IM

Information Memorandum/Disclosure Document Dated May 12, 2012 Strictly Confidential, not for Public Circulation For Private
Circulation only
L. R. N. FINANCE LIMITED
A Public Limited Company Incorporated under the Companies Act, 1956 (Registered as a Non-Banking Financial Company (NBFC-AFC) within the meaning of the Reserve Bank of India Act, 1934) having Registered Office: Regd Office: 153,Kamarajapuram, Nungambakkam, Chennai- 600034, India. Corporate Office: #3, Dacres Lane, 3rd Floor, Kolkata 700 069, Tel. No.: +91 33 2231 9135 /4066 1580 Fax: +91 33 4008 0690. Contact Person: Mr. Ayan Sengupta, Company Secretary & Compliance Officer ; E-mail: pinconafc@gmail.com Issue of 3,00,000 Rated Secured Redeemable Non-Convertible Debentures of Face Value of Rs. 1,000/- each, aggregating up to Rs. 30.00 Crore on a Private Placement basis in the Financial Year 2012-13. GENERAL RISKS Investment in debt and debt related securities involve a degree of risk and investors should not invest any funds in the debt instruments, unless they can afford to take the risks attached to such investments. For taking an investment decision, the investors must rely on their own examination of the Company and the Issue including the risks involved. The Debentures have not been recommended or approved either by Securities and Exchange Board of India (SEBI) or by Reserve Bank of India (RBI) nor does either SEBI or RBI guarantee the accuracy or adequacy of this document. ISSUERS ABSOLUTE RESPONSIBILITY The Issuer, having made all reasonable inquiries, that the information contained in this Information Memorandum/ Disclosure Document is true and correct in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. CREDIT RATING The Debentures have a long term rating of CRISIL BB by CRISIL. The rating is not a recommendation to buy, sell or hold securities and investors should take their own decision. The rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating. The rating agency has a right to suspend or withdraw the rating at any time on the basis of factors such as new information or unavailability of information or any other circumstances which it believes may have an impact.
ISSUER
DEBENTURE TRUSTEE
REGISTRAR TO ISSUE
L R N Finance Ltd Regd Office: 153,Kamarajapuram,
Nungambakkam, Chennai- 600034.

Corp Office: #3 Dacres Lane, 3rd Floor, Kolkata 700069 Tel: +91 33 2231 9135/4066 1580 Fax: +91 33 4008 0690 Email: pinconafc@gmail.com Website: www.pinconafc.com
Contact Person: Mr. Ayan Sengupta
IL & FS Trust Company Limited IL&FS Financial Centre, Plot C-22, G Block, 3rd Floor, Bandra Kurla Complex, Bandra (East), Mumbai 400 051.
Karvy Computershare Pvt. Ltd. 17-24 Vittalrao Nagar, Madhapur Hyderabad 500 081
Tel: +91 22 2659 3612/3760 Fax: +91 22 2653 3297 Email: itcl@ilfsindia.com Website: www.itclindia.com
Contact Person: Mr. Vivek Chaudhary
Tel: +91 40 4465 5265 Email: jeejo@karvy.com Contact Person: Mr. Jeejo Joseph
ISSUE OPENS ON ISSUE CLOSES ON*
May 16, 2012 November 15, 2012
* The Issuer would have the right to pre-close or extend the closing of the issue. NOTE: This Information Memorandum/ Disclosure Document of private placement is neither a prospectus nor a statement in lieu of a prospectus. This information Memorandum/Disclosure Document has been prepared for the purpose of private placement of the Secured Redeemable Non-Convertible Debentures issued by the Company This is only an information brochure intended for private use and should not be construed to be a prospectus and/or an invitation to the public for subscription to Debentures under any law for the time being in force.
Information Memorandum / Disclosure Document
Private & Confidential/ Not For Public Circulation
TABLE OF CONTENTS
SECTION I: GENERAL .............................................................................................. 4 DEFINITIONS AND ABBREVIATIONS ................................................................ 4 DISCLAIMER ........................................................................................................... 7 FORWARD LOOKING STATEMENTS ................................................................. 9 PRESENTATION OF FINANCIAL AND OTHER INFORMATION .................10 CERTAIN CONVENTIONS AND USE OF MARKET DATA.............................11 SECTION II: RISK FACTOR ................................................................................... 12 SECTION III: INTRODUCTION ............................................................................. 14 GENERAL INFORMATION ..................................................................................14 SUMMARY OF BUSINESS .....................................................................................18 THE ISSUE ...............................................................................................................20 SUMMARIZED FINANCIAL INFORMATION ...................................................24 CAPITAL STRUCTURE ..........................................................................................26 OBJECTS OF THE ISSUE ........................................................................................28 SECTION IV: ABOUT THE ISSUER COMPANY AND THE INDUSTRY .......... 29 INDUSTRY ...............................................................................................................29 OUR BUSINESS .......................................................................................................31 MAIN OBJECTS ......................................................................................................46 OUR MANAGEMENT ...........................................................................................47 OUR PROMOTER ...................................................................................................51 GROUP COMPANY ...............................................................................................52 GROUP SNAPSHOT ...............................................................................................62 SECTION V: ISSUE RELATED INFORMATION .................................................. 63 TERMS OF THE ISSUE ...........................................................................................63 ISSUE STRUCTURE ................................................................................................66 ISSUE PROCEDURE ...............................................................................................78 OTHER REGULATORY AND STATUTORY DISCLOSURES ............................88 REGULATIONS AND POLICIES ..........................................................................90 SUMMARY OF KEY PROVISIONS OF ARTICLES OF ASSOCIATION ...........94 MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ............. 129 ANNEXURE I: UNDERTAKING BY THE COMPANY ....................................... 131
SECTION I: GENERAL DEFINITIONS AND ABBREVIATIONS TERM DESCRIPTION L. R. N. FINANCE LIMITED It is a Limited Company incorporated under the Companies Act, 1956 and registered as a Non-Banking Finance Company bearing Certificate of Registration No. 07-00396, U/S 45-1A of the Reserve Bank of India Act, 1934 having its registered office at 2, Ramakrishna Road, Salem, Tamil Nadu 636 007 and corporate office at 3, Dacres Lane, 3rdFloor, Kolkata 700069. Unless the context otherwise requires, the Company, its Subsidiaries, and joint ventures. An advice informing the Allottee through Letter(s) of Allotment informing no. of Debenture(s) allotted to him/her in physical/Electronic (Dematerialised) Form Annual General Meeting of the Shareholders of the Company.
The Company / Issuer / LRN Finance Limited/LRN
we, us, our Allotment Intimation
AGM
Articles of Association/Articles/AOA Allot/Allotment/Allotted Board CRISIL Credit Rating Agency Coupon Payment Date Date of Allotment
Articles of Association of the Company Unless the context otherwise requires or implies, the allotment of the Debentures pursuant to the Issue. Board of Directors of the Company or a Committee thereof CRISIL Ltd., a credit Rating Agency registered with SEBI CRISIL or any other approved Rating Agency, appointed from time to time Date of payment of interest on the Debentures The date on which Allotment for the Issue, has been made Rated, Secured, Taxable, Redeemable Non-Convertible Debenture(s) of face value of Rs.1, 000/- each aggregating to Rs. 30.00crores, to be issued and allotted by the Issuer on Private Placement basis. The investors who will be Allotted Debentures. Trustee for the Debenture holders, in this case being IL & FS Trust Company Limited National Securities Depository Limited (NSDL) / Central Depository Services (India) Limited (CDSL) Current A/C with Punjab National Bank. Depository Participant Debenture Redemption Reserve Electronic Clearing Service. It is a mode of electronic funds transfer from one bank account to another bank account using the services of a Clearing House. This is normally for bulk transfers from one account to many accounts or vice-versa. This can be used both for making
Debentures Debenture holder(s) Debenture Trustee Depository/(ies) Designated Account DP DRR
ECS
TERM DESCRIPTION payments like distribution of dividend, interest, salary, pension, etc. by institutions or for collection of amounts for purposes such as payments to utility companies like telephone, electricity, or charges such as house tax, water tax, etc or for loan installments of financial institutions/banks or regular investments of persons. Extraordinary General Meeting of the Shareholders of the Company. The Regulations framed by the RBI under the provisions of the Foreign Exchange Management Act, 1999, as amended from time to time Foreign Institutional Investor (as defined under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995) registered with SEBI Inter Corporate Deposit Generally accepted accounting principles in India This Information Memorandum The Income-tax Act, 1961 as amended from time to time Rated, Secured Redeemable, Taxable and NonConvertible Debentures issued on Private Placement basis International Securities Identification Number Know Your Customer Memorandum of Association of the Company Million A mutual fund registered with SEBI under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. Non-Banking Financial Company registered with Reserve Bank of India U/s 45 IA of the RBI Act, 1935. Non-Banking Financial Institution registered with RBI. Rated, Secured, Taxable, Redeemable Non-Convertible Debenture(s) of face value of Rs.1,000/- each aggregating to Rs. 30.00 Crores to be issued through this Information Memorandum and allotted by the Issuer on private placement basis. National Electronic Fund Transfer. It is a nation-wide payment system facilitating one-to-one funds transfer. Under this Scheme, individuals, firms and corporate can electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country participating in the Scheme. Non-Performing Assets
EGM FEMA Regulations
FII
ICD Indian GAAP Information Memorandum/ Disclosure Document/IM I.T. Act Issue ISIN KYC Memorandum/MoA/Memorandum of Association Mn Mutual Fund NBFC NBFI NCD(s)/Non-Convertible Debenture (s), Debenture(s)
NEFT
NPA
TERM DESCRIPTION A person resident outside India, who is a citizen of India or a person of Indian origin and shall have the same meaning as ascribed to such term in the FEMA Regulations. A company, partnership, society or other corporate body owned directly or indirectly to the extent of at least 60% by NRIs including overseas trusts, in which not less than 60% of beneficial interest is irrevocably held by NRIs directly or indirectly as defined under FEMA Regulations. OCBs are not permitted to invest in the Debentures under this issue. 3 (Three) Business Days from the date of receipt of application or the date of realization of the cheques/demand drafts, whichever is later. Public Sector Undertaking Registrar to the Issue, in this case being Karvy Computershare Private Limited. The Registrar of Companies, Coimbatore, Tamil Nadu. Real Time Gross Settlement, an electronic funds transfer facility provided by RBI The Reserve Bank of India Securities and Exchange Board of India constituted under the Securities and Exchange Board of India Act, 1992 (as amended from time to time) Securities and Exchange Board of India (Debenture Trustee) Regulation, 1993. The Companies Act, 1956 (as amended from time to time) Information Memorandum, Debenture Trustee Agreement, Debenture Trust Deed and / or any other documents
NRI
Overseas Corporate Body / OCB
Pay In Date PSU Registrar/Registrar to the Issue ROC/RoC RTGS RBI SEBI SEBI Regulation The Act/Companies Act Transaction Document/(s)
DISCLAIMER This Information Memorandum/ Disclosure Document is neither a Prospectus nor a Statement in lieu of a Prospectus. The issue of Debentures is to be made strictly on private placement basis.This Information Memorandum/Disclosure Document has been prepared for the purpose of issue of Non-Convertible Debentures to be issued by the Company.It does not constitute and shall not be deemed to constitute an offer or an invitation to subscribe to the Debentures to the public in general. This Information Memorandum/ Disclosure Document should not be construed to be a prospectus or a statement in lieu of prospectus under the Companies Act 1956. This Information Memorandum/ Disclosure Document has been prepared in conformity with the regulations prevailing in India for issue of debt securities on private placement basis. Therefore, as per the applicable provisions, copy of this Information Memorandum/ Disclosure Document has not been filed or submitted to the SEBI for its review and/or approval. Further, since the Issue has been made on a private placement basis, the provisions of Section 60 of the Companies Act shall not be applicable and accordingly, a copy of this Information Memorandum/ Disclosure Document has not been filed with the RoC or the SEBI. This Information Memorandum/Disclosure Document has been prepared for the purpose of issue of the Non-Convertible Debentures issued by the Issuer on private placement basis.This Information Memorandum/ Disclosure Document has been prepared to provide general information about the Issuer. This Information Memorandum/Disclosure Document does not purport to contain all the information that any potential investor may require. Neither this Information Memorandum/ Disclosure Document nor any other information supplied in connection with the Debentures is intended to provide the basis of any credit or other evaluation and any recipient of this Information Memorandum/ Disclosure Document should not consider such receipt as a recommendation to purchase any Debentures. Each investor contemplating purchasing any Debentures should make its own independent investigation of the financial condition and affairs of the Issuer, and its own appraisal of the creditworthiness of the Issuer. Potential investors should consult their own financial, legal, tax and other professional advisors as to the risks and investment considerations arising from an investment in the Debentures and should possess the appropriate resources to analyze such investment and the suitability of such investment to such investor's particular circumstances. The Issuer confirms that, as of the date hereof, this Information Memorandum/ Disclosure Document (including the documents incorporated by reference herein, if any) contains all information that is material in the context of the Issue and sale of the Debentures, is accurate in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements herein, in the light of the circumstances under which they are made, not misleading. No person has been authorized to give any information or to make any representation not contained or incorporated by reference in this Information Memorandum/ Disclosure Document or in any material made available by the Issuer to any potential investor pursuant hereto and, if given or made, such information or representation must not be relied upon as having been authorized by the Issuer. This Information Memorandum/ Disclosure Document and the contents hereof are restricted for only the intended recipient(s) who have been addressed directly and specifically through a communication by the Company. All investors are required to comply with the relevant regulations/guidelines applicable to them. It is not intended for distribution to any other person and should not be reproduced by the recipient. The person who is in receipt of this Information Memorandum/ Disclosure Document shall maintain utmost confidentiality regarding the contents of this Information Memorandum and shall not reproduce or distribute in whole or part or make any announcement in public or to a third party regarding the contents without the consent of the Issuer.
Each person receiving this Information Memorandum/ Disclosure Document acknowledges that: Such person has been afforded an opportunity to request and to review and has received all additional information considered by it to be necessary to verify the accuracy of or to supplement the information herein; and Such person has not relied on any intermediary that may be associated with issuance of Debentures in connection with its investigation of the accuracy of such information or its investment decision. The Issuer does not undertake to update the Information Memorandum/ Disclosure Document to reflect subsequent events after the date of the Information Memorandum/ Disclosure Document and thus it should not be relied upon with respect to such subsequent events without first confirming its accuracy with the Issuer. Neither the delivery of this Information Memorandum/ Disclosure Document nor any sale of Debentures made hereunder shall, under any circumstances, constitute a representation or create any implication that there has been no change in the affairs of the Issuer since the date hereof. This Information Memorandum/ Disclosure Document does not constitute, nor may it be used for or in connection with, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. No action is being taken to permit an offering of the Debentures or the distribution of this Information Memorandum/ Disclosure Document in any jurisdiction where such action is required. The distribution of this Information Memorandum/ Disclosure Document and the offering and sale of the Debentures may be restricted by law in certain jurisdictions. Persons into whose possession this Information Memorandum comes are required to inform themselves about and to observe any such restrictions. The Information Memorandum/ Disclosure Document is made available to investors in the Issue on the strict understanding that the contents hereof are strictly confidential.
FORWARD LOOKING STATEMENTS This Information Memorandum contains certain forward-looking statements. These forward looking statements generally can be identified by words or phrases such as aim, anticipate, believe, expect, estimate, intend, objective, plan, shall, will, will continue, will pursue, would, will likely result, is likely, expected to, will achieve, contemplate, seek to, target, propose to, future, goal, project, should, can, could, may, in management's judgment or other words or phrases of similar import or variations of such expressions. Similarly, statements that describe our strategies, objectives, plans or goals are also forward looking statements. All forward looking statements are subject to risks, uncertainties and assumptions about us that could cause actual results to differ materially from those contemplated by the relevant forwardlooking statement. Important factors that could cause actual results to differ materially from our expectations include, amongst others: General economic and business conditions in India and globally; Our ability to successfully implement our strategy, our growth and expansion plans and technological changes; Our ability to compete effectively and access funds at competitive cost; Changes in the value of Rupee and other currency; Unanticipated turbulence in interest rates, equity prices or other rates or prices; the performance of the financial and capital markets in India and globally; Availability of funds and willingness of our lenders to lend; Changes in political conditions in India; The rate of growth of our loan assets as well as trading assets; The outcome of any legal or regulatory proceedings we are or may become a party to; Changes in Indian and/or foreign laws and regulations, including tax, accounting, banking, securities, insurance and other regulations; changes in competition and the pricing environment in India; and regional or general changes in asset valuations; Changes in laws and regulations that apply to NBFCs in India, including laws that have impact on our lending rates and on our ability to enforce our collateral; and Emergence of new competitors.
By their nature, certain market risks are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. Neither our Company, our Directors and Officers nor any of the irrespective affiliates have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION General In this Information Memorandum/Disclosure Document, unless the context otherwise indicates or implies, references to you, offeree, purchaser, subscriber, recipient, investors and potential investor are to the prospective investors in this Offering, references to our Company, the Company or the Issuer are to L. R. N. Finance Limited. In this Information Memorandum/Disclosure Document, references to US$ is to the legal currency of the United States and references to `, Rs. and Rupees are to the legal currency of India. All references herein to the U.S. or the United States are to the United States of America and its territories and possessions and all references to India are to the Republic of India and its territories and possessions, and the "Government", the "Central Government" or the "State Government" are to the Government of India, Central or State, as applicable. Rs. 1.00 Crore = Rs. 10.00 million. Rs. 1.00 Lakh = Rs. 0.10 million. Unless otherwise stated, references in this Information Memorandum to a particular year are to the calendar year ended on December 31 and to a particular fiscal or fiscal year are to the fiscal year ended on March 31. Unless otherwise stated all figures pertaining to the financial information in connection with our Company are on an unconsolidated basis.
CERTAIN CONVENTIONS AND USE OF MARKET DATA Unless stated otherwise, the financial information used in this Information Memorandum is derived from our Companys financial statements for the period April 1 to March 31 being FY2009, 2010, 2011 and 2012as audited and prepared in accordance with Indian GAAP and the Act. Our Companys financial year commences on April 1 of a calendar year and ends on March 31 of the succeeding calendar year. In this Information Memorandum, any discrepancies in any table between the totals and the sum of the amounts listed are due to rounding off. Except as specifically disclosed, all financial / capital ratios and disclosures regarding NPAs in this Information Memorandum are in accordance with the applicable RBI norms. Unless stated otherwise, macroeconomic and industry data used throughout this Information Memorandum has been obtained from publications prepared by providers of industry information, government sources and multilateral institutions. Such publications generally state that the information contained therein has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although the Issuer believes that industry data used in this Information Memorandum is reliable, it has not been independently verified.
SECTION II: RISK FACTOR Risks Relating to the NCDs 1. Changes in interest rates may affect the notional price of our NCDs. All securities where a fixed rate of interest (Coupon Rate) is offered, such as our NCDs, are subject to price risk. The price of such securities will vary inversely with changes in prevailing interest rates, i.e. when interest rates rise, prices of fixed income securities fall and when interest rates drop, the prices increase. The extent of fall or rise in the prices is a function of the existing coupon, days to maturity and the increase or decrease in the level of prevailing interest rates. Increased rates of interest, which frequently accompany inflation and/or growing economy, are likely to have a negative effect on the notional price of our NCDs. 2. If we do not generate adequate profits, we may not be able to maintain an adequate Debenture Redemption Reserve, (DRR), for the NCDs issued pursuant to this Information Memorandum. Section 117C of the Act states that any company that intends to issue debentures must create a DRR to which adequate amounts shall be credited out of the profits of the company until the redemption of the debentures. The Ministry of Corporate Affairs has, through its circular dated April 18, 2002, (Circular), specified that the quantum of DRR to be created before the redemption liability actually arises in normal circumstances should be adequate to pay the value of the debentures plus accrued interest (Coupon), (if not already paid), till the debentures are redeemed and cancelled. The Circular however further specifies that, for NBFCs like our Company, (NBFCs which are registered with the RBI under Section 45-IA of the RBI Act), no DRR is required in the case of privately placed debentures. Accordingly our Company is not required to create a DRR for this issue. As further clarified by the Circular, the amount to be credited as DRR will be carved out of the profits of the company only if there is profit for the particular year and there is no obligation on the part of the company to create DRR if there is no profit for the particular year. Accordingly, if we are unable to generate adequate profits, the DRR created by us may not be adequate to meet the value of the NCDs. This may have a bearing on the timely redemption of the NCDs by our Company. Notwithstanding the above Our Company shall credit adequate amounts to DRR, from its profits every year until such NCDs are redeemed. The amounts credited to DRR shall not be utilized by the company except for the redemption of the NCDs. 3. Any downgrading in credit rating of our NCDs may affect the notional value of NCDs and thus our ability to raise further debts. This Issue has been rated Crisil BB by Crisil. The Issuer cannot guarantee that this rating will not be downgraded. The ratings provided by Crosland Brickwork may be suspended, withdrawn or revised at any time by these agencies assigning rating. Any revision or downgrading in the above credit rating(s) may lower the notional value of the NCDs and may also affect the Issuers ability to raise further debt.
4. There may be a delay in making refunds to applicants. We cannot assure you that the monies refundable to you, on account of (a) withdrawal of your applications, (b) withdrawal of the Issue, or any regulatory circumstances will be refunded to you in a timely manner. We however, shall refund such monies, with the interest (Coupon) due and payable thereon as prescribed under applicable statutory and/or regulatory provisions.
SECTION III: INTRODUCTION GENERAL INFORMATION (a) Name & Address of the Registered Office LRN Finance Limited 2, Ramakrishna Road, Salem, Tamil Nadu 636 007 Address of the Corporate Office 3, Dacres Lane, 3rd Floor, Kolkata- 700 069 Ph: 033- 2231 9135 Fax: 033 4008 0690 Email: pinconafc@gmail.com Registration: Corporate Identification Number: U65921TZ1992PLC004109 issued by the Registrar of Companies, Tamil Nadu. Our Company holds a certificate of registration dated March 1, 2012 bearing registration no B-07-00396 (in lieu of CoR 07-00396 dt: 11/12/1998) issued by the RBI to carry on the activities of a NBFC under section 45 IA of the RBI Act, 1934. (b) Board of Directors& Key Personnel Name Mr. Monoranjan Roy Mr. Rajkumar Roy Mr. Sandeep Thakur Mr. Swapan Kumar Sircar Mr. Arup Thakur Mr. Hari Singh Mr. JBS Negi Position Managing Director Whole Time Director Independent Director Chartered Accountant & Independent Director Director Finance & CFO Director Independent Director Address 247/C Raipur Road, Sree Colony, Kolkata, 700092, West Bengal, India 2/29/2, Vivek Nagar Kali Temple, Kolkata- 700075, West Bengal, India 16/H/1, Chandra Mondal Lane, Kolkata, 700026, West Bengal, India Omkar, Flat 1A, 198 A, S.P.Mukherjee Road, Kolkata 700026 17/1, Swinhoe Street, Kolkata- 700 019 17, Brijavihar, Amrapura, Kalavari, Agra 283105, Uttar Pradesh, India Q. No. 193, 2nd Floor, Gautam Nagar New Delhi 110 049
For more details about our directors please see section Our Management on page no. 39of this Information Memorandum.
