Financial Asset.
Section 11- Resolution of disputes.
Where any dispute relating to securitisation or reconstruction or non-payment of any amount due including interest arises amongst any of the parties, namely, the bank or financial institution, or asset reconstruction company or qualified
institutional buyer, such dispute shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996, as if the parties to the dispute have consented in writing for determination of such dispute by conciliation or arbitration and the provisions of that Act shall apply accordingly.
Section 10 : Other Functions of ARC :
(a) act as an agent for any bank or financial institution for the purpose of recovering their dues from the borrower on payment of such fees or charges as may be mutually agreed upon
between the parties;
(b) act as a manager referred to in clause (c) of sub-section (4) of Section 13 on such fee as may be mutually agreed upon between the parties;
(c) act as receiver if appointed by any court or tribunal:
Provided that no ARC shall act as
a manager if acting as such gives rise to any pecuniary liability.
