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NBFC

Shraddha Shukla (Corporate law Consultant) (346 Points)

05 July 2011

A Company is carrying on the Trading in Shares as its main business. As per the Provisions of RBI Act Sec. 45IA, it needs to be registered as an NBFC with the RBI. Can there be some exceptions to this?? It has also invested Appx. 50% of its paid up capital in to group companies but that has been kept as Investments and not as the stock – in – trade.

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9 Replies

NIRALI SOLANKI (JOINT MANAGER LEGAL & SECRETARIAL) (87 Points)
Replied 05 July 2011

Dear Shradhha,

Check provisions for Core Investment Companies Guidelines may be your company may not fulfil those criteria.

Thanks & Regards,

Nirali

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SkDash (CS (Member) CWA (Final)) (909 Points)
Replied 05 July 2011

Shraddha- In my earlier company, we have argued for as Core Investment Companies and at that time (6m-1yr back), i remember to be a core investment company, the co should not trade in the securites (no matter whether they are holding it as stock in trade or as investment and generally it is held as investment) and min 90% of the total assets of the investing co must be in the form of investment in group comapnies, that crieteria u should look into

(Guest)

The definition of the NBFC is as follows, which makes it clear that Object of dealing in Shares and Securities is to be considered as NBFC

Comapny having any of the business as its main business can be cnsidered as NBFC company.

Financial institution means any non-banking institution which carries on as its business or part of its business any of the following activities, namely:.—

(i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own;

(ii) the acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature;

(iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire-Purchase Act, 1972 (26 of 1972);

(iv) the carrying on of any class of insurance business;

(v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto;

(vi) collecting, for any purpose or under any scheme or arrangement by whatever name called, monies in lump sum or otherwise, by way of subscripttions or by sale of units, or other instruments or in any other manner and awarding prizes or gifts, whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which carries on as its principal business,.—

(a) agricultural operations; or

(aa) industrial activity; or

(b) the purchase, or sale of any goods (other than securities) or the providing of any services; or

(c) the purchase, construction or sale of immovable property, so, however, that no portion of the income of the institution is derived from the financing of purchases, constructions or sales of immovable property by other persons;

Note: Definition itself says it is NBFC

Dhawal (Executive) (27 Points)
Replied 05 July 2011

Does that mean , a company which is trading properties will be an NBFC, if it takes loan & repays it thru property sell?

(Guest)

First of all the property can not be traded, it is transferred. Builder is to be considered as Developer and not trader.

Now, It is quite weird that they take Unsecured Loan from other then members, which is prohibition of law(In case of Public company without issue of advertisement and excess in the limit) (In case of Private Company by breaking the provisions of Law).

So, first you make yourself clear whether it takes Loan or take the down payment and installation for the Properties to sold in future?

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(Guest)

Once you confirm what your company is doing, we will talk about status of NBFC

Shraddha Shukla (Corporate law Consultant) (346 Points)
Replied 08 July 2011

Can anyone suggest me some ways to convert my company into an NBFC. Its a company which was incorporated in 1996. It has been investing into shares of companies from 2004, and started trading in those since 2006. If i convert it into NBFC then as per the RBI norms its a default and if i go for registration then for sure there shall be number of objections raised by the RBI.

Could you suggest me an alternative measure to get it registered as an NBFC so that i face less problems. Like what if we incorparate a new NBFC and merge this company into that, or any other innovative measure

Kindly suggest.

SkDash (CS (Member) CWA (Final)) (909 Points)
Replied 08 July 2011

Please file NBFC application with RBI along with all necesary annexures. Thats the only requirement. After getting approval, ur company will be treated as NBFC.

There is no conversion as such.

Dhawal (Executive) (27 Points)
Replied 09 July 2011

Regarding my earlier reply...

My company had taken loan from 2 shareholders to invest in property. Mutually we agreed to share the profit on profit sharing basis After selling the property , we distributed the profit.

Now is this activity an NBFC activity?