(c) Compliance officer (d) Auditor
Anupam Sarkar, Mr. Ayan Sengupta, Company Secretary & Chartered Accountant Compliance Officer Address: 81/2, Regent Estate, Kolkata 700 092 Corporate Office: 3, Dacres Lane, 3rd floor, Mobile : +91 99 0377 6223 Kolkata 700 069 Tel : +91 33 2231 9135 Fax : +91 33 4008 0690 Email : pinconafc@gmail.com Investors can contact the compliance officer in case of any post-Issue related problems such as non-receipt of letters of allotment, credit of debentures, interest on application money etc in the respective beneficiary account or refund orders, etc. (e) Debenture Trustee (f) Registrar to the Issue
IL & FS Trust Company Limited IL&FS Financial Centre, Plot C-22, G Block, 3rd Floor, Bandra Kurla Complex, Bandra(East), Mumbai 400 051 Tel: +91 22 2659 3612/3760 Fax: +91 22 2653 3297 Email: itcl@ilfsindia.com Website: www.itclindia.com Contact Person: Mr. Vivek Chaudhary (g) Credit Rating Agency CRISIL Limited Crisil House, Central Avenue, Hiranandani Business Park, Powai, Mumbai 400 076 Phone: +91 22 3342 3000 Fax: +91 22 3342 3050 Contact Person: Ms. Rupali Shanker. (i) Banker to the Issue Punjab National Bank BO`: B.R.B.B. Road, Kolkata 700 001. Phone: +91 33 2242 7291/6008/9048 Fax: +91 33 2242 5619 Contact Person: Mr. Umakanta Das, Chief Manger (j) Banker to the company Axis Bank Limited 41 B, Rashbehari Avenue, Kolkata 700 026. Phone: +91 33 2464 6985 Fax: +91 33 2484 7307 Contact Person: Mr. Soumen Nayek
Karvy Computershare Pvt. Ltd. Address:17-23, Vittalrao Nagar, Madhapur, Hyderabad- 500 081 Tel : +91 40 4465 5265 Contact person : Mr. Jeejo Joseph Email: jeejo@karvy.com
(h) Legal Advisor to the Issue Orr, Dignam & Co Solicitors & Advocates, 29, N.S.Road, Kolkata 700 001. Phone: +91 33 2213-4886-89 Fax: + 91 33 2213 4787, Contact Person: Mr. A.M.Barat
Punjab National Bank BO: B.R.B.B. Road Kolkata 700 001. Phone: +91 33 2242 7291/6008/9048 Fax: +91 33 2242 5619 Contact Person: Mr. Umakanta Das, Chief Manger
United Bank of India P.Box No.559, 10, N.S.Road, Kolkata-700001 Phone: +91 33 2242 1814/17/19/28 Fax: +91 33 2242 1814 Contact Person:
Impersonation Though, this issue is made through private placement of NCDs, yet as a matter of adequate precaution, attention of the investors is specifically drawn to the provisions of sub-section (1) of section 68A of the Act, relating to punishment for fictitious applications. Minimum Subscription Since the instruments are not going to be listed on any exchange and hence minimum subscription is not applicable. If the issue is not subscribed fully, the net amount shall be kept and utilized by the company and NCDs would be allotted to the applicant. Rating Rationale CRISIL has upgraded its rating on the Rs.250-million non-convertible debenture (NCD) programme and the proposed long-term bank loan facility of L R N Finance Ltd (LRN Finance; part of the Pincon group) to CRISIL BB/Stable from CRISIL BB-/Stable, and has assigned its CRISIL BB/Stable rating to LRN Finances Rs.300-million NCD programme. The upgrade reflects increase in LRN Finances net worth, with fresh infusion of equity capital by its promoters. Net worth increased to Rs.697 million as on March 31, 2012 (provisional figures) from Rs.132 million as on March 31, 2011. LRN Finance has also increased its scale of operations, with loans outstanding increasing to Rs.814 million as on March 31, 2012 (provisional figures) from Rs.143 million as on March 31, 2011. The company has reduced the proportion of bridge financing business (29 per cent for 2011-12 [refers to financial year, April 1 to March 31], compared with 45 per cent for 2010-11) and has disbursed loans in tractor financing, earth moving equipment and heavy machinery financing divisions. LRN Finance benefits from the brand image of the Pincon group, which is engaged in manufacturing and distributing fast-moving consumer goods (FMCG) products and liquor; the group is also into real estate development. The Pincon groups well-established operations in eastern India will enable LRN Finance to tap the groups customer network to develop potential customers for its financing businesses. CRISIL also believes the Pincon groups brand image will enable LRN Finance to competitively raise resources, compared to a standalone non-banking finance company (NBFC) with limited track record of operations. In addition, LRN Finances capitalisation is adequate for its current scale of operations supported by the recent infusions by the promoter. Furthermore, the company has flexibility to bring in additional capital from its group entities or its promoters. However, LRN Finances track record in the financial services industry is very short; the company had completed only two years of operations under its new management as on March 31, 2012. Moreover, LRN Finances group entities also lack experience in the financial services industry. LRN Finances current loan portfolio (Rs.814 million as on March 31, 2012 [provisional figures]) is yet to be seasoned, as it has built an asset financing portfolio in 2011-12. CRISIL believes that the segments in which LRN Finance operates are highly competitive, with the presence of well established players; LRN Finances ability to profitably scale up its operations in these proposed business segments is yet to be demonstrated. The company also plans to expand its market share in eastern India from its current operations in Salem (Tamil Nadu), leveraging the Pincon groups brand position in the region. CRISIL believes that LRN Finances expansion plans will expose the company to considerable execution risks associated with its proposed businesses. LRN Finances ability to establish a track record and maintain healthy asset quality in its proposed business segments will have a bearing on the rating. Outlook: Stable CRISIL believes that LRN Finance will maintain its adequate capitalisation and benefit from the Pincon groups brand image and market position in eastern India. The outlook may be revised to Positive if LRN Finance scales up its operations substantially, while maintaining healthy asset quality and profitability. Conversely, the outlook may be revised to Negative if LRN Finances asset quality and earnings profile significantly weaken, leading to weakening in its capitalisation,
or if the company is unable to effectively execute its business plans, or if it enters into unrelated or high-risk businesses. About the Company LRN Finance was acquired by Mr. Monoranjan Roy on March 31, 2010 to start operations in the financial sector. The company was earlier run by Mr. Shanmugan Sundaresan in Salem, who was running down his business. The companys operations are primarily in Salem. LRN Finance is now part of the Pincon group, which has been in business for the past 16 years in eastern India. In addition to LRN Finance, the group comprises Greenage Food Products Ltd, Pincon Spirit Ltd, Pincon Developers Ltd, and Bengal Pincon Housing Infrastructure Ltd. LRN Finances outstanding loans of Rs.143 million are all towards bridge financing for heavy machinery and bill discounting. The company sources its bridge financing business through the Pincon groups network and offers loans for a period of six months in this segment. The company plans to expand its operations in eastern India by starting tractor financing and gold financing over the medium term. For 2011-12, LRN Finance reported, on provisional basis, a profit after tax (PAT) of Rs.36 million on a total income of Rs.223 million; it reported a PAT of Rs.31 million on a total income of Rs.197 million for the previous year.
Issue Programme The subscription list for the Issue shall remain open for subscription at the commencement of banking hours and shall close at the close of banking hours on the dates indicated below or earlier or on such date, up to 90 days from the date of opening of the Issue, as may be decided at the discretion of the Board of Directors or any committee of our Company subject to necessary approvals. ISSUE OPENS ON ISSUE CLOSES ON May 16, 2012 November 15, 2012
SUMMARY OF BUSINESS Brief summary of the business/activities of the Company & its line of business L. R. N. FINANCE LIMITED is a Body Corporate incorporated under the Companies Act, 1956 and it is registered as a Non-Banking Finance Company bearing Certificate of Registration U/S 45-1A of the Reserve Bank of India Act, 1934 as a Category B Investment Company. L R N Finance Limited has been taken over in 2010-11 by an over Rs. 400.00 cr. Business Conglomerate from Eastern India viz. Pincon Group, headed by its Group Chairman, Mr. Monoranjan Roy. Pincon group is having a business vintage of over a decade, with diversified interests in FMCG Products, IMFL Products, Real Estate and Civil Infrastructure Work. Pincon brand has found its presence in the latest edition of Brand Watch Bengal published by Anandabazaar Patrika in the Edible Oil and Beverage Sector. Brief history of the Company L R N Finance Limited, since its incorporation in November 12, 1992, and on obtaining registration as NBFC from RBI, made an inroad into hire purchase, general finance and various financial services. It successfully flourished as a capable non-banking finance company. The company has no adverse track record during its operation as NBFC. The new management had introduced fresh funds amounting to Rs. 920.15 lacs by way of contribution to further 13, 14,500 equity shares of Rs. 10/- each, at a premium of Rs. 60/-. And on August 11, 2011 it again introduced Rs. 17.50 cr. by way of contribution to further 25,00,000 equity shares of Rs. 10/- each, at a premium of Rs. 60/-. Further on November 19, 2011 it again introduced Rs. 35.00 cr. by way of contribution to further 50,00,000 equity shares of Rs. 10/- each, at a premium of Rs. 60/-. We have crossed benchmark of Rs. 2230.96 lacs with respect to income in FY 2011-12. Our bottom line has also seen significant rise in FY 2011-12. Proposed Activity Loan to the group companies: - The Company will provide loan to its group companies. Pincon Group has ventured into real estate and Manufacture of IMFL products under its own brand PINCON XXX Rum, Pincon No. 1 Whisky, Pincon No. 1 Vodka and Breweries in the name of PINCON Super strong 9000 Beer. The company has no plan to straight walkout from its existing product portfolio. Our Vision: The company, apart from urban sector, has targeted operational area in rural and semi urban sector, where financial services from organised activities are still paucity. Our strength: Our key strength may be factorised as: 1. 2. 3. A Diversified Group, Committed, qualified, and experienced core management team with professional background vested in the hands of young as well as matured personnel. Established brand.
Our Strategy: We have strategically categorised ourselves as a diversified market player. We will strategically use our group outlets and group agents to explore the rural market for financial inclusion. We will Build partnership with local people as a business associate, Adopt innovative marketing strategy, spreading awareness through local debate, Depending upon the permission of regulator, expand our business presence, Foray into gold trading and gold financing,
THE ISSUE The following is a summary of the Issue. This summary should be read in conjunction with, and is qualified in its entirety by, more detailed information in the chapter titled Terms of the Issue beginning on page 53 of this Information Memorandum. Particulars Issuer Instrument Denomination of the Instrument/ Face Value Term of Payment* Minimum Subscription Who Can Apply : : : L R N Finance Limited Rated, Taxable, Secured Redeemable Non-Convertible Debenture(s) issued by L R N Finance Limited Rs 1,000/- per Debenture Description
: : :
Full amount on application 5 Debentures and in multiple of 1 thereafter Resident Indian Individuals, Hindu Undivided Families through the Karta, Companies, Bodies Corporate and Societies registered under the applicable laws in India and authorised to invest in NCSD, Public/Private Charitable/Religious authorised to invest in the NCSD, Trusts which are
Partnership firms in the name of the partners,
Issue Price No. Of Debentures Issuance Depositories Tenor
: : : : :
At Par 3.00 lacs Both in Physical and in Demat form NSDL and CDSL Option I: 2 years from the Date of allotment Option II: 3 years from the date of allotment Option III: 5 years from the date of allotment Option IV: 7 years from the Date of allotment Option V: 10 years from the Date of allotment Option VI: 13 years from the Date of allotment Option VII: 15 years from the Date of allotment
Call / Put Option
No put and call option is available for Debentures Issued under Option I, Option II and Option III. For Option IV put & call option will be available after 5 years, for Option V put & call option will be available
Particulars Description after 7 years, for Option VI and Option VII it will be available after and 10 years. Coupon : Option I: 15.00% Option II: 15.25% Option III: 15.50% Option IV: 16.00% Option V: 16.50% Option VI: 17.00% Option VII: 17.50% Default Interest : 1% p.a.computed from the respective due dates and shall become payable upon the footing of compound interest with rests taken half yearly. Rs. 30.00 Crores CRISIL BB (Stable Outlook) by CRISIL LTD. First & exclusive charge over 1. All that the piece and parcel of Sali, Danga and Bastu lands measuring about 9 Acre 43 Decimals I Mouza Madhabpur, PSBhangore, JL No. 75, Khatian NO. 627, 640, 530, 101, Dag No. 897, 870, 1678, 95, 2750, 449, 972, 23, 966, 24, 777, 778, 786, 1975, 164, 165, 166, 878, 880, 887, 88, 308, 1851, 1857, 1848, 415, 418, 453, 976, 981, 1271, 1010, 486, 983, 972, 214, 225, 453, 796, 418, 1695, 1698, 1696, 2463, 2464, 2465, 982, 1257, 668, 669, 670, 1011, 1028, 1249, 1256, 786, 1607, 1611, 76 and 283 within Chandaneshwar II Gram Panchayat, District 24 Parganas. (1st land); All that the piece and parcel of Sali, Danga and Bastu lands measuring about 10 Acres 9 Decimals appertaining to Mouza Hogaldara, PS Bhangore, JL No. 76, Khatian No. 192, 29, 84, 67, 94, 75, under Dag No. 539, 572, 693, 694, 538, 591, 2945, 2946, 295, 370, 8, 592, 575, 642, 650, 656, 676, 652, 558, 691, 639, 541, 544, 577, 538/719, 591, 604, 330, 331, 332, 333, 334, 13, 512, 649, 604, 608, 640, 518, 579, 601, 605 within Chandaneshwar II Gram Panchayat, District 24 Parganas. (2ndland); All that the piece and parcel of Sali, Danga and Bastu lands measuring about 10 Acres 39 Decimals appertaining to Mouza Taldighi, PS-Bhangore, JL No. 77, Khatian No. 59, 31, 120 and 119, Dag No. 19, 34, 141, 511, 513, 517, 518, 203, 237, 247, 258, 124, 12, 24, 33, 79, 81, 137, 145, 148, 149, 153, 329, 507, 508, 509, 142, 223, 224, 510, 341, 150, 75, 78, 138, 139, 130/571, 136, 121,
Issue Amount Rating Security
: : :
2.
3.
Particulars Description 122, 14, 389, 390, 391, 392, 77, 339, 105, 106, 396, 528, 64 within Chandaneshwar II Gram Panchayat, District 24 Parganas. (3rd land). The Debentures will be secured by hypothecation of Sundry Debtors and Future Current Assets of the Company amounting to the value of NCDs subscribed less immovable property offered. Corporate Guarantee of Menka Suppliers Private Limited. Issue Schedule : : : : : : : : : : : : : The Issue shall be open from May 16, 2012 to September 25, 2012. Redemption Redemption Price Interest (Coupon) Frequency* Interest/Coupon Payment Mode of Placement Dematerialized Day Count Basis Business Days Purpose Pay in date Deemed Date of Allotment Redemption date*** Bullet Payment at the end of the redemption date. The NCDs will be redeemed at a par. Semi Annually on 1stApril and 1stOctober every year. Cheque/ECS/RTGS/NEFT/Demand Draft. Private Placement Yes Actual Business Day means a day on which commercial Banks are open for business in the city of Kolkata. The proceeds from the issue shall be utilised for expansion of business activity as well as general corporate purposes. 3 (Three) Business Days from the date of receipt of application or the date of realisation of the cheques/demand drafts, whichever is later. Deemed date of allotment shall be the date of issue of the letter of allotment/ regret. Option I: 2years from the Date of allotment Option II: 3years from the date of allotment Option III: 5 years from the date of allotment Option IV: 7 years from the Date of allotment Option V: 10 years from the Date of allotment Option VI: 13 years from the Date of allotment Option VII: 15 years from the Date of allotment Early Buy Back of Securities : Our Company may, at its sole discretion, from time to time, consider, subject to FEMA (Borrowing and Lending in Rupees) Regulations, 2000 and other applicable statutory and/or regulatory requirements,
Particulars Description buyback of NCDs, upon such terms and conditions as may be decided by our Company. * Term of Payment: - The entire issue price of Rs. 5, 000 per lot of Secured NCD is payable on application only. ** Interest (Coupon)- The interest of as per options available above will be paid on the first day of April and October of every financial year except the first interest payment. The first interest payment for the period commencing from the Deemed Date of Allotment till the end of the half year in which such Deemed Date of Allotment falls will be paid. *** Maturity: - The Secured NCDs have a fixed maturity date. The date of maturity of the Secured NCDs is as per options available.
[The subscription list shall remain open for a period as indicated, with an option for early closure or extension by such period, up to a period of 90 days from date of opening of the Issue, as may be decided by the Board of Directors of our Company.]
SUMMARIZED FINANCIAL INFORMATION The following tables present the summarized financial information of our Company and have been prepared in accordance with Indian GAAP and the Act. LRN Finance Limited: Audited Balance Sheet as on March 31st, 2012 (Rs. In Lakhs) Particulars Source of Fund : Shareholders' Fund Share Capital Account Issued & Subscribed Reserve & Surplus Share Premium Account Profit & Loss Account Statutory Reserve Debenture Redemption Reserve OWNED FUND Loan Funds Secured Loan From Bank 14.50% NCD Unsecured loan TOTAL SOURCE Application of Fund : Net Fixed Assets Investments Current Assets, Loans & Advances Stock on Hire Loan Instalments Bills Outstanding Sundry Debtors Cash & Cash Equivalents Other Current Assets Less : Current Liabilities & Provisions Current Liabilities Provisions NET CURRENT ASSETS TOTAL APPLICATION 31.03.2009 (Aud.) 31.03.2010 (Aud.) 31.03.2011 (Aud.) 31.03.2012 (Aud.)
118.55 0.00 0.03 6.99 0.00 125.57
118.55 0.00 0.22 7.09 0.00 125.86
250.00 788.70 207.40 69.82 0.00 1315.92
1000.00 5288.70 312.03 142.13 228.00 6970.86
43.03 0.00 34.60 203.20
0.00 0.00 0.00 125.86
0.00 0.00 115.00 1430.92
0.00 1600.00 0.00 8570.86
6.86 28.06
5.30 39.55
6.83 75.06
55.41 375.37
134.86 17.59 0.00 3.74 29.25 19.59 205.03 21.41 15.34 36.75 168.28 203.20
19.91 43.15 0.00 3.74 13.87 18.94 99.61 3.28 15.32 18.60 81.01 125.86
0.00 907.43 520.41 3.67 10.69 2.48 1444.68 3.42 92.23 95.65 1349.03 1430.92
0.00 6151.48 1992.19 5.02 101.75 43.02 8293.46 75.48 81.40 156.88 8136.33 8570.86
LRN Finance Limited: Audited Profit & Loss Account as on March 31st 2012
(Rs. In Lakhs) Particulars 31.03.09 (Aud.) Income: Income from Operations Other income Expenses: Establishment, Administrative & Other Expenses Financial Expenses Depreciation Preliminary Expenses Written Off Provision for Sub Standard Asset 31.03.10 (Aud.) 31.03.11 (Aud.) 31.03.12 (Aud.)
47.59 11.74 59.33
11.78 12.41 24.19
1,889.43 78.42 1,967.85
2172.84 58.12 2230.96
26.15 21.29 2.07 0.15 0.00 49.66 9.67 2.51 7.16 1.93 0.00 4.50 0.70 7.13 0.03
21.31 0.82 1.56 0.00 0.00 23.69 0.50 0.21 0.29 0.10 0.00 0.00 0.00 0.10 0.19
1568.87 35.37 1.69 0.00 18.20 1,624.13 343.72 30.09 313.63 62.73 0.00 37.50 6.23 106.46 207.17
1676.07 128.16 8.07 5.71 20.36 1838.38 392.58 31.35 361.23 72.31 228.00 0.00 0.00 300.31 60.92 43.72 207.39 312.03
Profit/(Loss) before Tax Less : Provision for Income Tax Profit/(Loss) after Tax Less : Transfer to :Statutory Reserve Debenture Redemption Reserve Proposed Dividend (Equity Shares) Dividend Tax
Prior Period Dividend Written Back* Add: Balance b/f Balance Transferred to Balance Sheet
0.00 0.03
0.03 0.22
0.22 207.39
* Dividend declared last year forgone by the shareholders in 19th AGM of the Company now written back
CAPITAL STRUCTURE CAPITAL STRUCTURE OF THE COMPANY AS AT May 16, 2012 Share Capital A. Authorized Capital 1,00,00,000 Equity shares of Rs. 10/- each B. Issued, Subscribed and Paid-up Capital 1,00,00,000 Equity shares of Rs. 10/- each C. Paid Up Capital after the present issue 1,00,00,000 Equity shares of Rs. 10/- each MAJOR EQUITY / DEBT HOLDERS Details of highest ten holders of each kind of securities of the Company as on date: EQUITY SHARES: Sr. No. 1 2 3 4 5 6 7 8 9 10 11 Shareholders Mr. Monoranjan Roy Mrs. Mousumi Roy Mr. Subhajit Saha Mr. Rajkumar Roy Mr. Dipankar Basu Mr. Arup Thakur Mr. Sandeep Thakur Mr. Goutam Ghosh Mr. Chandan Adhikari Mr. Sashadhar Bera Mr. Hari Singh Total :: DETAILS OF EXISTING BORROWINGS: There is no borrowing by the company except NCDs issued previously. Debt Securities issued (i) for consideration other than cash, whether in whole or part. (ii) at a premium or discount, or (iii) in pursuance of an option The Company till date has not issued any debt securities for consideration other than cash or discount or premium in pursuance of an option. No. Of Shares 9,268,950 280,000 170,850 50,000 32,500 23,800 22,900 25,000 50,000 25,000 50,000 10000000 % 92.69 2.80 1.70 0.50 0.33 0.24 0.24 0.25 0.50 0.25 0.50 100.00 10,00,00,000 10,00,00,000 10,00,00,000 Amount (Rs.)
SERVICING OF EXISTING DEBT, PAYMENT OF DUE INTEREST (COUPON) ON DUE DATES ON TERM LOANS AND DEBT SECURITIES There has been no default in payment of due interest and company is honoring its present commitments. The Company undertakes to discharge all liabilities in time and that there would be no default in payment of interest and principal amounts. PERMISSION /CONSENT FOR PARI-PASSU CHARGE In the event any permission / consent is required to be obtained, the same shall be done prior to the creation of charge over the security. EQUITY- DEBT RATIO Prior to the current Issue (as at March, 2012) Post the current Issue (as at 11th November, 2012 ) Ratio 4.35:1 1.52:1
MATERIAL CONTRACTS, AGREEMENTS INVOLVING FINANCIAL OBLIGATIONS OF THE ISSUER Our Company, in the ordinary course of its business, enters into various agreements, including loan agreements and joint venture agreements, which may contain certain financial obligations and/or provisions which may have an impact on its financial condition. Such contracts or agreements may be inspected at the Corporate Office of the Issuer from 10.00am to 1.00pm on all working days. MATERIAL EVENTS Any material event/development or change at the time of issue or subsequent to the issue which may affect the issue or the investors decision to invest/continue to invest in the debt securities: In the opinion of the Company, except the general market risks, there have been no circumstances that materially and adversely affect or are likely to affect the business of the Issuer or the value of its assets or its ability to pay its liabilities, within the next twelve months.
OBJECTS OF THE ISSUE The funds raised through this Issue will be utilised for our various financing activities including lending and investments, to repay our existing liabilities or loans and towards our business operations including for our capital expenditure and working capital requirements and general corporate purposes, after meeting the expenditures of and related to the Issue and subject to applicable statutory/regulatory requirements. The Objects clause of the Memorandum of Association of our Company permits our Company to undertake the activities for which the funds are being raised through the present Issue and also the activities which our Company has been carrying on till date. Further, our Company will not utilize the proceeds of the Issue for providing loans to or acquisitions of shares of any person who is a part of the same group as our Company or who is under the same management as our Company. Interim Use of Proceeds The management of our Company, in accordance with the policies formulated by it from time to time, will have flexibility in deploying the proceeds received from the Issue. Pending utilization of the proceeds out of the Issue for the purposes described above, our Company intends to temporarily invest funds in high quality interest bearing liquid instruments including money market mutual funds, deposits with banks or temporarily deploy the funds in investment grade interest bearing securities as may be approved by the Board of Directors. Such investment would be in accordance with the investment policies approved by the Board or any committee thereof from time to time. Monitoring of Utilization of Funds There is no requirement for appointment of a monitoring agency. Our Board shall monitor the utilization of the proceeds of the Issue. Other confirmations The Issue proceeds shall not be utilised towards full or part consideration for the purchase or any other acquisition, inter alia by way of a lease, of any property. No part of the proceeds from this Issue will be paid by us as consideration to our Promoter, our Directors, Key Managerial Personnel, or companies promoted by our Promoter except in the usual course of business. Further the Company undertakes that Issue proceeds from NCDs allotted to banks shall not be used for any purpose, which may be in contravention of the RBI guidelines on bank financing to NBFCs including those relating to classification as capital market exposure or any other sectors that are prohibited under the RBI regulations.
SECTION IV: ABOUT THE ISSUER COMPANY AND THE INDUSTRY INDUSTRY [The information in this section has been extracted from publicly available documents and other sources and, as such, has not been prepared or independently verified by us or any of our advisors.] Indian Economy: The Economy of India is the tenth largest in the world by nominal GDP and the fourth largest by purchasing power parity (PPP). The country's per capita GDP (PPP) is $3,339 (IMF, 129th) in 2010. Following strong economic reforms from the post-independence socialist economy, the country's economic growth progressed at a rapid pace, as free market principles were initiated in 1991 for international competition and foreign investment. Gold Trading: Many worldwide banks are actually lining up majors projects to get into gold trading within India as the country has emerged among the biggest and most active industry for spot and online gold trading. Its just the starting of online gold trading. India imports and uses the largest quantity of the yellow metal in the world and is bringing in global participants. India brought in nearly 400 tonnes of gold within 2008. Precious metal imports and revenue have been sluggish in 2009, however analysts have predicted that bullion industry will carry on to be booming in India in the coming years. As a result, leading global banking institutions are chalking out online gold trading plans in India. They include HSBC, Scotia bank, Standard Bank as well as Citibank. The plans from these banks consist of launching entire sale trading and hedging in gold, import of gold as well as working with Indias local banks to market gold coins and start several precious metal deposit programs. Scotia bank is actually Canadas second largest sized bank, is in the last stages regarding launching trading and hedging in gold and other precious metals like expensive diamonds, platinum and palladium within India. If Scotia bank is given permission, the financial institution may enter a strategic talk with either HDFC Bank or ICICI Financial institution to start trading in gold and other forms of precious metals via Indias commodity exchanges. Scotia bank is planning to setting up a totally possessed subsidiary in order to trade in gold. Presently, Scotia bank has branches in major Indian cities like Bangalore, New Delhi and Coimbatore. The Canadian financial institution now plans to increase its branch system in India. India permits a foreign investment up to 100 percent under the automatic route in the wholesale cash and carry trading as well as trading with exports. Scotia bank is one of the North Americas top financial institutions. It features a presence in 50 nations with over two thousand branches. India, banking majors such as HDFC and ICICI as well as India Post, the postal arm of the government of India, are actually aggressively promoting gold trading and gold coin sales. Experts indicate plans by foreign participants like banks to enter into precious metal trading within India bodes well for that massive gold industry in the country. India may be the largest importer and user of gold on the planet. Therefore it makes sense for banking majors to cash in on the trade gold online company in this country.
Those Indian gemstones and jewellery industry is among the fastest developing segments in the Indian economy with a yearly growth rate of approximately 15 percent. The nation is also the largest consumer of gold in the world. It uses nearly 800 tonnes of| gold that accounts for 20% of world gold consumption, which nearly 600 tonnes are going into making jewelry. India can also be emerging as the worlds largest buying and selling centre for gold focusing on US billion by 2010. The industry has got the best experienced manpower in designing as well as producing high volumes of exquisite jewelry at reduced labor costs. (Source: http://silverandgoldcoinadvisor.info/gold-coins/gold-trading-in-india-an-opportunity-you-cantignore/ last retrieved on July 28, 2011)
OUR BUSINESS Brief summary of the business/activities of the Company & its line of business L. R. N. FINANCE LIMITED is a Body Corporate incorporated under the Companies Act, 1956 and it is registered as a Non-Banking Finance Company bearing Certificate of Registration U/S 45-1A of the Reserve Bank of India Act, 1934 as a Category B Investment Company. L. R. N. Finance Limited has been taken over in 2010-11 by an over Rs. 400.00 cr. Business Conglomerate from Eastern India viz. Pincon Group, headed by its Group Chairman, Mr. Monoranjan Roy. Pincon group is having a business vintage of over a decade, with diversified interests in FMCG Products, IMFL Products, Real Estate and Civil Infrastructure Work. Pincon brand has found its presence in the latest edition of Brand Watch Bengal published by Anandabazar Patrika in the Edible Oil and Beverage Sector. Brief history of the Company L. R. N. Finance Limited, since its incorporation in November 12, 1992, and on obtaining registration as NBFC from RBI, made an inroad into hire purchase, general finance and various financial services. It successfully flourished as a capable non-banking finance company. The company has no adverse track record during its operation as NBFC. The new management had introduced fresh funds amounting to Rs. 920.15 lac by way of contribution to further 13, 14,500 equity shares of Rs. 10/- each, at a premium of Rs. 60/-. And on August 11, 2011 it again introduced Rs. 17.50 cr. by way of contribution to further 25,00,000 equity shares of Rs. 10/- each, at a premium of Rs. 60/-. Further on November 19, 2011 it again introduced Rs. 35.00 cr. by way of contribution to further 50,00,000 equity shares of Rs. 10/- each, at a premium of Rs. 60/-. We have crossed benchmark of Rs.2230.96.00 lacs with respect to income in FY 2011-12. Our bottom line has also seen significant rise in FY 2011-12. Proposed Activity Asset Finance and loan to the group companies: - The Company will venture into Asset Finance and loan to its group companies. Pincon Group has ventured into real estate and Manufacture of IMFL products under its own brand PINCON XXX Rum, Pincon No. 1 Whisky, Pincon No. 1 Vodka and Breweries in the name of PINCON Super strong 9000 Beer. The company has no plan to straight walkout from its existing product portfolio. Our Vision: The company, apart from urban sector, has targeted operational area in rural and semi urban sector, where financial services from organised activities are still paucity. Our strength: Our key strength may be factorised as: 1. A diversified group: In West Bengal, we are known as Pincon Group which manufactures and trades multiple products and our business activities are very much diverse. We are ventured into FMCG, Drinking Water, Infrastructure Development, IMFL and NBFC. A well-qualified, experienced, young and dynamic team: We have well qualified and experienced team. Our team comprises of various fields viz. capital market, accounts and
2.
finance. For more detail please see Our Management" on page no. 39 of this information memorandum. 3. Established brand: Our brand Pincon is recognised by Anand Bazar Patrika. It is well established in Kolkata. Our IMFL product is includes Pincon XXX Rum. We give emphasis on aggressive marketing and hence we are using hoarding and placards for our brand establishments.
Our Strategy: We have strategically categorised ourselves as a diversified market player. We will strategically use our group outlets and group associates to explore the rural market for expansion of business in financial services. We will Build partnership with local people as an associate: We are having aim to build partnership with local people of rural Bengal. We believe, local people can give boost to the business of financial products as they have better understanding of the need of rural population and effective communication with them. Adopt innovative marketing strategy, spreading awareness through local debate: We are spreading awareness through local public debate over financial products and benefits thereof. We believe local people can be the best media in rural areas as there is still lack of infrastructure in villages. We believe debate can be cost effective means of advertisement. Depending upon the permission of regulator, expand our business presence: We do not promise to open new branch, but if permission be granted by the Reserve Bank of India, a regulator for NBFCs, we will certainly open branches in rural areas and expand our business presence in villages and try to innovate new products. Foray into gold trading and gold financing: Our main object is to foray into gold trading and gold financing. We will tie up with certain jewellers and supply them gold at attractive margin. We will also finance against gold in form of gold loan.
CURRENT ORGANISATIONAL STRUCTURE:
PROPOSED ORGANISATIONAL STRUCTURE:
OUR PRODUCTS: At this juncture of time we are into Trade Financing and Bills Discounting. Asset Financing: These days we are funding bridge finance ranging from 3-6 months of time frame. Bills Factoring: We are also into Bills Factoring.
RISK MANAGEMENT: We are new to the industry, yet we have formulated many risk mitigation majors. Some of the risks and their mitigations are: Economic Risk: Any slowdown in economy will adversely affect our business. Risk Mitigation: We have aim to penetrate rural market, where economic risks spill over at late. We may offer better products and our interest charges remains competitive. Interest Rate Risk: Our borrowings include many financial products. We may raise funds through equity, preference shares, Bank Financing, Debentures and sub ordinate bonds. For bridge funding, we have to borrow for short term which includes both fixed and floating rates. Risk Mitigation: We value the borrower assets carefully by local enquiry and field visit which enable us to mitigate our risk as our NPA turns minimal and we get financing from our lenders. Asset-Liability Mismatch: We may be victim of asset-liability mismatch which means tenor for our lending may vary from that our borrowing commitments. Risk Mitigation: As an apprehension of the situation, we may try to mobilize long-term and short term loans at competitive rates which of course may depend upon the situation. We may not try to deploy funds raised for short term to long term financing. Credit Risk: Defaults of borrower may lead our NPAs to go higher. Risk Mitigation: We finance the asset to our known borrowers and hence chance of accounts turning out to NPAs gets blurred.
We thoroughly check references of the customers. We do not accept postdated cheques. Competition Risk: We may face competition risk from existing as well as new players. Risk Mitigation: We venture into untapped rural market where financial assistance is unorganized. Attrition Risk: The most fundamental and obvious risk for us is attrition risk. While finance companies are attracting talents with luring attractive packages, we may face attrition in our employees. Risk Mitigation: We try to provide them exposure in practical training which keeps our employees happy and satisfied with jobs. We are in an opinion that human need can arise any time and hence we provide interest free loans to our employees. We have formulated performance based incentives which keeps our employees hard working and happy. OUR MARKETING STRATEGY We believe in a relationship based marketing approach. Our marketing initiatives are made to the needs of the geographies we serve and are designed to generate interest and awareness. We believe in strong networking and our group has good role to play in. One of our Group Companies, Spandan Home Care Limited, has about 3500 business associates spread across eastern and north-eastern India which will obviously help us to penetrate rural market. As researched, urban area is having high competitive market and to mitigate the risk we are planning to venture into rural area. While a deeper network empowered us to grow stronger, a range of innovative approaches have also accelerated our growth. We are spreading awareness in gold finance and gold trading in rural areas through our local agents. We believe, in rural market, gold are ideal investment and there is no liquidity in it. Hence to create market in the segment our local agents are creating awareness how to get liquidity while possessing gold. OUR EMPLOYEES We prefer enlisting fresh talents and training them extensively to understand the industry and operational aspects. We also prefer to hire local people to use the knowledge of the area and acquaint them to the grassroots nature of the geographies. Most of the process related trainings are on-the-job. The average age of the Companys employees is about 35 years, enabling a mix of experience and youth to drive the business. The transparent organization structure ensures efficient communication and feedback mechanism and a performance-driven work culture.
As on March 30, 2012 our total employee strength was 20 apart from field force who are on casual job. INTELLECTUAL PROPERTY Our Managing Director, Mr. Monoranjan Roy, is the founder of Pincon Group and hence we are using the brand Pincon. Though there is no formal agreement with anybody to use such intellectual property rights. COMPETITION We do not face any significant competition from organized players as our primary focus is on bridge financing. Whereas in the bridge financing and bill factoring, we face competition with private unorganized financiers who dominate the market, we may face competition in the bridge financing from the other banks, financial institutions and NBFCs if we will go for long term funding. COLLABORATIONS Except as disclosed herein, our Company has not entered into any collaboration, any performance guarantee or assistance in marketing by any collaborators. FAIR PRACTICES CODE Pursuant to Reserve Bank of India (RBI)s Circular DNBS (PD) CC No.80/03.10.042 /2005-06 of 28 September 2006, and RBI/2011-12/470 DNBS.CC.PD.No.266/03.10.01/2011-12 dated March 26, 2012 issued to Non-Banking Financial Companies (NBFCs), we the Board of Directors have adopted a Fair Practices Code. The code applies to all loan products offered by the company. The Fair Practices Code, as adopted herein below, is in conformity with the Guidelines on Fair Practices Code for NBFCs as contained in the aforesaid RBI Circular. General a. This code shall apply across all aspects of L. R. N. Finance Limiteds (LRN) operations including all products and services currently offered by us and those which may be introduced at a later date. b. LRN shall ensure that its employees act in an honest and ethical manner when interacting with clients. c. LRN shall refrain from interference in the affairs of its clients except for the purposes provided in the terms and conditions of an Agreement entered into with the client (unless new information, not earlier disclosed by the client, has come to the notice of LRN).
d. In the matter of recovery of loans, LRN shall not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc. A. (i) Applications for loans and their processing (a) All communications to the borrower will be in the vernacular language or a language as understood by the borrower. (b) Loan application forms will include necessary information which affects the interest of the borrower, so that a meaningful comparison with the terms and conditions offered by other NBFCs can be made and informed decision can be taken by the borrower. The loan
application form shall indicate the documents required to be submitted with the application form. (c) All the loan application received with be given due acknowledgement stating therein the time frame within which loan applications will be disposed of. Generally, applications for retail financial products such as Loan against Shares, Promoter Funding etc. will be disposed of within a time frame of 30 days and those for Corporate Loans within 45 days from the date of submission of complete information. (ii) Loan appraisal and terms/conditions
(a) LRN will convey in writing to the borrower in the vernacular language as understood by the borrower by means of sanction letter or otherwise, the amount of loan sanctioned along with the terms and conditions including annualised rate of interest and method of application thereof and keeps the acceptance of these terms and conditions by the borrower on its record. (b) LRN shall mention the penal interest charged for late repayment in bold in the loan agreement. (c) A copy of the loan documents containing details of the terms and conditions will be provided/furnished anytime upon request to the borrower to look into detailed agreement. LRN is committed to furnish a copy of the loan agreement preferably in the vernacular language as understood by the borrower along with a copy each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction / disbursement of loans. (iii) Disbursement of loans including changes in terms and conditions
(a) LRN will give notice to the borrower in the vernacular language as understood by the borrower of any change in the terms and conditions including disbursement schedule, interest rates, service charges, prepayment charges etc. changes in interest rates and charges are effected only prospectively. A suitable condition in this regard shall be incorporated in the loan agreement. (b) Decision to recall/accelerate payment or performance under the agreement shall be in consonance with the loan agreement. (c) LRN will release all securities on repayment of all dues or on realisation of the outstanding amount of loan subject to any legitimate right or lien for any other claim the company may have against borrower. If such right of set off is to be exercised, the borrower shall be given notice about the same with full particulars about the remaining claims and the conditions under which the company is entitled to retain the securities till the relevant claim is settled/paid. (iv) General
(a) LRN shall refrain from interference in the affairs of the borrower except for the purposes provided in the terms and conditions of the loan agreement (unless new information, not earlier disclosed by the borrower, has come to the notice of the LRN). (b) In case of receipt of request from the borrower for transfer of borrowal account, the consent or otherwise i.e. objection of the Company, if any, shall be conveyed within 21 days from the date of receipt of request. Such transfer shall be as per transparent contractual terms in consonance with law.
(c) In the matter of recovery of loans, the company shall not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans etc. The staffs of LRN are adequately trained to deal with the customers in an appropriate manner. (v) LRN shall have a grievance redressal mechanism within the organization to resolve disputes arising in this regard. Such a mechanism will be heard and disposed of at least at the next higher level the disputes arising out of the decisions of lending institutions' functionaries. The Board of Directors shall provide for periodical review of the compliance of the Fair Practices Code and the functioning of the grievances redressal mechanism at various levels of management. A consolidated report of such reviews shall be submitted to the Board at regular intervals, as may be prescribed by it. For any grievance, the borrower may contact: Chief Financial Officer L. R. N. Finance Limited, #3 Dacres Lane, 3rd Floor, Kolkata 700 069 Telephone No. Fax Email Web : : : : (+9133) 4066 1580 (+9133) 4008-0690 pinconafc@gmail.com www.pinconafc.com
(vi)
Fair Practices Code (which should preferably in the vernacular language as understood by the borrower) based on the guidelines outlined hereinabove shall be put on the website of LRN for the information of various stakeholders with the approval of its Boards. The Company would also review and refine the Code annually besides whenever any fresh guidelines, are issued by the RBI in this regard. Any suggestions for better customer service are greatly valued by the company. The company shall maintain transparency in respect of terms and conditions of the loans. Interest charged by the Company
(vii) (viii)
(a) The Board of LRN shall adopt an interest rate model taking into account relevant factors such as, cost of funds, margin and risk premium, etc and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter. (b) The rates of interest and the approach for gradation of risks shall also be made available on the web-site of the company or published in the relevant newspapers. The information published in the website or otherwise published shall be updated whenever there is a change in the rates of interest. (c) The rate of interest shall be annualised rates so that the borrower is aware of the exact rates that would be charged to the account. (ix) Repossession of vehicles financed by LRN LRN will build in re-possession clause in the contract/loan agreement with the borrower which will be legally enforceable. To ensure transparency, the terms and conditions of the contract/loan agreement shall also contain provisions regarding: (a) notice period before
taking possession; (b) circumstances under which the notice period can be waived; (c) the procedure for taking possession of the security; (d) a provision regarding final chance to be given to the borrower for repayment of loan before the sale/auction of the property; (e) the procedure forgiving repossession to the borrower and (f) the procedure for sale/auction of the property. A copy of such terms and conditions will be made available to the borrowers in terms of circular wherein it was stated that NBFCs may invariably furnish a copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction/disbursement of loans, which may form a key component of such contracts/loan agreements. LENDING POLICIES OVERVIEW This booklet sets out the broad lending policies followed, at present, by the L. R. N. Finance Limited (LRN) in its ordinary and special operations. It is issued by LRN to a prospective borrower should not be regarded as a loan offer, nor does it bind LRN to make loans only on the terms and conditions specified therein. These policies are subject to change, from time to time, by the Board of Directors of LRN. Loans can be approved only by LRNs Authorised/Designated Officials and/or Board of Directors; and the terms and conditions on which the loan is approved by the Board of Directors will be embodied in an appropriate Loan Agreement. Information on the policies outlined in this booklet as well as other LRN policies may be requested from: Chief Financial Officer L. R. N. Finance Limited, #3 Dacres Lane, 3rd Floor, Kolkata 700 069 Telephone No. Fax Email Web 1. GENERAL Type of Financing 1.01 The L. R. N. Finance Limited (LRN) contributes to the financing of private sector for its economic growth. 1.02 LRN, a RBI Registered Non-Banking Finance Company (NBFC) was established in the year 1992 under section 45IA of the Reserve Bank of India Act, 1934 with the main objective of industrial finance by extending credit to Manufacturing, Tiny, SSI and Service Sector. LRN was promoted by South Based Business family which is now taken over by the Pincon Group in FY 2011-12. LRN offers liberal Credit to borrowers for acquiring fixed assets like building, plant & machinery, and term loans under various scheme of the Corporation. The maximum quantum of loan is Rs.2000.00 lacs per project for and the minimum limit is Rs 0.50 lacs*. 1.03 LRN gives priority to productive enterprises, and infrastructure and services which support productive enterprises and social and community development. LRN may lend for recurrent expenditure in accordance with its Framework for Policy-Based Lending. : : : : (+9133) 4066 1580 (+9133) 4008-0690 pinconafc@gmail.com www.pinconafc.com
It will stick to, inter alia, investment policy formulated by it keeping RBI directives on Fair Practices Code for Lenders in mind which reads: The company should not lend against the company shares.
The company shall not invest in land or building except for its own use, an amount exceeding 10% of company's own fund. The company shall not invest in unquoted shares of another company which is not a Subsidiary Company in the same group, an amount exceeding 10% Of NOF. The company shall lend to any single borrower not exceeding 15 % of NOF. The company shall lend to any single group of borrowers not exceeding 25% of NOF. The company shall invest in the shares of another company not exceeding 15 % of NOF. The company shall invest in the shares of single group of companies not exceeding 25% of NOF. The investment in Debentures will be treated as credit and not as Investment. The company will comply, inter alia, with the Section 295, 297, 299 and 372A of the Companies Act. Sec 295 Loan Govt. s to Directors etc without prior approval of the Central
Sec 297 Board sanction to be required for certain contracts in which particular director are interested. Sec 299 Disclosure Of Interests by Director Sec 372 A Inter corporate Loans & Investments 1.04 Priority will be given to Loan against Shares, Promoters funding, Bills discounting. Apart from it, the company will be Core Investment Company (CIC) and major emphasis will be given on Group Financing for lower credit risk and easy flow of liquidity. Eligibility 1.05 In evaluating the projects it finances, LRN gives weight to their anticipated contribution to expanding business of the Company concerned; overcoming obstacles to capex development; raising productivity through the introduction of new schemes, or new technology; increasing employment; and encouraging regional economic cooperation and integration. 1.06 LRN is required to pay due regard to the ability of the borrower to obtain financing elsewhere on terms and conditions that LRN considers reasonable for the recipient. 1.07 Only considerations relevant to the purpose and functions of LRN shall be brought to bear upon decisions of LRN and its Chief Financial Officer, President, Vice-Presidents, Officers and other Staff. All projects for LRN financing must be thoroughly researched taking into
account the technical, economic, financial, social, environmental, cost-benefit, legal, organisational and managerial considerations. LRN will not normally participate unless the project is expected to yield economic benefits substantially in excess of costs, when account is taken of indirect benefits, including cost savings and the employment of underutilised resources. LRN is willing to assist applicants for loans to carry out necessary feasibility and economic studies, if it considers the project to be worthy of detailed investigation. 1.08 The core business of the Company is providing credit facilities in the form of Long Term Credit Facilities to the prospective entrepreneurs. The following norms are followed in consideration of credit facilities by the Company. Type of Project: All the projects (Green field, Expansion project, Modernization Projects, Equipment Finance Projects, Technology up-gradation, Diversification Projects) satisfying our landing policies are eligible for loans irrespective of the project cost. Activities for which Credit Can be Considered: Manufacturing/Processing Industries Service Sector Information Technology Nursing Homes and other service units. Tourism Sector-Hotel, Restaurants, Tourist
Resorts
and Amusement Parks
Repayment Period: Ranges up to 15 years and moratorium period ranges up to 5 years. Resources Available 1.09 The operations of LRN are of two kinds: ordinary operations and special operations. Ordinary operations are financed from LRN share capital, the proceeds of loans raised in capital markets or borrowed or otherwise acquired by LRN for inclusion in its Ordinary Capital Resources (OCR) and its ordinary reserves. 1.10 Special operations are financed from the Special Development Fund (SDF) and Other Special Funds (OSF). Contributions are made to the SDF for on-lending to deserving projects at low rates of interest and extended maturities, taking into account the economic benefit of the group, as well as the requirements of the project. LRN may also accept contributions or loans for OSF which it may administer on terms agreed with the contributors so long as the purposes are consistent with its purpose and functions. A project may combine aspects financed with OCR and other aspects financed with Special Funds Resources (SFR). 1.11 The Board of Directors (BOD) requires LRN to have special and urgent regard to the needs of the group company of the Pincon Group. Accordingly, while LRNs ordinary operations embrace all of its new and existing borrowers, the major part of its special operations will continue to be in its Pincon Group. Objective of the lending Policies: 1.12 The Lending Policy aims to facilitate for delivery of the credit to the prospective customers for healthy growth of their business. The broad policy objectives are enumerated below: A. To assist industries to increase economic growth and employment generation.
B. To help manufacturing industries, service sector acquire new technologies and skills so as to compete effectively in the market place. C. To encourage industries to grow vertically and graduate, in the course of time, from micro to small scale and higher grades onwards. Strategy for achieving policy objectives: 1.13 Strive to put in place appropriate arrangement for timely sanction and disbursement of loan. 1.14 Providing need based consultancy services to the customers. 1.15 Quick appraisal and rating of the projects applying Credit Appraisal and Rating Tools (CART). 1.16 Simplify Rules, Regulations and Procedures for hassle free and quick approval of sanction. 1.17 Introduction of few new customer friendly schemes. Debt Equity Norms: DER norms for all projects will be 2:1 .with loan amount above Rs.10.00Lacs and all loans upto Rs.10.00Lacs, the DER shall be 2.5:1. In case of existing borrowing Concern of the Corporation with good track record(Minimum 3 years) including our past clients with satisfactory repayment record, the DER may be relaxed to 2:1,where the loan amount will be upto Rs.10.00Lacs. Projects Promoted by entrepreneurs who availed benefits under the settlement scheme of the corporation: No financial assistance will be entertained to those entrepreneurs who availed benefits under the settlement scheme of the corporation or other banks/FIs within a period of 1(One) year from the date of final settlement. The Corporation may entertain viable proposals from such borrowers only after expiry of One year from the date of final settlement under OTS. Applicability of Lending Policy: The lending policy is applicable to the first generation/2nd generation entrepreneurs and for new projects. The lending policy is also applicable to the existing promoters going in for expansion/modernization and/or diversification of their activities into other lines of activities. Security Norms: The loan shall be mortgaged by creating first charge over the land, building, Plant & Machinery, Hypothecation of stock. The security margin taking into consideration land and building and depreciated value of plant and machinery at the end of liquidation only for purpose of calculating security shall be minimum 70%. (100% in cases where lending is made to high depreciated units like electronics etc.). Liquidated value of plant and machinery in the year of liquidation of term loan will be considered for security. For projects in Industrial Estates/Growth Centre/etc. the Collateral Security margin shall be minimum 70% in the form of land, building.
Liquid Security in the form of FDR/NSC/LIC (Surrendered value) of minimum 5% of the loan shall be obtained. However this may be waived in case of those units which had repaid their dues to the Corporation on time or units with very sound credit worthiness. Rate of Interest: The rate of interest of loans will be determined by credit present prime Base Rate of interest will be 13.0% p.a. Commitment Fees: LRN levies a commitment fee of 1% per annum on the undisbursed portion of a loan from borrower from a date 60 days after the Loan Agreement has been concluded. In the case of financial intermediaries, a commitment fee of 1% per annum is levied on the undisbursed portion of annual disbursements. Processing Fees: The Processing Fees shall be determined as below: Sl. No. 1 2 3 Loan Amount in Rs. Lac <10.00 >10.00<100 >100 Processing Fees as a % of loan amount. 0.05 0.07 0.10 risk rating of the loans . The
INTEREST RATE POLICY In order to ensure its standards of transparency, in conformity with the stipulations of the RBIs directives, L. R. N. Finance Limited (LRN) has adopted the following interest rate policy: The interest rate for the loans to be charged to the client/borrower will be decided keeping in view the RBI guidelines relating to regulation of excessive interest charged by NBFCs. Interest rate will be arrived for the clients by the Loan Sanction Committee based on the following broad parameters: Risk profile of the client Interest rate trend prevailing in the money market Cost of borrowings Collateral security offered by client/ Structure of the deal Interest rate charged by competitors
Interest rates would be intimated to the customers at the time of sanction / availing of the loan. The rates of interest for the same product and tenor availed during same period by different customers need not to be standardized. It could vary for different customers depending upon consideration of any or combination of above factors. The interest rates could be offered on fixed or variable basis The interest re-set period would be decided by the company from time to time. Interest is calculated on the amount utilized by the client
The interest could be charged on monthly or quarterly rests for different products/segments. The interest shall be deemed payable immediately on the due date as communicated and no grace period for payment of interest is allowed. Besides normal interest, the company may levy additional/penal interest for delay or default in making payments of any dues. These additional or penal interests for different products or facilities would be decided by the respective business/product heads. No interest is payable on Credit Balance in client A/c
The final lending rate for various products offered by LRN will be arrived at after taking into account market reputation, interest, and credit and default risk in the related business segment, historical performance of similar clients, profile of the borrower, tenure of relationship with the borrower, repayment track record of the borrower in case of existing customer, subventions available, deviations permitted, future potential, group strength, overall customer yield, nature and value of primary and collateral security, etc. Such information is gathered based on information provided by the borrower, credit reports, market intelligence and information gathered by field inspection of the borrowers premises. The reference rate is currently at 13% p.a from 1st April 2012. The reference rate is subject to change as per the discretion of management based on the variables as set by the management. # The final lending rate applicable to the client will be arrived on the basis of the reference rate and the above factors.
MAIN OBJECTS The objects for which the Company is established are:The main objects to be purchase financing and leasing of all kinds of plant and machinery including deep freezers, air conditioning plants, motor vehicles like motor car, lorries, trucks, vans, friskers, mopeds, two wheelers, motor boats, trawlers, ships, vessels, aircrafts, office equipments, household appliances, professional aids and equipments, oriemalographic equipments, land and buildings and to carry on business as financiers or concessionaires. To carry on the business of general financers in all its kinds and to finance business of all kinds such as manufacturing, purchasing, selling, hiring letting on hire and dealing in plant and machinery of all kinds, buildings, motor care, motor lorries, motor cycles and all types of motor vehicles. To advance, deposit or lend money on the security of properties to or with any company, body corporate, firm, person or association with or without security and on such terms as may be determined from time to time. However, the company shall not carry on the business of Banking as defined under the banking Regulation Act, 1940. To carry on business as an investment company and to underwrite or invest the copies and other moneys of the company in the purchase of shares, stocks, debentures, debenture stocks, bonds and securities of any other kind issued or guaranteed by any company constituted or carrying on business in India or elsewhere and shares, stocks, debentures, debenture stocks, bonds, obligations, mortgages and securities issued or guaranteed by any Government, Central or State, Trust, municipality, firm or person, or other authority or body of whatever nature whether in India or elsewhere to acquit and hold any such shares, stocks, debentures, debenture stocks, bonds, mortgages, obligations and other securities by original subscription, syndicate participation tender, purchase, exchange or otherwise and to subscribed for the same either conditionally or otherwise and to guarantee the subscription thereof, to underwrite, issue on commission or otherwise take, hold, deal in and coned stock, shares and securities of all kinds, to borrow as well as to advance and lend money which or without security upon such terms and conditions as may be agreed. To take over purchase or acquire by any other means any existing business in finance, investment and hire purchase.
OUR MANAGEMENT The management is headed by Board of Directors along with experienced Key Personnel. We have not appointed Manager u/s 269 and other applicable provisions of the Companies Act, 1956. Currently we have four directors, Board of Directors Name, Age, Fathers Name, Designation, Address, DIN, Occupation, Term and Nationality Mr. Monoranjan Roy Age: 37 Years S/o- Mr. Kalachand Roy Designation: Managing Director Address: 247/C Raipur Road, Sree Colony, Kolkata, 700092, West Bengal, India DIN: 02275811 Occupation: Business Term: For a Period of 5 Years w.e.f. February 10, 2011 to February 09, 2016. Nationality: Indian Mr. Raj Kumar Roy Age: 54 Years S/o- Jaganath Roy Designation: Director Address: 2/29/2, Vivek Nagar, Vivek Nagar,, Vivek Nagar Kali Temple, Kolkata, Kolkata, 700075, West Bengal, India DIN: 03484607 Occupation: Business Term: Liable to Retire by Rotation Nationality: Indian Mr. Sandeep Thakur Age: 25 Years S/o- Mr. Utpal Thakur Designation: Director Address: 16/H/1, Chandra Mondal Lane, Kolkata, 700026, West Bengal, India DIN: 03390396 Occupation: Business Term: Liable to Retire by Rotation Nationality: Indian Mr. Swapan Kumar Sircar Age: 63 Years S/o- Sushil Chandra Sarkar Designation: Independent Director Address:Omkar,Flat 1A,198 A, SP Mukherjee Road,Kolkata 700026, West Bengal, India DIN: 05139699 Occupation: Business
Date Of Appointment
Other Directorships/ Proprietor/ Partnership/ HUF/ Trust in which Director is a Trustee 1. 2. 3. Pincon Securities Limited, Pincon Spirit Limited, Bengal Pincon Housing Infrastructure Limited, 4. Pincon Developers Limited, 5. PPM Creations Pvt. Ltd. 6. Pincon Insurance Marketing Private Limited, 7. Pincon Nidhi Benfit Fund Limited, 8. Pincon Public School Limited, 9. Ask Financial Services Limited 10. Gomukh Commercial Private Limited 1. 2. 3. 4. 5. 6. 7. Pincon Securities Limited, Pincon Spirit Limited, Bengal Pincon Housing Infrastructure Limited, Pincon Developers Limited, Pincon Public School Limited. Pincon Media Pvt. Ltd, Spandan Home Care Limited
06.12.2010
06.12.2010
30.01.2011
1. 2.
Spandan Home Care Limited, PPM Creations Pvt. Ltd.,
04.12.2011
1.
Pincon Spirit Limited
Name, Age, Fathers Name, Designation, Address, DIN, Occupation, Term and Nationality Term: Liable to Retire by Rotation Nationality: Indian Mr. Arup Thakur Age: 47 Years S/o- Mr. Mahitosh Thakur Designation: Independent Director Address:17/1 Swinhoe Street, Kolkata-700019, West Bengal, India DIN: 03476120 Occupation: Business Term: Liable to Retire by Rotation Nationality: Indian Mr. Goutam Ghosh Age: 42 Years S/o- Mr. Bhabani Prasad Ghosh Designation: Director Address: Kaberipara Road, Karbala More, Chinsura, Hooghly, 712103, West Bengal, India DIN: 02657577 Occupation: Business Term: Liable to Retire by Rotation Nationality: Indian Mr. Hari Singh Age: 32 Years S/o- Mr. Felan Singh Designation: Director Address:17, Brijavihar, Amrapura, Kalavari, Agra, 283105, Uttar Pradesh, India. DIN: 03609738 Occupation: Business Term: Liable to Retire by Rotation Nationality: Indian Mr.Chandan Kumar Adhikary Age: 26 Years S/o Mr. Gopal Chandar Adhikary Designation: Director Addess: Mauja-Pipulberya (J.L. No.-149), Pipulberya-1, Tamluk, Purba Medinipur, 721649, West Bengal, India DIN: 05250128 Occupation: Business Term: Liable to Retire by Rotation Nationality: Indian Date Of Appointment Other Directorships/ Proprietor/ Partnership/ HUF/ Trust in which Director is a Trustee
30.01.2011
1. 2. 3. 4.
Bengal Pincon Housing Infrastructure Limited, Pincon Public School Limited, Pincon Securities Limited, Eastern Himalaya Breweries Private Limited
30.01.2012
1. 2. 3. 4. 5. 6.
Pincon Nidhi Benefit Fund Limited Spandan Infrastructure India Limited, Spandan Horticulture and Agri Bio Limited, Spandan Beauty Care Limited, Creative Educare India Limited, Greenage Food Products Limited
17.04.2012
1. 2.
Greenage Food Products Limited Pincon Securities Limited
08.05.2012
Profile of Directors 1. Mr. Monoranjan Roy (Chairman & Managing Director) Mr. M. Roy aged about 38 years is a successful industrialist having business experience of over 13 years. He is Masters in Economics & Masters in Business Management. He started his business career at a very tender age. By virtue of his extreme hard work and honest endeavour for achieving business goal, he has been able to create a commendable position in the business circle. Sandeep Thakur (Executive Director) He is a young person, being a First Class Graduate in Commerce. He is having well versed experience in ROC, Ministry of Corporate Affairs, Taxation matters, apart from general accounting. Raj Kumar Roy (Executive Director) An ex banker from a reputed Nationalized Bank, is BA in Economics and a Qualified CAIIB. He is having an experience of over 32 years in Banking, Finance and Investments. His experience would be of immense value for the development of Company. Mr. Swapan Kumar Sircar (Non Executive Director) CA. Swapan Kumar Sircar aged about 64 years is a Fellow Member of Institute of Chartered Accountant of India. He had an excellent Academic record which included securing ranks in both the Intermediate and the Final Examinations of the Institute of Chartered Accountants of India. He brings with him an immense experience of Financial Management and made a successful career in the Finance Dept and retired from RPG group of Industries as the General Manager (Finance). Mr. Gautam Ghosh : Mr. Ghosh is having more than 15 years of experience in Financial Sector in Eastern India. He is a man of full enthusiasm and positive attitude. His zeal towards his work and dedication has put more colours to the Brand. Mr. Hari Singh : Mr. Singh is a Post Graduate in Commerce and MBA Finance with an experience of over 10 years and actively connected with management of the company. He is entrusted with HRD & Corporate liaising matters of the Company. He is aged about mid thirties and under his leadership LRN Finance Ltd. shall be having substantial growth in the coming months. Mr. Arup Thakur Mr. Thakur is a Chartered Accountant by profession, having an experience of over 18 years in Accounts, Audit, Finance, Investments. During the course of his professional career, he gained vast exposure in the field of Bank Audit, Audit of Govt. Undertakings and other sundry audit. He is entrusted with the overall finance and investment decision of the company. Chandan Kumar Adhikary He is a Graduate having a 4 years experience in the field of credit monitoring and market survey. He is having well defined base in the district town of Medinipur District and Purulia.
2.
3.
4.
5.
6.
7.
8.
Key Management Personnel: 1. Jayati Chowdhury (Advocate) A practicing Advocate in Kolkata High Court, Ms. Chowdhury is having an in depth experience in Corporate Law, Capital Markets and other related matters. During earlier part of her career, she held a senior managerial position with NICCO UCO Finance. She is entrusted with all legal compliance matters. JBS Negi (Advisor to the Board) Mr. JBS Negi IPS (Rtd) be and hereby appointed as Director of the Company, whose period of office shall be liable to retire by rotation, the Board of Directors of the Company has received a notice in writing proposing his candidature for the office of director under section 257 of the Companies Act, 1956. Mr. JBS Negi aged about 66 years is presently he is servicing as Advisor to Magma Fincorp Ltd, Amity International School & Secretary to NEKIB Delhi .He is Retired IPS of 1976 class of noted repute, posted first to West Bengal to serve the people of sacred Land of Goddess DURGA for 11years, 8 & half years in CBI, 5 years in Tripura, 6 years in Sashast Seema Bal (SSB). Borrowing Powers of the Board Pursuant to a resolution passed by our shareholders at their EGM held on November 05, 2011 in accordance with provisions of Section 293(1) (a) and (d) of the Act, our Board has been authorized to borrow from time to time, any sum or sum of money for the purposes of our Company, upon such terms and conditions as our Board may deem fit, notwithstanding that the money or monies to be so borrowed by our Company together with the monies already borrowed by our Company, (apart from the temporary loans obtained or to be obtained from our Companys bankers in the ordinary course of business), will or may exceed the aggregate of the paid-up capital of our Company and its free reserves, so that the total amounts upto which the monies may be borrowed by our Board shall not at any time exceed Rs. 50000.00 lakhs. The Issue has been authorized by the Board of Directors of the company pursuant to Section 292(1)(b) of the Act at its meeting held on April 24, 2012 read with borrowing power of the Board authorized by the shareholders under Section 293(1)(d) of the Act in the EGM held on November 05, 2011. Interest of the Directors Apart from the remuneration received by our managing director and the sitting fees and the commissions that may be received by Other Directors, and except to the extent of the Equity Shares held by any Director, if any, the Directors do not have any other interest in our Company. Equity Shares held by our Directors: As per the provisions of our MOA and AOA, Directors are not required to hold any qualification shares. Details of the shares held in our Company by our Directors are provided in the table given below: Sr. No. Shareholders Designation No. Of Shares % 1. Mr. Monoranjan Roy Managing Director 9268950 92.69 2. Mr. Rajkumar Roy Director 50000 0.50 3. Mr. Arup Thakur Director 23800 0.24 4. Mr. Sandeep Thakur Director 22900 0.22 5. Mr. Gautam Ghosh Director 25000 0.25 6. Hari Singh Director 50000 0.50 7. Chandan Kumar Adhikari Director 50000 0.50 Total :: 9490650 94.91
2.
OUR PROMOTER Our company is promoted and incorporated in Salem by South Indian Business family. Later in late 2010, Mr. Monoranjan Roy and Mrs Mousumi Roy from Pincon Group acquired the shares of the company and by the eye of law became promoter. Investors may be aware that any future directives which might be issued by RBI may have an adverse impact on our business operation. There are no common pursuits between our Company and our Promoter. Interest of Promoter in our Company Except as stated other part of this Information Memorandum and to the extent of their shareholding in our Company, the Promoters do not have any other interest in our Companys business. Further, our Promoter has no interest in any property acquired by our Company in the last two years from the date of this Information Memorandum, or proposed to be acquired by our Company. Our Promoters does not propose to subscribe to this Issue. Other than the payment of dividend on the shares held by our Promoters in the share capital of our Company, and issue of the following Equity Shares, interest paid on Inter-corporate Deposit, if any, we have not paid or granted any amounts or benefits, in the two years preceding the date of this Information Memorandum. Shareholding of our promoters: Sr. No. 1 2 Shareholders Mr. Monoranjan Roy Mrs. Mousumi Roy Total :: No. Of Shares 9,268,950 280,000 9,548,950 % 92.69 2.80 95.48
GROUP COMPANY Pincon Spirit Limited (Formerly Sarang Viniyog Limited) is a Pincon Group Company. Mr. Monoranjan Roy is the Chairman and Managing Director of the Company. It is focusing upon the manufacturing of Indian Made Foreign Liquor (IMFL) and Breweries under its own brand Pincon XXX Rum and Pincon 9000 Strong Beer respectively. It is a Calcutta Stock Exchange Limited (CSE) listed Company bearing CSE Scrip Code 29247 and it is also listed on Bombay Stock Exchange (BSE) (Permitted Category, not trading as of now), Bangalore Stock Exchange (BgSE), Madras Stock Exchange (MSE) and Kochi Stock Exchange (KSE). The Company is incorporated on June 29, 1978. General Information about the company: Pincon Spirit Limited, P-223, C.I.T. Raod Main Road, Scheme VI M, Kolkata 700 054. Address of the Corporate Office: #3 Dacres Lane, 3rd Floor, Kolkata 400 069 Ph: 033 Fax: 033 4008 0690 Email: pinconspirit@gmail.com Registration: Corporate Identification Number: Companies, West Bengal, Kolkata. Address of the Registrar of Companies: NIZAM PALACE II MSO BUILDING 3RD FLOOR, 234/4 A.J.C.BOSE ROAD KOLKATA-700020 PHONE: 033-22870383 FAX: 033-22870958 EMAIL: rd.east@mca.gov.in (b) Board of Directors Name Mr. Monoranjan Roy Ms. Mousumi Roy Mr. Rajkumar Roy Mr. Swapan Kumar Sircar Position Managing Director Non Executive Non Independent Director Non Executive Non Independent Director Chartered Accountant & Independent Director Address 247/C Raipur Road, Sree Colony, Kolkata, 700092, West Bengal, India 247/C Raipur Road, Sree Colony, Kolkata, 700092, West Bengal, India 2/29/2, Vivek Nagar Kali Temple, Kolkata700075, West Bengal, India Omkar ,Flat 1A,198 A, S.P.Mukherjee Road, Kolkata 700026
L67120WB1978PLC031561issued by the Registrar of
Registrar & Share Transfer Agent : Niche Technologies Pvt. Ltd. D-511, Bagree Market, 71, B.R.B. Basu Road, Kolkata 700 001 Phone No: 2235-7270/ 7271, 2234-3576 Fax: 2215-6823 Email: nichetechpl@nichetechpl.com Website: www.nichetechpl.com National Securities Depository Limited (NSDL) And Central Depository Services (India) Limited (CDSL) Khaitan & Partners, Advocates & Notaries, Express Tower, 6th Floor, 42A, Shakespeare Sarani, Kolkata 700 017. Phone: +91 33 4064 8144, Fax: + 91 33 4064 8188, Contact Person: Mr. Niladri Bhattacharjee
Depositories
Legal Advisor
PINCON SPIRIT LIMITED
PINCON SPIRIT LIMITED Balance Sheet as at 31st March, 2012 As at 31st March, 2012 (In Rupees) As at 31st March, 2011
Note No. EQUITY AND LIABILITIES Shareholder's Funds Share Capital Reserves and Surplus Non-Current Liabilities Deferred Tax Liabilities (Net) Current Liabilities Short-Term Borrowings Trade Payables Other Current Liabilities Short-Term Provisions TOTAL ASSETS Non-Current Assets Fixed Assets Tangible Assets Capital work-in-progress Long-Term Loans and Advances Deferred Tax (Net) Current Assets Inventories Trade Receivables Cash and Cash Equivalents Other Current Assets TOTAL Notes to Accounts
1 2
100,215,000 111,303,351 -
100,215,000 42,735,718 5,984 10,320,255 383,952 21,423,688 175,084,597
3 4 5 6
63,645,536 8,075,000 46,100,000 329,338,887
7 8
547,158 15,000,000 25,000,000 13,813 68,317,962 68,287,354 5,153,053 147,019,547 329,338,887 -
691,714 30,222,140 80,868,890 401,955 62,899,898 175,084,597 -
9 10 11 12
20
Pincon Spirit Limited Profit & Loss Statement for the year ended 31st March, 2012 (In Rupees) Note No. Income Revenue from Operations Other Incomes Total Revenue (I +II) Expenses: Cost of Materials Consumed Other Manufacturing Expenses Employee Benefit Expenses Administrative & General Expenses Selling & Distribution Expenses Finance Costs Depreciation and Amortization Expense Total Expenses Profit before Tax (III - V) Tax Expense: (1) Current tax (2) Deferred Tax Liability/(Assets) Profit/ (Loss) for the Period (VI-VII) Earnings Per Equity Share (Rs. 10/- per share) (1) Basic (2) Diluted Notes to Accounts 14 15 16 17 18 19 7 13 2,446,428,571 2,446,428,571 2,221,339,126 38,889,214 1,832,000 3,771,972 77,197,281 2,706,586 144,556 2,345,880,735 100,547,836 32,000,000 (19,797) 68,567,633 6.84 6.84 20 1,065,463,215 1,065,463,215 997,185,294 1,020,560 1,927,765 22,922,318 200,358 1,023,256,295 42,206,920 14,100,000 6,176 28,100,744 2.80 2.80 Year Ended 31st March, 2012 Year Ended 31st March, 2011
PINCON SPIRIT LIMITED Cash Flow Statement for the year ended 31st March,2012 Amount 2011-12 Rs. 100,547,836 (In Rupees) Amount 2010-11 Rs. 42,206,920
CASH FLOW FROM OPERATING ACTIVITIES: Net Profit before tax Adjustments for: Depreciation Interest Paid Operating Profit before Working capital changes Adjustments for: (Increase) / Decrease in Inventories (Increase)/ Decrease in Account Receivables (Increase)/ Decrease in Loans & Advances Increase/ (Decrease) in Account Payables Cash Generated from Operations Tax Paid Net Cash from Operating Activities CASH FLOW FROM INVESTING ACTIVITIES: Fixed Assets (including C.W.I.P.) Fixed Deposit Proceeds from sale of Investments Net Cash from Investing Activities CASH FLOW FROM FINANCING ACTIVITIES: Application Money Returned Proceeds of Secured Loans Interest Paid Net Cash from Financing Activities
144,556 2,706,586 103,398,978
200,358 42,407,278
(38,095,822) 12,581,536 (84,119,649) 22,047,105 15,812,148 (32,000,000) (16,187,852)
(815,560) 175,803,581 296,453,755 (471,500,802) 42,348,252 (14,100,000) 28,248,252
(15,000,000) (25,000,000) (40,000,000) 63,645,536 (2,706,586) 60,938,950
(281,904) 1,400,000 1,118,096 (29,193,790) (29,193,790)
Net Increase/(Decrease) in Cash and Cash equivalents Cash and Cash equivalents as at 1st April(Opening Balance) Cash and Cash equivalents as at 31st March(Closing Balance)
4,751,098 401,955 5,153,053
172,558 229,397 401,955
PINCON SPIRIT LIMITED Annexure to the Balance Sheet As at 31st March, 2012 NOTE # 1 Share Capital Authorised Capital 1,00,30,000 Equity Shares of Rs 10/- per share Issued, Subscribed and Paid up 1,00,21,500 Equity Shares of Rs 10/- per share (In Rupees) As at 31st March, 2011
100,300,000
100,300,000
100,215,000 100,215,000
100,215,000 100,215,000
Notes Subscribed and Paid-Up Share Capital Includes a. Equity Shareholder holding more than 5% of Equity Share along with number of equity held as given below: As at As at Name 31st March, 2012 31st March, 2011 % No. of Shares % No. of Shares Monoranjan Roy 29.87% 2993393 29.87% 2993393 Notes # 2 Reserves and Surplus (a) Securities Premium As per last Balance Sheet 636,405 636,405 Addition during the year 636,405 636,405 (b) Surplus As per last Balance Sheet Addition during the year 42,099,313 68,567,633 110,666,946 111,303,351 NOTE # 3 Short-Term Borrowings Other Loans and Advances (Secured) - Cash Credit Facilities - Bank Overdraft 13,998,569 28,100,744 42,099,313 42,735,718
59,645,536 4,000,000 63,645,536
Notes Working Capital Loan facilities from Punjab National Bank, B.R.B.B.Road Br, Kolkata are secured by hypothecation of Currents Assets consisting of Stock & Book Debts
PINCON SPIRIT LIMITED Annexure to the Balance Sheet As at 31st March, 2012 NOTE # 4 Trade Payables Trade Payables NOTE # 5 Other Current Liabilities Other Payables NOTE # 6 Short-Term Provisions Provision for Income Tax NOTE # 8 Long-Term Loans and Advances Fixed Deposit with Bank NOTE # 9 Inventories Work-in-Progress Finished Goods NOTE # 10 Trade Receivables Secured, Considered Good - Outstanding for a period exceeding six months - Others NOTE # 11 Cash and Cash Equivalents Cash in Hand & Bank (Certified by the Management) NOTE # 12 Other Current Assets Current Assets (In Rupees) As at 31st March, 2011
8,075,000 8,075,000
10,320,255 10,320,255
383,952 383,952
46,100,000 46,100,000
21,423,688 21,423,688
25,000,000 25,000,000
4,237,961 64,080,001 68,317,962
30,222,140 30,222,140
523,493 67,763,861 68,287,354
795,689 80,073,201 80,868,890
5,153,053 5,153,053
401,955 401,955
147,019,547 147,019,547
62,899,898 62,899,898
NOTE # 7 Tangible Assets as on 31st March 2012.
PARTICULARS As at 01.04.2011 Rs. GROSS BLOCK Additions DEPRECIATION BLOCK As at 31.03.2012 Rs. As at 01.04.2011 Rs. For The Year Rs. As at 31.03.2012 Rs. NET BLOCK As at As at 31.03.2012 31.03.2011 Rs. Rs.
Rs.
Electrical Equipment Furniture & Fixtures Office Equipment TOTAL Previous Year
420,462 324,109 264,929 1,009,500 727,596 0 281,904
420,462 324,109 264,929 1,009,500 1,009,500
98,250 104,631 114,905 317,786 117,428
44,820 39,726 60,010 144,556 200,358
143,070 144,357 174,915 462,342 317,786
277,392 179,752 90,014 547,158 691,714
322,212 219,478 150,024 691,714
59
PINCON SPIRIT LIMITED Annexure to the Profit & Loss Statement Year Ended 31st March, 2012 NOTE # 13 Revenue From Operations Sale of Products NOTE # 14 Cost of Materials Consumed Cost Of Materials Consumed (Own Blend)
Opening Stock Work In Progress Add: Purchase Closing Stock Work In Progress 725,276,213 4,237,961 -
(In Rupees) Year Ended 31st March, 2011
2,446,428,571 2,446,428,571
1,065,463,215 1,065,463,215
Cost Of Materials Consumed (Own Blend)

Opening Stock of Finished Goods
721,038,252
721,038,252 16,089,375 (A)
Cost Of Materials Consumed

Closing Stock of Finished Goods Trading Opening Stock of Finished Goods Add: Purchase Closing Stock of Finished Goods (B)
704,948,877
30,222,140 1,534,158,735
29,406,580 998,000,854 30,222,140
47,990,626 1,516,390,249 2,221,339,126
997,185,294 997,185,294
COST OF MATERIALS CONSUMED (A+B) NOTE # 15 Other Manufacturing Expenses

Other Expenses Related to Own Blends
38,889,214 38,889,214
PINCON SPIRIT LIMITED Annexure to the Profit & Loss Statement Year Ended 31st March, 2012 NOTE # 16 Employee Benefit Expenses Salaries and Wages NOTE # 17 Administrative & General Expenses Postage & Telephone Auditors' Remuneration Bank Charges Others Extraordinary Expenses Directors Remuneration General Expenses Legal Expenses Organizational Expenses Printing & Stationery Rates & taxes Rent Travelling & Conveyance (In Rupees) Year Ended 31st March, 2011
1,832,000 1,832,000
1,020,560 1,020,560
142,585 21,000 25,509 52,124 1,280,000 176,457 245,200 316,803 371,316 433,399 360,000 347,579 3,771,972
103,213 18,000 25,509 600,000 31,207 129,307 184,211 209,551 240,000 386,767 1,927,765
NOTE # 18 Selling and Distribution Expenses Business Promotion/Advertisement Carriage Outwards Discount & Rebate Godown Expenses Godown Rent Publicity Expenses Sales Commission NOTE # 19 Finance Costs Interest Expense
49,738,048 7,251,614 1,254,089 2,707,793 600,000 836,407 14,809,330 77,197,281
12,257,890 3,635,103 400,580 1,594,750 600,000 359,745 4,074,250 22,922,318
2,706,586 2,706,586
GROUP SNAPSHOT PINCON DEVELOPERS LIMITED Status : A Body Corporate Incorporated under the Companies Act, 1956 Real Estate and Civil Construction 2008 1064.65 1089.19 22.95 16.76
Nature of Activity Year of Incorporation Net Worth (Rs. In Lac) Sales (Rs. In Lac) Profit before Tax (Rs. In Lac) Profit After Tax (Rs. In Lac)
: : : : : :
**Results Are As Per Provisional Accounts for the period from 01.04.2011 to 31.03.2012. Recent Project Undertaken 1. Joint Venture Project worth Rs. 34.00 Cr. With Egra Municipality, Govt. Of West Bengal (A Public Private Partnership Project), For Construction of Commercial cum Residential Complex at Kasba, Egra. Associated as Super Structure Builder with West Bengal Housing Board, Govt. of West Bengal through Shapoorji Pallonji & Co. Ltd. BENGAL PINCON HOUSING INFRASTRUCTURE LTD. Status : A body corporate incorporated under the Companies Act, 1956 and presently is a joint Sector Company, Govt. of West Bengal, having participation of Egra Municipality, Govt. of West Bengal. Housing Infrastructure Development and Civil Contractor (Recognized as Category A by Govt. of West Bengal) 2007 623.28 8462.08 62.19
Nature of Activity
Year of Incorporation Net Worth (Rs. In Lac) Sales (Rs. In Lac) Profit before Tax (Rs. In Lac)
: : : :
Profit After Tax (Rs. In Lac) : 40.18 **Results Are As Per Provisional Accounts for the period from 01.04.2011 to 31.03.2012.
SECTION V: ISSUE RELATED INFORMATION TERMS OF THE ISSUE The NCDs being offered as part of the Issue are subject to the provisions the Act, the Memorandum and Articles of Association of our Company, the terms of this Information Memorandum, the Application Forms, the terms and conditions of the Debenture Trustee Agreement and Debenture Trust Deed, other applicable statutory and/or regulatory requirements relating to the issue of Secured NCDs on private placement basis and any other documents that may be executed in connection with the NCDs. Ranking of secured Non-convertible Debentures The NCDs would constitute direct and secured obligations of ours and shall rank pari passu inter se, and subject to any obligations under applicable statutory and/or regulatory requirements, shall also, with regard to the amount invested, be secured by way of first and exclusive charge on the identified immovable property and the specified future loan receivables of the company. The claims of the NCD holders shall be superior to the claims of any unsecured creditors, subject to applicable statutory and/or regulatory requirements. Debenture Redemption Reserve Section 117C of the Act states that any company that intends to issue debentures must create a DRR to which adequate amounts shall be credited out of the profits of the company until the redemption of the debentures. The Ministry of Corporate Affairs has, through its circular dated April 18, 2002, (Circular), specified that the quantum of DRR to be created before the redemption liability actually arises in normal circumstances should be adequate to pay the value of the debentures plus accrued interest, (if not already paid), till the debentures are redeemed and cancelled. The Circular however further specifies that, for NBFCs like our Company, (NBFCs which are registered with the RBI under Section 45-IA of the RBI Act), no DRR is required in the case of privately placed debentures. Accordingly our Company is not required to create a DRR for this issue. As further clarified by the Circular, the amount to be credited as DRR will be carved out of the profits of the company only if there is profit for the particular year and there is no obligation on the part of the company to create DRR if there is no profit for the particular year. Our Company shall credit adequate amounts to DRR, from its profits every year until such NCDs are redeemed. The amounts credited to DRR shall not be utilized by the company except for the redemption of the NCDs. Face Value The face value of each NCD shall be Rs. 1,000/-. NCD holder not a Shareholder The NCD holders will not be entitled to any of the rights and privileges available to the equity and/or preference shareholders of our Company. Rights of NCD holders Some of the significant rights available to the NCD holders are as follows: 1. The NCDs shall not, except as provided in the Act, confer upon the holders thereof any rights or privileges available to our members including the right to receive notices or annual reports of, or to attend and/or vote, at our general meeting. However, if any
resolution affecting the rights attached to the NCDs is to be placed before the members, the said resolution will first be placed before the concerned registered NCD holders for their consideration. In terms of Section 219(2) of the Act, holders of NCDs shall be entitled to a copy of the balance sheet on a specific request made to us. 2. The rights, privileges and conditions attached to the NCDs may be varied, modified and/or abrogated with the consent in writing of the holders of at least three-fourths of the outstanding amount of the NCDs or with the sanction of a special resolution passed at a meeting of the concerned NCD holders, provided that nothing in such consent or resolution shall be operative against us, where such consent or resolution modifies or varies the terms and conditions governing the NCDs, if the same are not acceptable to us. The registered NCD holder or in case of joint-holders, the one whose name stands first in the register of debenture holders shall be entitled to vote in respect of such NCDs, either in person or by proxy, at any meeting of the concerned NCD holders and every such holder shall be entitled to one vote on a show of hands and on a poll, his/her voting rights shall be in proportion to the outstanding nominal value of NCDs held by him/her on every resolution placed before such meeting of the NCD holders. The NCDs are subject to the provisions of the Act, the Memorandum and Articles of Association of our Company, the terms of this Information Memorandum, the Application Forms, the terms and conditions of the Debenture Trustee Agreement, other applicable statutory and/or regulatory requirements relating to the issue and any other documents that may be executed in connection with the NCDs. A register of NCD holders will be maintained in accordance with Section 152 of the Act and all interest (Coupons)and principal sums becoming due and payable in respect of the NCDs will be paid to the registered holder thereof for the time being or in the case of joint-holders, to the person whose name stands first in the Register of NCD holders as on the record date. NCDs can be rolled over only with the consent of 75% of the NCD holders after providing at least 21 days prior notice for such roll over and in accordance with the Act, Our Memorandum and Articles of Association, and other regulatory provisions.
3.
4.
5.
6.
The aforementioned rights of the NCD holders are merely indicative. The final rights of the NCD holders will be as per the Term sheet and Debenture Trust Deed executed between the Company and the Debenture Trustee. Market Lot Allotment in the Issue will be in physical as well as electronic form in multiples of one NCD. For details of allotment refer to chapter titled Issue Procedure under section titled Issue Related Information beginning on page 54 of this Information Memorandum. Nomination facility to NCD holder In accordance with Section 109A of the Act, the sole NCD holder or first NCD holder, along with other joint NCD holders (being individual(s)) may nominate any one person (being an individual) who, in the event of death of the sole holder or all the joint-holders, as the case may be, shall become entitled to the NCD. A person, being a nominee, becoming entitled to the NCD by reason of the death of the NCD holder(s), shall be entitled to the same rights to which he would be entitled if he were the registered holder of the NCD. Where the nominee is a minor, the NCD holder(s) may make a nomination to appoint, in the prescribed manner, any person to become entitled to the NCD(s), in the event of his death, during the minority. A nomination shall stand rescinded upon sale of a NCD by the person nominating. A buyer will be entitled to make a fresh
nomination in the manner prescribed. When the NCD is held by two or more persons, the nominee shall become entitled to receive the amount only on the demise of all the holders. Fresh nominations can be made only in the prescribed form available on request at our Corporate Office or at such other addresses as may be notified by us. NCD holder(s) are advised to provide the specimen signature of the nominee to us to expedite the transmission of the NCD(s) to the nominee in the event of demise of the NCD holder(s). The signature can be provided in the Application Form or subsequently at the time of making fresh nominations. This facility of providing the specimen signature of the nominee is purely optional. In accordance with Section 109B of the Act, any person who becomes a nominee by virtue of the provisions of Section 109A of the Act, shall upon the production of such evidence as may be required by our Board, elect either: (a) to register himself or herself as the holder of the NCDs; or (b) to make such transfer of the NCDs, as the deceased holder could have made. Further, our Board may at any time give notice requiring any nominee to choose either to be registered himself or herself or to transfer the NCDs, and if the notice is not complied with, within a period of 90 days, our Board may thereafter withhold payment of all interests (Coupons) or other monies payable in respect of the NCDs, until the requirements of the notice have been complied with. Notwithstanding anything stated above, since the allotment of NCDs in this Issue will be made only in physical as well as dematerialized mode, NCD holder(s) need to make a separate nomination with our Company. Nominations registered with us and respective Depository Participant of the applicant would prevail. If the investors require changing their nomination, they are requested to inform us at our corporate office, #3 Dacres Lane, 3rdFloor, Kolkata 69 and their respective Depository Participant. Jurisdiction Exclusive jurisdiction for the purpose of the Issue is with the competent courts of jurisdiction in Kolkata, India. Application in the Issue NCDs being issued through the Information Memorandum can be applied for in the physical as well as dematerialized form. Period of Subscription The subscription list shall remain open for a period as indicated below, with an option for early closure or extension by such period, upto a period of 90 days from the date of opening of the Issue, as may be decided by the Board of Directors of our Company, subject to necessary approvals: Issue Opens on Issue Closes on Restriction on transfer of NCDs There are no restrictions on transfers and transmission of NCDs and on their consolidation/ splitting except as provided in our Articles. Please refer to the section titled Summary of the Key Provisions of the Articles of Association beginning on page 85 of the Information Memorandum. May l6, 2012 November 15, 2012
ISSUE STRUCTURE Private Placement of NCDs aggregating Rs. 3000.00 lakh. The key terms and conditions of the NCDs are as follows: Particulars Issuer Instrument Denomination of the Instrument/ Face Value Term of Payment* Minimum lot Who Can Apply : : : L R N Finance Limited Rated, Taxable, Secured Redeemable Non-Convertible Debenture(s) issued by L R N Finance Limited Rs 1,000/- per Debenture Description
: : :
Full amount on application 5 Debentures and in multiple of 1 thereafter Resident Indian Individuals, Hindu Undivided Families through the Karta, Companies, Bodies Corporate and Societies registered under the applicable laws in India and authorised to invest in NCSD, Public/Private Charitable/Religious authorised to invest in the NCSD, Trusts which are
Partnership firms in the name of the partners, Issue Price No. Of Debentures Issuance Depositories Tenor : : : : : At Par 3.00 lacs Both in physical and in Demat form NSDL and CDSL Option I: 2 years from the Date of allotment Option II: 3 years from the date of allotment Option III: 5 years from the date of allotment Option IV: 7 years from the Date of allotment Option V: 10 years from the Date of allotment Option VI: 13 years from the Date of allotment Option VII: 15 years from the Date of allotment Call/Put Option No put and call option is available for Debentures Issued under Option I, Option II and Option III. For Option IV put & call option will be available after 5 years, for Option V put & call option will be available after 7 years, for Option VI and Option VII it will be available after and 10 years.
Particulars Coupon : Option I: 15.00% Option II: 15.25% Option III: 15.50% Option IV: 16.00% Option V: 16.50% Option VI: 17.00% Option VII: 17.50% Default Interest : 1% p.a.computed from the respective due dates and shall become payable upon the footing of compound interest with rests taken half yearly. Rs. 30.00 Crores CRISIL BB (Stable Outlook) by CRISIL LTD. The company will provide 100% coverage for its forthcoming Debenture. The Secured NCD shall be fully secured by way of: First & exclusive charge over 1. All that the piece and parcel of Sali, Danga and Bastu lands measuring about 9 Acre 43 Decimals I Mouza Madhabpur, PSBhangore, JL No. 75, Khatian NO. 627, 640, 530, 101, Dag No. 897, 870, 1678, 95, 2750, 449, 972, 23, 966, 24, 777, 778, 786, 1975, 164, 165, 166, 878, 880, 887, 88, 308, 1851, 1857, 1848, 415, 418, 453, 976, 981, 1271, 1010, 486, 983, 972, 214, 225, 453, 796, 418, 1695, 1698, 1696, 2463, 2464, 2465, 982, 1257, 668, 669, 670, 1011, 1028, 1249, 1256, 786, 1607, 1611, 76 and 283 within Chandaneshwar II Gram Panchayat, District 24 Parganas. (1st land); All that the piece and parcel of Sali, Danga and Bastu lands measuring about 10 Acres 9 Decimals appertaining to Mouza Hogaldara, PS Bhangore, JL No. 76, Khatian No. 192, 29, 84, 67, 94, 75, under Dag No. 539, 572, 693, 694, 538, 591, 2945, 2946, 295, 370, 8, 592, 575, 642, 650, 656, 676, 652, 558, 691, 639, 541, 544, 577, 538/719, 591, 604, 330, 331, 332, 333, 334, 13, 512, 649, 604, 608, 640, 518, 579, 601, 605 within Chandaneshwar II Gram Panchayat, District 24 Parganas. (2nd land); All that the piece and parcel of Sali, Danga and Bastu lands measuring about 10 Acres 39 Decimals appertaining to Mouza Taldighi, PS-Bhangore, JL No. 77, Khatian No. 59, 31, 120 and 119, Dag No. 19, 34, 141, 511, 513, 517, 518, 203, 237, 247, 258, 124, 12, 24, 33, 79, 81, 137, 145, 148, 149, 153, 329, 507, 508, 509, 142, 223, 224, 510, 341, 150, 75, 78, 138, 139, 130/571, 136, 121, Description
Issue Amount Rating Security
: : :
2.
3.
Particulars Description 122, 14, 389, 390, 391, 392, 77, 339, 105, 106, 396, 528, 64 within Chandaneshwar II Gram Panchayat, District 24 Parganas. (3rd land). The Debentures will be secured by hypothecation of Sundry Debtors and Future Current Assets of the Company amounting to the value of NCDs subscribed less immovable property offered. Corporate Guarantee of Menka Suppliers Private Limited. Valuation of the property Property holder : : Fair Market Value Rs. 27.16 cr. M/s Menka Suppliers Pvt. Ltd. is the lawful lessee in respect of the above three lands measuring about 29 Acres 91 Decimals in the said Dags, Khatians and Mouzas. 1. M/s Menka Suppliers Pvt. Ltd. is the associate company of L. R. N. Finance Ltd. Mr. Monoranjan Roy is the Managing Director of L. R. N. Finance Ltd. Mr. Monoranjan Roy is the Director of Menka Suppliers Pvt. Ltd. Mr. Monornajan Roy is the sole authority to mortgage the company on behalf of Menka Suppliers Pvt. Ltd. Menka Suppliers Pvt. Ltd. is giving corporate guarantee vide BOD resolution dated 05.11.2011.
2.
3.
4.
5. Issue Schedule Redemption Redemption Price Interest /Coupon Frequency* Interest/Coupon Payment Mode of Placement Dematerialized Day Count Basis Business Days Purpose Pay in date Deemed Date of : : : : : : : : : : : :
The Issue shall be open from May 16, 2012 to September 25, 2012. Bullet payment end of the redemption date. The NCDs will be redeemed at a par. Semi Annually on 1st April and 1st October of every year. Cheque/ECS/RTGS/NEFT/Demand Draft. Private Placement Yes Actual Business Day means a day on which commercial Banks are open for business in the city of Kolkata. The proceeds from the issue shall be utilised for expansion of business activity as well as general corporate purposes. 3 (Three) Business Days from the date of receipt of application or the date of realisation of the cheques/demand drafts, whichever is later. Deemed date of allotment shall be the date of issue of the letter of
Particulars Allotment Redemption date*** : allotment/ regret. Option I: 2 years from the Date of allotment Option II: 3 years from the date of allotment Option III: 5 years from the date of allotment Option IV: 7 years from the Date of allotment Option V: 10 years from the Date of allotment Option VI: 13 years from the Date of allotment Option VII: 15 years from the Date of allotment Early Buy Back of Securities : Our Company may, at its sole discretion, from time to time, consider, subject to FEMA (Borrowing and Lending in Rupees) Regulations, 2000 and other applicable statutory and/or regulatory requirements, buyback of NCDs, upon such terms and conditions as may be decided by our Company. Description
* Term of Payment: - The entire issue price of Rs. 5,000 per lot of Secured NCD is payable on application only. ** Interest (Coupon)- The interest of as per options available above will be paid on the first day of April and October of every financial year except the first interest payment. The first interest payment for the period commencing from the Deemed Date of Allotment till the end of the half year in which such Deemed Date of Allotment falls will be paid. *** Maturity: - The Secured NCDs have a fixed maturity date. The date of maturity of the Secured NCDs is as per options available.
[The subscription list shall remain open for a period as indicated, with an option for early closure or extension by such period, up to a period of 90 days from date of opening of the Issue, as may be decided by the Board of Directors of our Company.] Interest and Payment of Interest A. Interest Interest would be paid semi-annually at the rate of 15.00%, 15.25%, 15.50%, 16.00%, 16.50%, 17.00% and 17.50% per annum for Option I, Option II, Option III, Option IV, Option V, Option VI and Option VII respectively on the amount outstanding from time to time, commencing from the Deemed Date of Allotment of each NCD. If the date of interest payment falls on a Saturday, Sunday or a public holiday in Kolkata or any other payment centre notified in terms of the Negotiable Instruments Act, 1881, then interest would be paid on the next working day. Payment of interest would be subject to the deduction as prescribed in the I.T. Act or any statutory modification or re-enactment thereof for the time being in force.
However in case of NCD holders claiming non-deduction or lower deduction of tax at source, as the case may be, the NCD holder should furnish either (a) a declaration (in duplicate) in the prescribed form i.e. (i) Form 15H which can be given by individuals who are of the age of 65 years or more (ii) Form 15G which can be given by all applicants (other than companies, firms and NR), or (b) a certificate, from the Assessing Officer which can be obtained by all applicants (including companies and firms) by making an application in the prescribed form i.e. Form No.13. The aforesaid documents, as may be applicable, should be submitted to the Company quoting the name of the sole/ first NCD holder, NCD folio number and the distinctive number(s) of the NCD held, prior to the record date to ensure non-deduction/lower deduction of tax at source from interest on NCD. The investors need to submit Form 15H/ 15G/certificate in original from Assessing Officer for each financial year during the currency of NCD to ensure non-deduction or lower deduction of tax at source from interest on NCD. B. Payment of Interest (Coupon) Semi-annual Payment of Interest (Coupon) For NCDs subscribed, interest as applicable, on the amount outstanding, from time to time, will be paid on the first day of April and October every financial year except for the first interest payment. The first interest payment for the period commencing from the Deemed Date of Allotment till the end of the half year in which such Deemed Date of Allotment falls will be paid. The last interest payment will be made at the time of redemption of the NCD on a pro rata basis. Interest Rate in case of Default In case of default in payment of Interest and/or Principal redemption on the due dates, additional interest @ 1% p.a. over the documented rate (i.e. the Coupon Rate) will be payable by the Company for the defaulting period. C. Interest on Application Money Interest on application monies received which are used towards allotment of NCDs Our Company shall pay interest on application money on the amount allotted, subject to deduction of income tax under the provisions of the Income Tax Act, 1961, as applicable, to any applicants to whom NCDs are allotted pursuant to the Issue from the date of realization of the cheque(s)/demand draft(s) or 3 (three) days from the date of receipt of the application whichever is later upto one day prior to the Deemed Date of Allotment, at the rate applicable under the option wherein investment is made. Applicants claiming non deduction or lower deduction of tax can file form 15G/15H/Certificate in original from the Assessing Officer, if they are eligible to do so. Our Company may enter into an arrangement with one or more banks in one or more cities for direct credit of interest to the account of the applicants. Alternatively, the interest warrant will be dispatched along with the Letter(s) of Allotment at the sole risk of the applicant, to the sole/first applicant. Interest on application monies received which are liable to be refunded Our Company shall pay interest on application money which is liable to be refunded, (other than the monies received after the closure of the Issue), to the applicants in accordance with the provisions of the Companies Act, and/or other applicable statutory and/or regulatory requirements, subject to deduction of income tax under the provisions of the Income Tax Act, 1961, as amended, as applicable, from the date of realization of the cheque(s)/demand draft(s) or 3 (three) days from the date of receipt of the application whichever is later upto one day prior to the Deemed Date of Allotment, , at the rate of 15.00%, 15.25%, 15.50%, 16.00%, 16.50%, 17.00% and
17.50% per annum for Option I, Option II, Option III, Option IV, Option V, Option VI and Option VII respectively. Such interest shall be paid along with the monies liable to be refunded. Applicants claiming non deduction or lower deduction of tax can file form 15G/15H/Certificate in original from the Assessing Officer, if they are eligible to do so. Provided that, notwithstanding anything contained hereinabove, our Company shall not be liable to pay any interest on monies liable to be refunded in case of (a) invalid applications or applications liable to be rejected, and/or (b) applications which are withdrawn by the applicant, and other statutory and/or regulatory requirements. D. Payment of Interest to Allotted NCD Holders Payment of Interest will be made to those NCD holders whose names appear in the register of NCD holders (or to first holder in case of joint-holders) as on record date. We may enter into an arrangement with one or more banks in one or more cities for direct credit of interest to the account of the investors. In such cases, interest, on the interest payment date, would be directly credited to the account of those investors who have given their bank mandate for such banks. We may offer the facility of ECS, NEFT, RTGS, Direct Credit and any other method permitted by RBI and other regulatory authority from time to time to help NCD holders. The terms of this facility (including towns where this facility would be available) would be as prescribed by RBI. Refer to the paragraph on Manner of Payment of Interest/Refund/Redemption appearing on page 63 of this Information Memorandum. Tax exemption certificate/document, if any, must be lodged at our office and/or, at the office of the Registrar at least 7(seven) days prior to the record date or as specifically required, failing which tax applicable on interest will be deducted at source on accrual thereof in our Companys books and/or on payment thereof, in accordance with the provisions of the Income Tax Act, 1961 and/or any other statutory modification, enactment or notification as the case may be. A tax deduction certificate will be issued for the amount of tax so deducted. Maturity and Redemption The NCDs issued pursuant to the Information Memorandum have a fixed maturity date. The date of maturity of the NCDs is 24, 36, 60, 84, 120, 156 and 180 months from the Deemed Date of Allotment through bullet payment. The Issuer and the Lender shall have a call/put option on the NCDs for Option IV after 5 years, for Option V after 7 years, for Option VI and Option VII it will be available after and 10 years. Deemed Date of Allotment Deemed date of allotment shall be the date of issue of the letter of allotment/regret. Application Size Each application should be for a minimum of 5 NCDs and multiples of 1 NCD thereof. The minimum application size for each application would be Rs. 5,000/- and in multiples of Rs. 1,000/- thereafter. Applicants are advised to ensure that applications made by them do not exceed the investment limits or maximum number of NCDs that can be held by them under applicable statutory and/or regulatory provisions.
Terms of Payment The entire issue price of Rs. 1,000/- per NCD is payable on application only. In case of allotment of lesser number of NCDs than the number of NCDs applied for, our Company shall refund the excess amount paid on application to the applicant in accordance with the terms of this Information Memorandum. For further details please refer to the paragraph on Interest on Application Money beginning on page 62 of this Information Memorandum. Provided that, notwithstanding anything contained hereinabove, our Company shall not be liable to pay any interest on monies liable to be refunded in case of (a) invalid applications or applications liable to be rejected, and/or (b) applications which are withdrawn by the applicant, and other statutory and/or regulatory requirements. Record Date The record date for payment of interest or repayment of principal shall be 15 (fifteen) days prior to the date on which interest is due and payable, or the date of redemption or early redemption. Manner of Payment of Interest / Refund / Redemption The manner of payment of interest/refund/ redemption is set out below: NCDs applied / held in electronic form: The bank details will be obtained from the Depositories for payment of Interest/refund/redemption as the case may be. Applicants who have applied for or are holding the NCDs in electronic form, are advised to immediately update their bank account details as appearing on the records of the depository participant. Please note that failure to do so could result in delays in credit of refunds to the applicant at the applicants sole risk, and neither our Company nor the registrars shall have any responsibility and undertake any liability for the same. For NCDs held in physical form: The bank details will be obtained from the NCD holders to the Issue for payment of interest/refund/redemption as the case may be. The mode of interest/refund/redemption payments shall be undertaken in the following order of preference: 1. Direct Credit Investors having their bank account with the Refund Banks shall be eligible to receive refunds, if any, through direct credit. The refund amount, if any, would be credited directly to their bank account with the Refund Banker. 2. ECS Payment of interest/refund/redemption shall be undertaken through ECS for applicants. This mode of payment of refunds would be subject to availability of complete bank account details including the MICR code as appearing on a cheque leaf, from the Depositories. One of the methods for payment of interest payment/refund/redemption is through ECS for applicants having a bank account at any of the abovementioned centers.
3. RTGS Applicants having a bank account with a participating bank and whose interest payment/refund/redemption amount exceeds Rs.10 lakhs, or such amount as may be fixed by RBI from time to time, have the option to receive refund through RTGS. Such eligible applicants who indicate their preference to receive interest payment/refund/redemption through RTGS are required to provide the IFSC code in the Application Form or intimate our Company and the Registrars to the Issue at least 7 (seven) days before the record date. In the event the same is not provided, interest payment/refund/redemption shall be made through ECS. Charges, if any, levied by the applicants bank receiving the credit would be borne by the applicant. 4. NEFT Payment of interest/ refund/redemption shall be undertaken through NEFT wherever the applicants bank has been assigned the Indian Financial System Code (IFSC), which can be linked to a Magnetic Ink Character Recognition (MICR), if any, available to that particular bank branch. IFSC Code will be obtained from the website of RBI as on a date immediately prior to the date of payment of refund, duly mapped with MICR numbers. Wherever the applicants have registered their nine digit MICR number and their bank account number while opening and operating the de-mat account, the same will be duly mapped with the IFSC Code of that particular bank branch and the payment of refund will be made to the applicants through this method. 5. Registered Post/Speed Post For all other applicants, including those who have not updated their bank particulars with the MICR code, the interest payment/refund/redemption orders shall be dispatched under certificate of posting for value up to Rs. 1,000/- and through Speed Post/Registered Post for refund orders/interest payment/redemption orders over Rs. 1,000/-. Please note that applicants are eligible to receive payments through the modes detailed in (1), (2) (3), and (4) herein above provided they provide necessary information for the above modes and where such payment facilities are allowed/available. Please note that our Company shall not be responsible to the holder of NCD, for any delay in receiving credit of interest/refund/redemption so long as our Company has initiated the process of such request in time.
Printing of Bank Particulars on Interest Warrants As a matter of precaution against possible fraudulent encashment of refund orders and interest/redemption warrants due to loss or misplacement, the particulars of the applicants bank account are mandatorily required to be given for printing on the orders/ warrants. In relation to NCDs applied and held in dematerialized form, these particulars would be taken directly from the depositories. In case of NCDs held in physical form either on account of rematerialisation or transfer, the investors are advised to submit their bank account details with our Company at least 7 (seven) days prior to the record date failing which the orders/warrants will be dispatched to the postal address of the holder of the NCD as available in the records of our Company. Bank account particulars will be printed on the orders/warrants which can then be deposited only in the account specified.
Loan against NCDs Our Company, at its sole discretion, may subject to FEMA (Borrowing and Lending in Rupees) Regulations, 2000 and other applicable statutory and/or regulatory requirements, consider granting of a loan facility to the holders of NCDs against the security of such NCDs. Such loans shall be subject to the terms and conditions as may be decided by our Company from time to time. Buy Back of NCDs Our Company may, at its sole discretion, from time to time, consider, subject to FEMA (Borrowing and Lending in Rupees) Regulations, 2000 and other applicable statutory and/or regulatory requirements, buyback of NCDs, upon such terms and conditions as may be decided by our Company. Form and Denomination In case of NCDs held in physical form, a single certificate will be issued to the NCD holder for the aggregate amount (Consolidated Certificate) for each type of NCDs. The applicant can also request for the issue of NCD certificates in denomination of one NCD (Market Lot). In respect of Consolidated Certificates, we will, only upon receipt of a request from the NCD holder, split such Consolidated Certificates into smaller denominations subject to the minimum of Market Lot. No fees would be charged for splitting of NCD certificates in Market Lots, but stamp duty payable, if any, would be borne by the NCD holder. The request for splitting should be accompanied by the original NCD certificate which would then be treated as cancelled by us. Redemption of NCDs We will redeem NCDs through Bullet Payment. Procedure for Redemption by NCD holders The procedure for redemption is set out below: NCDs held in physical form: No action would ordinarily be required on the part of the NCD holder at the time of redemption and the redemption proceeds would be paid to those NCD holders whose names stand in the register of NCD holders maintained by us on the record date fixed for the purpose of Redemption. However, our Company may require that the NCD certificate(s), duly discharged by the sole holder/all the joint-holders (signed on the reverse of the NCD certificate(s)) be surrendered for redemption on maturity and should be sent by the NCD holder(s) by Registered Post with acknowledgment due or by hand delivery to our office or to such persons at such addresses as may be notified by us from time to time. NCD holder(s) may be requested to surrender the NCD certificate(s) in the manner as stated above, not more than three months and not less than one month prior to the redemption date so as to facilitate timely payment. We may at our discretion redeem the NCDs without the requirement of surrendering of the NCD certificates by the holder(s) thereof. In case we decide to do so, the holders of NCDs need not submit the NCD certificates to us and the redemption proceeds would be paid to those NCD holders whose names stand in the register of NCD holders maintained by us on the record date fixed for the purpose of redemption of NCDs. In such case, the NCD certificates would be deemed to have been cancelled. Also see the Para Payment on Redemption given below.
NCDs held in electronic form: No action is required on the part of NCD holder(s) at the time of redemption of NCDs. Right to Reissue NCD(s) Subject to the provisions of the Act, where we have fully redeemed or repurchased any NCD(s), we shall have and shall be deemed always to have had the right to keep such NCDs in effect without extinguishment thereof, for the purpose of resale or reissue and in exercising such right, we shall have and be deemed always to have had the power to resell or reissue such NCDs either by reselling or reissuing the same NCDs or by issuing other NCDs in their place. The aforementioned right includes the right to reissue original NCDs. Transfer/Transmission of NCD(s) The NCDs shall be transferred or transmitted freely in accordance with the applicable provisions of the Act. The provisions relating to transfer and transmission and other related matters in respect of our shares contained in the Articles and the Act shall apply, mutatis mutandis (to the extent applicable to debentures) to the NCD(s) as well. In respect of the NCDs held in physical form, a suitable instrument of transfer as may be prescribed by the Issuer may be used for the same. The NCDs held in dematerialised form shall be transferred subject to and in accordance with the rules/procedures as prescribed by NSDL/CDSL and the relevant DPs of the transfer or transferee and any other applicable laws and rules notified in respect thereof. The transferee(s) should ensure that the transfer formalities are completed prior to the record date. In the absence of the same, interest will be paid/redemption will be made to the person, whose name appears in the register of debenture holders maintained by the Depositories. In such cases, claims, if any, by the transferees would need to be settled with the transferor(s) and not with the Issuer. For NCDs held in electronic form: The normal procedure followed for transfer of securities held in dematerialised form shall be followed for transfer of these NCDs held in electronic form. The seller should give delivery instructions containing details of the buyers DP account to his depository participant. In case the transferee does not have a DP account, the seller can re-materialise the NCDs and thereby convert his de-mat holding into physical holding. Thereafter the NCDs can be transferred in the manner as stated above. In case the buyer of the NCDs in physical form wants to hold the NCDs in dematerialised form, he can choose to dematerialise the securities through his DP. Joint-holders Where two or more persons are holders of any NCD(s), they shall be deemed to hold the same as joint holders with benefits of survivorship subject to other provisions contained in the Articles. Sharing of Information We may, at our option, use on our own, as well as exchange, share or part with any financial or other information about the NCD holders available with us, with our subsidiaries, if any and affiliates and other banks, financial institutions, credit bureaus, agencies, statutory bodies, as may
be required and neither we or our affiliates nor their agents shall be liable for use of the aforesaid information. Notices All notices to the NCD holder(s) required to be given by us or the Debenture Trustee will be sent by post/courier to the Registered Holders of the NCD(s) from time to time. Issue of Duplicate NCD Certificate(s) If any NCD certificate(s) is/are mutilated or defaced or the cages for recording transfers of NCDs are fully utilised, the same may be replaced by us against the surrender of such certificate(s). Provided, where the NCD certificate(s) are mutilated or defaced, the same will be replaced as aforesaid only if the certificate numbers and the distinctive numbers are legible. If any NCD certificate is destroyed, stolen or lost then upon production of proof thereof to our satisfaction and upon furnishing such indemnity/security and/or documents as we may deem adequate, duplicate NCD certificate(s) shall be issued. Security The principal amount of the NCDs to be issued in terms of this Information Memorandum together with all interest, all costs, charges, all fees, remuneration of Debenture Trustee and expenses payable in respect thereof shall be secured by way of first and exclusive charge in favour of the Debenture Trustee on an identified immovable property Owned by M/s Menka Suppliers Pvt. Ltd. which is one of the Group Companies of Pincon Group as the case of Issuer. Our Company will create appropriate security within 30 days from the date of opening of the issue in favour of the Debenture Trustee for the NCD holders on the identified assets and shall maintain one time security cover at all the time till the debentures are fully redeemed. The cash flow of the company from the issue proceeds will be identifiable as the loan portfolio will be escrowed in a separate account with any scheduled commercial banks in India. The Company shall entered into an agreement with the Debenture Trustee, (Debenture Trustee Agreement),the terms of which will govern the appointment of the Debenture Trustee. Trustees for the NCD holders We have appointed IL&FS Trust Company Ltd. to act as the Debenture Trustees for the NCD holders. We and the Trustees will enter into a Trustee Agreement, inter alia, specifying the powers, authorities and obligations of the Trustees and us. The NCD holder(s) shall, without further act or deed, be deemed to have irrevocably given their consent to the Trustees or any of their agents or authorised officials to do all such acts, deeds, matters and things in respect of or relating to the NCDs as the Trustees may in their absolute discretion deem necessary or require to be done in the interest of the NCD holder(s). Any payment made by us to the Trustees on behalf of the NCD holder(s) shall discharge us pro tanto to the NCD holder(s). The Trustees will protect the interest of the NCD holders in the event of default by us in regard to timely payment of interest and repayment of principal and they will take necessary action at our cost. Future Borrowings We will be entitled to borrow/raise loans or avail of financial assistance in whatever form as also to issue debentures/NCDs/other securities in any manner having such ranking in priority, pari
passu or otherwise, subject to applicable consents, approvals or permissions that may be required under any statutory/regulatory/contractual requirement, and change the capital structure including the issue of shares of any class, on such terms and conditions as we may think appropriate, without the consent of, or intimation to, the NCD holders or the Debenture Trustee in this connection.
ISSUE PROCEDURE 1. How to Apply? A. Availability of Information Memorandum and Application Forms The Information Memorandum containing the salient features together with Application Forms may be obtained from our Corporate Office, Arranger(s) to the Issue, Registrar to the Issue and at branches/collection centres of the Bankers to the Issue, as mentioned on the Application Form. We may provide Application Forms for being downloaded at such websites as we may deem fit. B. Who can Apply The following categories of persons are eligible to apply in the Issue: Resident Indian individuals; Hindu Undivided Families through the Karta; Companies, Bodies Corporate and Societies registered under the applicable laws in India and authorised to invest in NCDs; Public/Private Charitable/Religious Trusts which are authorised to invest in the NCDs; Scientific and/or Industrial Research Organisations, which are authorised to invest in the NCDs; Partnership Firms in the name of the partner; Limited liability partnerships formed and registered under the provisions of the Limited Liability Partnership Act, 2008 (No. 6 of 2009); Public Financial Institutions, Statutory Corporations, Commercial Banks, Co-operative Banks and Regional Rural Banks, which are authorised to invest in the NCDs; Provident Funds, Pension Funds, Superannuation Funds and Gratuity Funds, which are authorised to invest in the NCDs Venture Capital funds registered with SEBI; Insurance Companies registered with the IRDA National Investment Fund; and Mutual Funds.
Note: Participation of any of the aforementioned categories of persons or entities is subject to the applicable statutory and/or regulatory requirements in connection with the subscription to Indian securities by such categories of persons or entities. Applicants are advised to ensure that applications made by them do not exceed the investment limits or maximum number of NCDs that can be held by them under applicable statutory and or regulatory provisions. Applicants are advised to ensure that they have obtained the necessary statutory and/or regulatory permissions/consents/approvals in connection with applying for, subscribing to, or seeking allotment of NCDs pursuant to the Issue. The information below is given for the benefit of the investors. Our Company is not liable for any amendment or modification or changes in applicable laws or regulations, which may occur after the date of this Information Memorandum. Investors are advised to ensure that the aggregate
number of NCDs applied for does not exceed the investment limits or maximum number of NCDs that can be held by them under applicable law. Applications by Mutual Funds No mutual fund scheme shall invest more than 15% of its NAV in debt instruments issued by a single Company which are rated not below investment grade by a credit rating agency authorised to carry out such activity. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of Asset Management Company. Application by Scheduled Banks, Co-operative Banks and Regional Rural Banks Scheduled Banks, Co-operative banks and Regional Rural Banks can apply in this issue based upon their own investment limits and approvals. The application must be accompanied by certified true copies of (i) Board Resolution authorising investments; (ii) Letter of Authorisation. Failing this, our Company reserves the right to accept or reject any Application in whole or in part, in either case, without assigning any reason there for. Application by Insurance Companies In case of Applications made by insurance companies registered with the Insurance Regulatory and Development Authority, a certified copy of certificate of registration issued by Insurance Regulatory and Development Authority must be lodged along with Application Form. The applications must be accompanied by certified copies of (i) Memorandum and Articles of Association (ii) Power of Attorney (iii) Resolution authorising investment and containing operating instructions (iv) Specimen signatures of authorized signatories. Failing this, our Company reserves the right to accept or reject any Application in whole or in part, in either case, without assigning any reason there for. Applications by Trusts In case of Applications made by trusts, settled under the Indian Trusts Act, 1882, as amended, or any other statutory and/or regulatory provision governing the settlement of trusts in India, must submit a (i) certified copy of the registered instrument for creation of such trust, (ii) Power of Attorney, if any, in favour of one or more trustees thereof, (iii) such other documents evidencing registration thereof under applicable statutory/regulatory requirements. Further, any trusts applying for NCDs pursuant to the Issue must ensure that (a) they are authorised under applicable statutory/regulatory requirements and their constitution instrument to hold and invest in debentures, (b) they have obtained all necessary approvals, consents or other authorisations, which may be required under applicable statutory and/or regulatory requirements to invest in debentures, and (c) applications made by them do not exceed the investment limits or maximum number of NCDs that can be held by them under applicable statutory and or regulatory provisions. Failing this, our Company reserves the right to accept or reject any App in whole or in part, in either case, without assigning any reason there for. 2. Bank Account We have opened account with Axis Bank Limited and Punjab National Bank and the applicants shall make out the cheque or demand draft in favour of us in respect of their application. Cheques or demand drafts for the application amount received from applicants would be deposited in the respective Account. 3. Filing of the Information Memorandum with ROC No copy of this Information Memorandum will be filed with RoC.
4.
General Instructions Dos Check if you are eligible to apply; Read all the instructions carefully and complete the Application Form; Ensure that the details about Depository Participant and Beneficiary Account are correct otherwise allotment of NCDs will be in the physical form only; Ensure that you mention your PAN allotted under the IT Act Ensure that the Demographic Details (as defined herein below) are updated, true and correct in all respects. Ensure that you have obtained all necessary approvals from the relevant statutory and/or regulatory authorities to apply for, subscribe to and/or seek allotment of NCDs pursuant to the Issue. Donts: Do not apply for lower than the minimum application size; Do not pay the application amount in cash; Do not fill up the Application Form such that the NCDs applied for exceeds the issue size and/or investment limit or maximum number of NCDs that can be held under the applicable laws or regulations or maximum amount permissible under the applicable regulations; Do not submit application accompanied with Stock invest.
5.
Instructions for completing the Application Form
A. Submission of Application Form Applications to be made in prescribed form only The forms to be completed in block letters in English Applications should be in single or joint names and should be applied by Karta in case of HUF Thumb impressions and signatures other than in English/Hindi/Gujarati/Marathi or any other languages specified in the 8th Schedule of the Constitution needs to be attested by a Magistrate or Notary Public or a Special Executive Magistrate under his/her seal. All Application Forms duly completed together with cheque/bank draft for the amount payable on application must be delivered before the closing of the subscription list to the collection centre(s)/ agent(s) as may be specified before the closure of the Issue. Applicants at centres not covered by the branches of collecting banks can send their forms together with a cheque/draft drawn on/payable at a local bank in Kolkata to the Registrar to the Issue by registered post. No receipt will be issued for the application money. However, our collecting centres receiving the applications will acknowledge the same.
Every applicant should hold valid Permanent Account Number (PAN) and mention the same in the Application Form. All applicants are required to tick the relevant column Category of Investor in the Application Form. B. Applicants Bank Account Details It is not mandatory for all the applicants to have their NCDs allotted in dematerialised form. In case of NCDs Holders, the Registrars to the Issue will obtain the applicants bank account details from the Depository. The applicant should note that on the basis of the name of the applicant, Depository Participants (DP) name, Depository Participants identification number and beneficiary account number provided by them in the Application Form, the Registrar to the Issue will obtain from the applicants DP A/c, the applicants bank account details. The investors are advised to ensure that bank account details are updated in their respective DP A/cs as these bank account details would be printed on the refund order(s), if any. Please note that failure to do so could result in delays in credit of refunds to applicants at the applicants sole risk and neither the LM nor our Company nor the Refund Banker nor the Registrar shall have any responsibility and undertake any liability for the same. C. Applicants Depository Account Details APPLICANTS WHO WANT THEIR NCDs IN DEMATERIALISED FORM SHOULD MENTION THEIR DEPOSITORY PARTICIPANTS NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND BENEFICIARY ACCOUNT NUMBER IN THE APPLICATION FORM. INVESTORS MUST ENSURE THAT THE NAME GIVEN IN THE APPLICATION FORM IS EXACTLY THE SAME AS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. IN CASE THE APPLICATION FORM IS SUBMITTED IN JOINT NAMES, IT SHOULD BE ENSURED THAT THE DEPOSITORY ACCOUNT IS ALSO HELD IN THE SAME JOINT NAMES AND ARE IN THE SAME SEQUENCE IN WHICH THEY APPEAR IN THE APPLICATION FORM. Applicant should note that on the basis of name of the applicant, Depository Participants name, Depository Participant-Identification number and Beneficiary Account Number provided by them in the Application Form, the Registrar to the Issue will obtain from the Depository, demographic details of the investor such as address, bank account details for printing on refund orders and occupation (Demographic Details). Hence, applicants should carefully fill in their Depository Account details in the Application Form. These Demographic Details would be used for all correspondence with the applicants including mailing of the refund orders/ Allotment Advice and printing of bank particulars on the refund/interest order and the Demographic Details given by applicant in the Application Form would not be used for these purposes by the Registrar. Hence, applicants are advised to update their Demographic Details as provided to their Depository Participants and ensure that they are true and correct. By signing the Application Form, the applicant would have deemed to have authorised the depositories to provide, upon request, to the Registrar to the Issue, the required Demographic Details as available on its records. Refund Orders/Allotment Advice would be mailed at the address of the applicant as per the Demographic Details received from the Depositories. Applicant may note that delivery of refund orders/allotment advice may get delayed if the same once sent to the address obtained from the Depositories are returned undelivered. In such an
event, the address and other details given by the applicant in the Application Form would be used only to ensure dispatch of refund orders. Please note that any such delay shall be at the applicants sole risk and neither we nor the LMs or the Registrars shall be liable to compensate the applicant for any losses caused to the applicant due to any such delay or liable to pay any interest for such delay. However in case of applications made under power of attorney, our Company in its absolute discretion, reserves the right to permit the holder of Power of Attorney to request the Registrar that for the purpose of printing particulars on the refund order and mailing of Refund Orders/ECS refunds for credits/Allotment Advice, the demographic details given on the Application Form should be used (and not those obtained from the Depository of the applicant). In such cases, the Registrar shall use Demographic details as given in the Application Form instead of those obtained from the Depositories. In case no corresponding record is available with the Depositories that matches all three parameters, namely, names of the applicants (including the order of names of joint holders), the Depository Participants identity (DP ID) and the beneficiarys identity, then such applications are liable to be rejected. D. Applications under Power of Attorney by limited companies, corporate bodies, registered societies etc. In case of Applications made pursuant to a power of attorney or by limited companies, corporate bodies, registered societies etc, a certified copy of the power of attorney or the relevant resolution or authority, as the case may be, along with a certified copy of the Memorandum of Association and Articles of Association and/or bye laws must be lodged along with the Application Form, failing this, our Company reserves the right to accept or reject any Application in whole or in part, in either case, without assigning any reason there for. E. Permanent Account Number The applicant or in the case of applications made in joint names, each of the applicant, should mention his or her Permanent Account Number (PAN) allotted under the I.T. Act. In accordance with the Guidelines, the PAN would be the sole identification number for the participants transacting in the securities market, irrespective of the amount of transaction. Any Application Form, without the PAN is liable to be rejected, irrespective of the amount of transaction. It is to be specifically noted that the applicants should not submit the GIR number instead of the PAN as the Application is liable to be rejected on this ground. F. Terms of Payment The entire issue price for the NCDs is payable on application only. In case of allotment of lesser number of NCDs than the number applied, our Company shall refund the excess amount paid on application to the applicant. G. Payment Instructions for Applicants We have opened Account with the Punjab National Bank for the collection of the application amount payable upon submission of the Application Form. Payment may be made by way of cheque/bank draft drawn on any bank, including a cooperative bank which is situated at and is member or sub-member of the Bankers clearing-house located at the place where the Application Form is submitted, i.e. at #3 Dacres Lane, 3rdFloor, Kolkata 69. Outstation cheques /bank drafts drawn on banks not participating in the clearing process will not be accepted and applications accompanied by such cheques or bank drafts are liable to be rejected. Payment though stock invest
would also not be allowed as the same has been discontinued by the RBI vide notification No. DBOD.NO.FSC.BC. 42/24.47.001/2003-04 dated November 5, 2003. Cash/Stock invest/Money Orders/Postal Orders will not be accepted. In case payment is effected in contravention of conditions mentioned herein, the application is liable to be rejected and application money will be refunded and no interest will be paid thereon. A separate cheque/bank draft must accompany each Application Form. All outstation cheques must be payable at par. All Application Forms received with outstation cheques (not be payable at par), postdated cheques, cheques / bank drafts drawn on banks not participating in the clearing process, Money orders/postal orders, cash, stock invest shall be rejected and the collecting bank shall not be responsible for such rejections. All cheques / bank drafts accompanying the application should be crossed A/c Payee only and must be made payable to LRN Finance Limited.
6.
Submission of Completed Application Forms All applications duly completed and accompanied by account payee cheques / drafts shall be submitted at #3 Dacres Lane, 3rd Floor, Kolkata 69 or our Collection Centre(s)/agent(s) as may be specified by us before the closure of the Issue. Our collection centre/ agent however, will not accept payments made in cash. No separate receipts shall be issued for the application money. However, our Collection Centre(s)/ agent(s) receiving the duly completed Application Forms will acknowledge the receipt of the applications by stamping and returning the acknowledgment slip to the applicant. Applications shall be deemed to have been received by us only when submitted at our Corporate Office/Collection Centre/ agent or on receipt by the Registrar as detailed above and not otherwise.
7.
On-line Applications
We may decide to offer online application facility for NCDs, as and when it is permitted by law subject to terms and conditions as may be prescribed. 8. Other Instructions
A. Joint Applications Applications may be made in single or joint names (not exceeding three). In the case of joint applications, all payments will be made out in favour of the first applicant. All communications will be addressed to the first named applicant whose name appears in the Application Form and at the address mentioned therein. B. Additional Applications An applicant is allowed to make one or more applications for the NCDs, subject to a minimum application size of Rs. 5,000/- and in multiples of Rs. 1,000/- thereafter, for each application. Any application for an amount below the aforesaid minimum application size will be deemed as an invalid application and shall be rejected.
C. Depository Arrangements As per the provisions of the Act, the allotment of NCDs of our Company can be made in a dematerialised form, (i.e. not in the form of physical certificates but be fungible and be represented by the Statement issued through electronic mode). We have made depository arrangements with NSDL and CDSL for issue and holding of the NCDs in dematerialised form. Please note that a tripartite agreement shall be executed between the Company, CDSL and the Registrar and a tripartite agreement between NSDL, the Registrar and the Company shall be executed. As per the provisions of the Depositories Act, 1996, the NCDs issued by us can be held in a dematerialized form i.e. they shall be fungible and be represented by a statement issued through electronic mode. In this context: i. Tripartite Agreement dated 24.08.2011 and 30.08.2011 between us, the Registrar to the Issue and CDSL and NSDL, respectively for offering depository option to the investors. An applicant who wishes to apply for NCDs in the electronic form must have at least one beneficiary account with any of the Depository Participants (DPs) of NSDL or CDSL prior to making the application. The applicant seeking allotment of NCDs in the Electronic Form must necessarily fill in the details (including the beneficiary account number and DPs ID) appearing in the Application Form under the heading Request for NCDs in Electronic Form. NCDs allotted to an applicant in the Electronic Account Form will be credited directly to the applicants respective beneficiary account(s) with the DP. For subscription in electronic form, names in the Application Form should be identical to those appearing in the account details in the depository. In case of joint holders, the names should necessarily be in the same sequence as they appear in the account details in the depository. Non-transferable allotment advice/refund orders will be directly sent to the applicant by the Registrars to this Issue. If incomplete/incorrect details are given under the heading Request for NCDs in electronic form in the Application Form, it will be deemed to be an application for NCDs in physical form and thus NCDs will be issued in physical form only. For allotment of NCDs in electronic form, the address, nomination details and other details of the applicant as registered with his/her DP shall be used for all correspondence with the applicant. The applicant is therefore responsible for the correctness of his/her demographic details given in the Application Form vis--vis those with his/her DP. In case the information is incorrect or insufficient, the Company would not be liable for losses, if any. Interest or other benefits with respect to the NCDs held in dematerialised form would be paid to those NCD holders whose names appear on the list of beneficial owners given by the Depositories to us as on Record Date. In case of those NCDs for which the beneficial owner is not identified by the Depository as on the Record Date/ Book Closure Date, we would keep in abeyance the payment of interest or other benefits, till such time that the beneficial owner is identified by the Depository and conveyed to us, whereupon the interest or benefits will be paid to the beneficiaries, as identified, within a period of 30 days.
ii.
iii.
iv. v.
vi.
vii.
viii.
ix.
D. Communications All future Communications in connection with Applications made in the Issue should be addressed to our compliance officer quoting all relevant details as regards the applicant and its application. Applicants can contact the Compliance Officer of the Company or the Registrar to the Issue in case of any Pre-Issue related problems. In case of Post-Issue related problems such as non-receipt of letters of allotment / credit of NCDs in depositorys beneficiary account / refund orders, etc., applicants may contact the Compliance Officer of the Company or Registrar to the Issue.
9.
Rejection of Application
The Board of Directors and/or any committee of our Company reserves its full, unqualified and absolute right to accept or reject any application in whole or in part and in either case without assigning any reason thereof. Application may be rejected on one or more technical grounds, including but not restricted to: Applications not duly signed by the sole/joint applicants; Amount paid doesnt tally with the amount payable for the NCDs applied for; Age of First applicant not given; Application by persons not competent to contract under the Indian Contract Act, 1872 including minors (without the name of guardian) and insane persons; GIR number furnished instead of PAN; Applications for amounts greater than the maximum permissible amounts prescribed by applicable regulations; Applications by any persons outside India Any application for an amount below the minimum application size; Application for number of NCDs, which are not in multiples of one; Category not ticked; Application under power of attorney or by limited companies, corporate, trust etc., where relevant documents are not submitted; Applications accompanied by Stock invest/money order/postal order; Signature of sole and/ or joint applicant(s) missing; Application Forms not delivered by the applicant within the time prescribed as per the Application Form and the Information Memorandum and as per the instructions in the Information Memorandum and the Application Form; or In case the subscription amount is paid in cash.
In case no corresponding record is available with the Depositories that matches three parameters namely, names of the applicant, the Depository Participants Identity and the beneficiarys account number;
For further instructions regarding application for the NCDs, investors are requested to read the Application Form. 10. Letters of Allotment / NCD Certificates / Refund Orders The unutilized portion of the application money will be refunded to the applicant by an A/c Payee cheque/demand draft. In case the at par facility is not available, the Company reserves the right to adopt any other suitable mode of payment. The Company shall credit the allotted NCDs to the respective beneficiary accounts/dispatch the Letter(s) of Allotment or Letter(s) of Regret/Refund Orders in excess of Rs.1,000/-, as the case may be, by Registered Post/Speed Post at the applicants sole risk, within 10 weeks from the date of closure of the Issue. Refund Orders up to Rs. 1,000/- will be sent under certificate of posting. We may enter into an arrangement with one or more banks in one or more cities for refund to the account of the applicants through ECS/Direct Credit/RTGS/NEFT. Further, a) Allotment of NCDs offered shall be made within a time period of 30 days from the date of closure of the Issue; b) Credit to de-mat account will be given within 2 working days from the date of allotment c) Interest at the applicable rate will be paid if the allotment has not been made and/or the Refund Orders have not been dispatched to the applicants within 30 days from the date of the closure of the Issue, for the delay beyond 30 days.
The Company will provide adequate funds to the Registrars to the Issue, for this purpose. 11. Retention of oversubscription There is no plan to retain oversubscription. 12. Basis of Allotment Allotment will be made on pro-rata basis. Minimum allotments of 5 NCDs and in multiples of 1 NCD thereafter would be made in case of each valid application. All decisions pertaining to the basis of allotment of NCDs pursuant to the Issue shall be taken by our Company in consultation with the Arrangers and in compliance with the aforementioned provisions of this Information Memorandum. 13. Investor Withdrawals and Pre-closure Investor Withdrawal: Applicants are allowed to withdraw their applications at any time prior to the closure of the Issue. Pre-closure Our Company, in consultation with the Arrangers reserves the right to close the Issue at any time prior to the Closing Date. Our Company shall allot NCDs with respect to the
applications received at the time of such preclosure, subject to applicable statutory and/or regulatory requirements. 14. Utilisation of Application Money The sum received in respect of the Issue will be kept in bank accounts and we will have access to such funds as per applicable provisions of law(s), regulations and approvals. 17. Utilisation of Issue Proceeds a) All monies received pursuant to the Issue of NCDs on private placement shall be transferred to a bank account. b) We shall utilize the Issue proceeds only upon the execution of the documents for creation of security as stated in this Information Memorandum. c) The Issue proceeds shall not be utilized towards full or part consideration for the purchase or any other acquisition, inter alia by way of a lease, of any property.
Listing The NCDs issued through private placement is not intended to be listed on any stock exchange.
OTHER REGULATORY AND STATUTORY DISCLOSURES Authority for the Issue At the meeting of the Board of Directors of the Company held on April 24, 2012 the Directors approved the issue of NCDs on private placement basis upto an amount not exceeding Rs. 3000 Lakh, in pursuance of Section 292(1)(b) of the Act. Prohibition by SEBI Our Company and our Promoter have not been restrained, prohibited or debarred from issuing NCDs and no such order or direction is in force. Further, no member of our promoter group has been prohibited or debarred for accessing or issuing NCDs on private placement due to fraud. Disclaimer Clause of the RBI THE COMPANY IS HAVING A CERTIFICATE OF REGISTRATION DATED MRACH 1, 2012 (ISSUSED IN LIEU OF CoR DATED DECEMBER 12, 1998) ISSUED BY THE RESERVE BANK OF INDIA UNDER SECTION 45 IA OF THE RESERVE BANK OF INDIA ACT, 1934. HOWEVER, THE RBI DOES NOT ACCEPT ANY RESPONSIBILITY OR GUARANTEE ABOUT THE PRESENT POSITION AS TO THE FINANCIAL SOUNDNESS OF THE COMPANY OR FOR THE CORRECTNESS OF ANY OF THE STATEMENTS OR REPRESENTATIONS MADE OR OPINIONS EXPRESSED BY THE COMPANY AND FOR REPAYMENT OF DEPOSITS/ DISCHARGE OF LIABILITY BY THE COMPANY. Consents Consents in writing of: (a) the Directors, the Compliance Officer, the Statutory Auditors, Bankers to the Company and Bankers to the Issue; and (b) Arrangers, Registrar to the Issue, Brokers to the Issue , Legal Advisors to the Issue, Credit Rating Agencies and the Debenture Trustee to act in their respective capacities, have been obtained. Expert Opinion Except the report issued by Crisil and Brickwork in respect of the credit ratings issued thereby for this Issue which furnishes the rationale for its rating, our Company has not obtained any expert opinions. Common form of Transfer The Issuer undertakes that there shall be a common form of transfer for the NCDs and the provisions of the Companies Act, 1956 and all applicable laws shall be duly complied with in respect of all transfer of debentures and registration thereof. Minimum Subscription The issue is being made through private placement basis and hence minimum subscription is not required. Debenture Redemption Reserve Section 117C of the Act states that any company that intends to issue debentures must create a DRR to which adequate amounts shall be credited out of the profits of the company until the redemption of the debentures. The Ministry of Corporate Affairs has, through its circular dated April 18, 2002, (Circular), specified that the quantum of DRR to be created before the redemption liability actually arises in normal circumstances should be adequate to pay the value of the debentures plus accrued interest, (if not already paid), till the debentures are redeemed and
cancelled. The Circular however further specifies that, for NBFCs like our Company, (NBFCs which are registered with the RBI under Section 45-IA of the RBI Act), no DRR is required in the case of privately placed debentures. Accordingly our Company is not required to create a DRR for this issue. However, we are committed to maintain DRR for the convenience of our debenture holders. However, we are committed to maintain DRR for the convenience of our debenture holders. As further clarified by the Circular, the amount to be credited as DRR will be carved out of the profits of the company only if there is profit for the particular year and there is no obligation on the part of the company to create DRR if there is no profit for the particular year. Our Company shall credit adequate amounts to DRR, from its profits every year until such NCDs are redeemed. The amounts credited to DRR shall not be utilized by the company except for the redemption of the NCDs. Mechanism for redressal of investor grievances The MoU between the Registrar to the Issue and the Company will provide for retention of records with the Registrar to the Issue for a period of at least three years from the last date of dispatch of the letters of Allotment, Demat credit and refund orders to enable the investors to approach the Registrar to the Issue for redressal of their grievances. All grievances relating to the Issue may be addressed to the Registrar to the Issue, giving full details such as name, address of the applicant, number of NCDs applied for, amount paid on application and collection centre where the application was submitted. We estimate that the average time required by us or the Registrar to the Issue for the redressal of routine investor grievances will be 7 (seven) business days from the date of receipt of the complaint. In case of non-routine complaints and complaints where external agencies are involved, we will seek to redress these complaints as expeditiously as possible. Mr. Ayan Sengupta has been appointed as the Compliance Officer of the Company for this issue.
REGULATIONS AND POLICIES The regulations summarised below are not exhaustive and are only intended to provide general information to Investors and is neither designed nor intended to be a substitute for any professional legal advice. Taxation statutes such as the Income Tax Act, 1961, Central Sales Tax Act, 1956 and applicable local sales tax statutes, labour regulations such as the Employees State Insurance Act, 1948 and the Employees Provident Fund and Miscellaneous Act, 1952, and other miscellaneous regulations such as the Trade and Merchandise Marks Act, 1958 and applicable Shops and Establishments statutes apply to us as they do to any other Indian company and therefore have not been detailed below. The following information is based on the current provisions of applicable Indian law, which are subject to change or modification by subsequent legislative, regulatory, administrative or judicial decisions. 1. Regulation of NBFCs registered with the RBI NBFCs are primarily governed by the RBI Act, 1934 (RBI Act), the Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, (APD Directions), the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998, (Public Deposit Directions), the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 (Non- Deposit Accepting NBFC Directions), and the provisions of the Non- Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998. In addition to these regulations, NBFCs are also governed by various circulars, notifications, guidelines and directions issued by the RBI from time to time. 2. Types of Activities that NBFCs are permitted to carry out An NBFC is a company registered under the Act which, either as its principal or part of its business is engaged in the activities of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by the Government of India or other local authorities or other marketable securities of like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of carrying out any agricultural or industrial activities or the sale/purchase/construction of immovable property. Although by definition, NBFCs are permitted to operate in similar sphere of activities as banks, there are a few important, key differences. The most important distinctions are: (i) An NBFC cannot accept deposits repayable on demand in other words, NBFCs can only accept fixed term deposits. Thus, NBFCs are not permitted to issue negotiable instruments, such as cheques which are payable on demand; and NBFCs are not allowed to deal in foreign exchange, even if they specifically apply to the RBI for approval in this regard.
(ii)
3.
Types of NBFCs: Section 45-IA of the RBI Act makes it mandatory for every NBFC to get itself registered with the Reserve Bank in order to be able to commence any of the aforementioned activities. Further, an NBFC may be registered as a deposit accepting NBFC (NBFC-D) or as a nondeposit accepting NBFC (NBFC-ND). NBFCs registered with RBI are further classified as: (i) (ii) (iii) Asset finance companies; Investment companies; and/or Loan companies.
Our Company has been classified as an NBFC-D and is further classified as an asset finance company. An asset finance company is an NBFC whose principal business is to finance physical assets supporting productive / economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. 4. Regulatory Requirements of an NBFC under the RBI Act Net Owned Fund Section 45-IA of the RBI Act provides that to carry on the business of a NBFC, an entity would have to register as an NBFC with the RBI and would be required to have a minimum net owned fund of Rs. 2,00,00,000 (Rupees two crore only). For this purpose, the RBI Act has defined net owned fund to mean: (a) the aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of the company, after deducting (i) accumulated balance of losses, (ii) deferred revenue expenditure, and (iii) other intangible assets; and (b) further reduced by the amounts representing, 1. investment by such companies in shares of (i) its subsidiaries, (ii) companies in the same group, (iii) other NBFCs, and 2. the book value of debentures, bonds, outstanding loans and advances (including hire purchase and lease finance) made to, and deposits with (i) subsidiaries of such companies; and (ii) companies in the same group, to the extent such amount exceeds 10% of (a) above.
Reserve Fund In addition to the above, Section 45-IC of the RBI Act requires NBFCs to create a reserve fund and transfer therein a sum of not less than 20% of its net profits earned annually before declaration of dividend. Such sum cannot be appropriated by the NBFC except for the purpose as may be specified by the RBI from time to time and every such appropriation is required to be reported to the RBI within 21 days from the date of such withdrawal. 5. Obligations of NBFC-D under the Public Deposit Directions The RBIs Public Deposit Directions governs the manner in which NBFCs may accept and/or hold public deposits. The Public Deposit Directions places the following restrictions on NBFCs in connection with accepting public deposits: 1. Prohibition from accepting any demand deposits: NBFCs are prohibited from accepting any public deposit which is repayable on demand. Ceiling on quantum of deposits: A NBFC which is classified as an asset finance company, (a) having net owned funds of Rs. 25,00,000/- (Rupees twenty five Lakh only) or more, and, (b) having complied with all prudential norms relating to the capital adequacy ratio of not less than fifteen percent as per last audited balance-sheet, may, accept public deposits not exceeding one and one-half times of its net owned funds or public deposit up to Rs. 10,00,00,000/- (Rupees ten crore), whichever is less. Further, an asset finance company, (a) having net owned funds Rs. 25,00,000/- (Rupees twenty five Lakh only) or more, (b) having complied with all the prudential norms, and (c) having obtained minimum investment grade credit rating from a notified credit rating agency, may, accept or renew public deposits not exceeding four times of its net owned funds.
2.
3. Downgrading of credit-rating: In the event that the credit rating issued by a credit rating agency recognized by RBI, for an asset finance company is downgraded below the minimum specified investment grade, with respect to the relevant credit rating agency, the NBFC must (a) forthwith stop accepting public deposit, (b) report the position of the credit rating within fifteen working days to the RBI, and, (c) reduce, within three years from the date of such downgrading of credit rating, the amount of excess public deposit to nil or the appropriate extent as permitted by RBI, by repayment as and when such deposit falls due or otherwise. Ceiling on rate of interest: An NBFC cannot invite or accept or renew public deposit at a rate of interest exceeding twelve and half per cent per annum. Such interest may be paid or compounded at rests which shall not be shorter than monthly rests. Minimum lock-in period: An NBFC is prohibited from granting any loan against a public deposit or make premature repayment of a public deposit within a period of three months from the date of acceptance of such public deposit.
4.
5.
6.
Obligations of NBFC-D under the APD Directions NBFC-Ds are required to comply with prescribed capital adequacy ratios, single and group exposure norms, and other specified prudential requirements prescribed under the APD Directions. Some of the important obligations are as follows: 1. Income Recognition: NBFC-Ds are required to follow recognised accounting principles in connection with recognition of income. Income including interest/discount or any other charges on NPA is recognised only when it is actually realised. Any such income recognised before the asset became non-performing and remaining unrealised must be reversed. With respect to hire purchase assets, where installments are overdue for more than 12 months, income shall be recognised only when hire charges are actually received. Any such income taken to the credit of profit and loss account before the asset became non-performing and remaining unrealised, must be reversed. Asset Classification and provisioning of assets: Every NBFC-D is required to, after taking into account the degree of well defined credit weaknesses and extent of dependence on collateral security for realisation, classify its lease/hire purchase assets, loans and advances and any other forms of credit into the following classes, namely: Standard assets; Sub-standard assets; Doubtful assets; and Loss assets.
2.
Further, an NBFC-D must, after taking into account the time lag between an account becoming nonperforming, its recognition as such, the realisation of the security and the erosion over time in the value of security charged, make provision against sub-standard assets, doubtful assets and loss assets in the manner prescribed by RBI. 3. Loans against NBFCs own shares prohibited: No NBFC-D can lend against its own shares, as of July 1, 2008. Any outstanding loan granted by a NBFC-D against its own shares on the date of commencement of these Directions shall be recovered by the NBFC as per the repayment schedule. NBFC failing to repay public deposit prohibited from making loans and investments: An NBFC-D which has failed to repay any public deposit or part thereof in accordance with the terms and conditions of such deposit, cannot grant any loan or other credit facility by
4.
whatever name called or make any investment or create any other asset as long as such default exists. 5. Exposure to capital-markets: Every NBFC-D with total assets of Rs. 50 crore and above according to the previous audited balance sheet, must submit a monthly return within a period of 7 days of the expiry of the month to which it pertains in the prescribed form to the Regional Office of the Department of Non-Banking Supervision of the RBI. Capital Adequacy: Every NBFC-D shall maintain a minimum CAR consisting of Tier I and Tier II capital which must not be less than fifteen per cent w.e.f. 01.04.2011 of its aggregate risk weighted assets on balance sheet and of risk adjusted value of off-balance sheet items. The total of Tier II capital of any NBFC-D, at any point of time, must not exceed one hundred per cent of Tier I capital.
6.
7.
Corporate Governance
Pursuant to RBI circular (DNBS.PD/CC 94/03.10.042/2006-07) dated May 8, 2007, the RBI has proposed certain corporate governance guidelines for the consideration of all NBFCD with an asset size of Rs. 20 crore or more. The guidelines recommend that such NBFCs constitute an Audit Committee, a Nomination Committee (to ensure that fit and proper persons are nominated as directors on their respective boards) and a Risk Management Committee to institute risk management systems. The guidelines have also issued instructions relating to credit facilities to directors, loans and advances to relatives of the directors of the said NBFCs or to the directors of other companies and their relatives and other entities, timeframe for recovery of such loans, etc. Such NBFCs are also required to frame internal corporate governance guidelines based on the guidelines issued by the RBI on May 8, 2007. 8. Accounting Standards & Accounting policies
Subject to the changes in Indian Accounting Standards and regulatory environment applicable to a NBFC we may change our accounting policies in the future and it might not always be possible to determine the effect on the Profit and Loss account of these changes in each of the accounting years preceding the change. In such cases our profit/ loss for the preceding years might not be strictly comparable with the profit/ loss for the period for which such accounting policy changes are being made. 9. Reporting by Statutory Auditor
The statutory auditor of the NBFC-D is required to submit to the Board of Directors of the company along with the statutory audit report, a special report certifying that the Directors have passed the requisite resolution(s), not accepted any public deposits during the year and has complied with the prudential norms relating to income recognition, accounting standards, asset classification and provisioning for bad and doubtful debts as applicable to it. In the event of noncompliance, the statutory auditors are required to directly report the same to the RBI. 10. Other Regulations In addition to the above, the Company is required to comply with the provisions of the Act, Foreign Exchange Management Act, 1999, regulations, notifications and circulars there under and other applicable statutes of both the State and Central Government.
SUMMARY OF KEY PROVISIONS OF ARTICLES OF ASSOCIATION
INTERPRETATION The company will carry on the business for which it was incorporated and any other business or businesses or lines of business or activity which the Company is authorized to carry on under its Memorandum of Association. The share capital of the company is Rs.10,00,00,000/- (Rupees Ten Crore only) divided into 1,00,00,000 Equity Shares of Rs.10/- each. The Company shall have power to increase, consolidate, subdivide, reduce or otherwise alter its share capital, subject to the provisions of the Act Save as permitted by Section 77 of the Act the funds of the Company shall not be employed in the purchase of or lent on the security of Shares of the Company and the Company shall not give, directly or indirectly, any financial assistance whether by way of loan, guarantee, the provisions of security or otherwise, for the purpose of or in connection with any purchase of or subscription for shares in the Company not shall the Company make a loan for any purpose whatsoever on the security of its shares. Subject to the provisions of these Articles, the shares shall be under the Control of the Board who may allot or otherwise dispose of the same to such persons, on such terms and conditions, at such times, either at per or at a premium and for such considerations as the board thinks fit and where at any time it is proposed to increase the subscribed capital of the Company by the allotment of further shares, then, subject to the provisions of Section 81 (1A) of the Act, such shares shall be issued in the manner set out in Section 81(1) of the Act. provided that an option or right to Call of shares shall not be given to any person(s) except with the sanction of the company in General Meeting. As regards all allotments made from time to time the Company shall duly comply with Section 75 of the Act. The Company may exercise the powers of paying commission conferred by Section 76 of the Act, provided that the rate percent or the amount of the commission paid or agreed to be paid shall be disclosed in the manner required by the said Section and the Commission shall not exceed 5 per cent of the price at which any shares, in respect whereof the same is paid, are issued or 2.1/2 per cent of the price at which any debentures are issued (as the case may be). Such commission may be satisfied by the payment of cash or the allotment of fully or partly paid shares or partly in one way and partly in the other. The Company may also on any issue of shares or debentures pay such brokerage as may be lawful.
Business
03
Shares
04
Company not to purchase its own share
05.
Allotment of Shares
06.
Return of Allotment Commission and Brokerage
07.
08.
Shares at a discount. Issue other than for cash
09.
10.
With the previous authority of the Company in General Meeting and upon otherwise complying with Section 79 of the Act, the Board may issue at a discount shares of a class already issued. The Directors may allot and issue shares in the capital of the Company as payment or part payment for any property sold or transferred to the Company in or about the formation or promotion of the Company or the acquisition and or conduct of its business, and any shares which may be so allotted, may be issued as fully paid up shares and if so issued shall be deemed to be fully paid-up shares.
Instalment s on Shares to be duly paid. 11. If, by the conditions of allotment of any share, the whole or part of the amount or issue price thereof shall be payable by instalment s, every such instalment shall, when due, be paid to the Company by the person who, for the time being shall be the registered holder of the share or in the event of the death of the holder by his executor or administrator. The joint holders of a share shall be severally as well as jointly liable for the payment of all instalment s and calls due in respect of such share. Save as herein otherwise provided, the Company shall be entitled to treat the registered holder of any share as the absolute owner thereof and accordingly shall not, except as ordered by a Court of competent jurisdiction, or as required by Statute, be bound to recognize any equitable contingent, future or partial interest in any share or other claim to or interest in any such share on the part of any other person. Shares may be registered in the name of any person, company or other body corporate. Not more than four persons shall be registered as joint holders of any share. Subject to the provisions of these Articles, the Company shall have power to issue preference Shares carrying a right to redemption out of profits which would otherwise be available for dividend or out of the proceeds of a fresh issue of share made for the purpose of such redemption or liable to be so redeemed at the option of the Company and the Board, may, subject to the provisions of Section 80 of the Act, exercise such power in such manner as may be provided in these Articles. SHARE CERTIFICATE The issue and sealing of share certificates and duplicates and the issue and sealing of new share certificates on consolidation or sub-division or in replacement of share certificates which are surrendered for cancellation due to their being defaced, torn, old decrepit or worm out or the cages for recording transfers having been utilized or of share certificates which are lost or destroyed, shall be in accordance with the provisions of the Companies (issue of Share Certificates) Rules, 1960, or any statutory modification or re-enactment thereof. If any share certificate be lost or destroyed, then, upon proof thereof to the satisfaction of the Board, and on such indemnity as the Board thinks fit being given, a new certificate in lieu thereof shall be given to the person entitled to the shares to which such lost or destroyed certificate shall relate.
Liability of Joint Holders of Shares. Trusts not recognized.
12.
13.
Who may be registered.
14.
Redeemable preference Share.
15.
Issue of Shares Certificate.
16.
Issue in Market.
17.
No fee to be charged.
(i) Share Certificates shall be issued in market lots of hundred and if share certificates lots are issued for either more or less than market lots, subdivision and/or consolidation shall be done free of charge. (ii) No fee shall be charged for issue of new share certificates in replacement of those that are old, decrepit or worn out or where the cages on the reverse for recording transfers have been fully utilized. CALLS
Calls.
18.
The Board may, from time to time, subject to the terms on which any shares may have been issued, and subject to the provisions of Section 91 of the Act, make such calls as the Board thinks fit upon the members in respect of all moneys unpaid on the shares held by them respectively (whether on
account of the nominal value of the shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times, and each member shall pay the amount of every call so made on him to the person and at the times and places appointed by the Board. A call may be made payable by instalment s. The Board of Directors when making a call by resolution may determine the date on which such call shall be redeemed to have been made not being earlier than the date of resolution making such call and thereupon the call shall be deemed to have been made on the date so determined and if no such date as aforesaid is fixed the call shall be deemed to have been made on the date on which the resolution of the Board making the call is passed. Restriction on power to make calls and notice. 19. No call shall be made payable within one month on after date when the last preceding call was made payable. Not less than one months notice of any call shall be given specifying the time and place of payment and to whom such call shall be paid. (i) If a sum called in respect of a share is not paid before or on the day appointed for payment call or thereof, the person from whom the sum is due shall pay interest thereon from the day appointed for payment thereof to the time of actual payment at twelve per cent per annum or at such rate as the board may determine. (ii) The Board shall be at liberty to waive payment of any such interest wholly or in part. Amount payable at fixed times or payable by instalments as calls. 21. If by the terms of issue of any share or otherwise any amount is made payable at any at fixed time or by instalments at fixed times, whether on account of the amount of the share or payable by way of premium every such amount or instalment shall be payable as if it were a call duly made by Board and of which due notice had been given and all the provisions herein contained in respect of calls shall relate to such amount or instalment accordingly. Subject to the provisions of any law in force to the Contrary on the trial or hearing of any action or suit brought by the Company against any shareholder or his representatives to recover any debt or money claimed to be due to the Company in respect of his share, it shall be sufficient to prove that the name of the defendant is, or was, when the claim arose, on the Register as a holder or one of the joint holders of the number of shares in respect of which such claim is made and that the amount claimed is not entered as to prove the appointment of the Board, who made any call, nor that a quorum was present at the Board meeting a6t which any call was made nor that the Meeting at which any call was made was duly convened or constituted nor any other matter whatsoever, but the proof of the matter aforesaid shall be conclusive evidence of the debt. Subject to the provisions of Section 92 of the Act, the Board may, if it thinks fit, receive from any member willing to advance the same, all or any part of the money due upon the shares held by him beyond the sums actually called for, and upon the money so paid in advance, or so much thereof as from time to time exceeds the amount of the calls then made upon the shares in respect of which such advance has been made, the Company may pay interest at such rate as the member paying such sum in advance and the Board agree upon. Money so paid in excess of the amount of calls shall not rank for dividends or confer a right to participate in profits or any voting
When interest on call or instalment payable.
20.
Evidence in actions by Company against share holders.
22.
Payment of Calls in advance.
23.
right in respect thereof until the same would but for such payment, become presently payable. Revocation of Call. 24. A call may be revoked or postponed at the discretion of the Board. FORFEITURE AND LIEN If call or instalment not paid notice may be given. 25. If any member fails to pay any call or instalment of a call on or before the day appointed for the payment of the same, the Board may, at any time thereafter during such time as the call or instalment remains unpaid, serve a notice on such member requiring to pay the same together with any interest that may have accrued and all expenses that may have been incurred by the Company by reason of such non-payment. The notice shall name a day (not being less than one month from the date of the notice) and a place or places on and at which such call or instalment and such interest and expenses as aforesaid are to be paid. The notice shall also state that in the event of non-payment at or before the time at the place appointed, the shares in respect of which such call was made or instalment is payable will be liable to be forfeited. If the requirements of any such notice as aforesaid are not complied with any shares in respect of which such notice has been given may, at any time thereafter, before payment of all calls or instalment s, interest and expenses, due in respect thereof, be forfeited by a resolution of the Board to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares and not actually paid before the forfeiture. When any share shall have been so forfeited, notice of the resolution shall be given to the member in whose name it stood immediately prior to the forfeiture and an entry of the forfeiture, with the date thereof, shall forthwith be made in the Register, but no forfeiture shall be in any manner invalidated by any omission or neglect to give such notice or to make such entry as aforesaid. The forfeiture of a share shall involve the extinction, at the time of forfeiture, of all interest in and all claims and demands against the Company, in respect of that share, and all other rights incidental to the share except such as are by these articles expressly saved. Any share so forfeited shall be deemed to be the property of the Company and the Board may sell re-allot or otherwise dispose of the same in such manner as it thinks fit. The Board may, at any time before any share so forfeited shall have been sold, re-allotted or otherwise disposed of, annul the forfeiture thereof upon such conditions as it thinks fit. (i) A person whose share has been forfeited shall cease to be a member in respect of the forfeited share but shall, notwithstanding such forfeiture, remain liable to pay and shall forthwith pay to the Company all calls or instalment s, interest and expenses owing upon or in respect of such share, at the time of the forfeiture, together with interest thereon, from the time of forfeiture until payment, at twelve per cent per annum and or at such rate as the board may determine fit and the Board may enforce the payment thereof.
Form of notice.
26.
If notice not compelled with shares may be forfeited.
27.
Notice after forfeiture.
28.
Effect of forfeiture.
29.
Forfeited share to become property of the company. Power to annual forfeiture.
30.
31.
Liability or forfeiture.
32.
(ii) The liability to make payment provided for under this clause shall cease of and when the Company shall have received payment in full of all such monies in respect of the shares. Evidence of forfeiture. 33. (i) A duly verified declaration in writing that the declarant is a Director. Manager or Secretary of the Company, and that certain shares in the Company have been duly forfeited on the date stated in the declaration shall be conclusive evidence of the facts thereon stated as against all persons claiming to be entitled to the shares and such declaration and the receipt of the Company to the consideration, if any given for the shares on the same or disposal thereof shall constitute a good title to such share. (ii) The company may receive the consideration, if any, given for the share on any sale or disposal thereof and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of. (iii) The transferees shall thereupon be registered as the holder of the share. (iv) The transferee shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularly or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share. Partial payment not to preclude forfeiture. 34. Neither the receipt by the Company of a portion of any money which shall from time to time be due from any member to the Company in respect of his shares, either by way of principal or interest, nor any indulgence granted by the Company in respect of the payment of any such money, shall preclude the Company from thereafter proceeding to enforce a forfeiture of such shares as herein before provided. The provision of the Articles as to forfeiture shall apply in the case of nonpayment of any sum which by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of a share or by way of premium, as if the same had been payable by virtue of a call duly made and notified. The Company shall have a first and paramount lien upon every share not being fully paid up, registered in the name of each member (whether solely or jointly with others) and upon the proceeds of sale thereof for moneys called or payable at a fixed time in respect of such share whether the time for the payment thereof shall have actually arrived or not and no equitable interest in any share shall be created except upon the footing and condition that Article 13 thereof is to have full effect. Such lien shall extend to all dividends and bounds from time to time declared in respect of such share. Unless otherwise agreed, the registration of a transfer of a share shall operate as a waive o the Companys lien, if any, on such share. The Directors may at any time declare any share wholly or in part to be exempt from the provisions of this clause. For the purpose of enforcing such lien, the Board may sell the share subject thereto in such manner as it thinks fit, but no sale shall be made until such time for payment as aforesaid shall have arrived and until notice in writing of the intention to sell shall have been served on such member, his executors or administrators or his committee, curator boins or other legal representative as the case may be and default shall have been made by him or them in the payment of the moneys called or payable at a fixed time in respect of such share for one month after the date of such notice.
Forfeiture provisions to apply to nonpayment in terms of issue. Companys lien on shares.
35.
36.
As to enforcing lien by sale.
37.
Application of proceeds of sale 38. The net proceeds of the sale shall be received by the Company and applied in or towards payment of such part of the amount of such part of the amount in respect of which the lien exists as is presently payable, and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the share before the sale) be paid to the person entitled to the share at the date of the sale. Upon any sale after forfeiture or for enforcing a lien in purported exercise of the powers herein before given, the Board may appoint some person to execute an instrument of transfer of the share sold and cause the purchasers name to be entered in the Register in respect of the share sold, and the purchaser shall not be bound to see to the regularity of the proceedings, nor to the application of the purchase money, and after his name has been entered in the Register in respect of such share the validity of the sale shall not be impeached by any person, and the remedy of any person aggrieved by the sale shall be in damages only and against the company exclusively. Where any share under the powers in that behalf herein contained is sold by the Board and the Certificate in respect thereof has not been delivered up to the Company the former holder of such share, the Certificate shall ipso facto stand cancelled and become null and void. The Board may issue a new certificate for such share distinguishing it in such manner as it may think fit from the certificate not so delivered up. TRANSFER & TRANSMISSION Execution of transfer etc.. 41. Save as provided in Section 108 of the Act, no transfer of a share shall be registered unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the Company together with the Certificate relating to the share or, if no such certificate is in existence, the Letter of Allotment of the share. Each signature of such transfer shall be duly attested by the signature of one credible witness who shall add his/her address Application for registration of the transfer or a share may be made either by the transferor or the transferee, provided that, where such application is made by the transferor, no registration shall, in the case of a partly paid share, be effected unless the Company gives notice of the application to the transferee in the manner prescribed by Section 110 of the Act, and subject to the provisions of these Articles the Company shall, unless objection is made by the transferee within two weeks from the date of receipt of the notice, enter in the Register the name of the transferee in the same manner and subject to the same condition as if the application for registration of the transfer was made by the transferee. The instrument of transfer of any share shall be in writing and shall be in the form prescribed by Section 108 (1A) of the Act, or any modification thereof and the Rules prescribed there under. The Directors may, subject to Section 111 of the Act or any other statute governing such discretionary powers in their absolute discretion decline to register or acknowledge any transfer of shares whether or not such transferee is already a member of the Company without giving any reasons therefore. The registration of transfer shall be conclusive evidence of the
Validity of sale in exercise of lien and after forfeiture.
39.
Board may issue new Certificate.
40.
Application by transferor
42.
Form of transfer.
43.
Discretion of the Boa4rd to decline transfer.
44.
approval by the Directors of the transferee. Provided that transfer shall not be refused on the grounds of the transferor being either alone or jointly with any other person or persons indebted to the Company on any account whatsoever. No transfer to Firm. Instrument of transfer to be left at Office, when to be retained. 45. Shares shall not be transferred or registered in the name of a Firm or person of unsound mind. Every instrument of transfer shall be left at the office for registration, accompanied by the certificate of the share to be transferred or, if no such certificate is in existence, by the letter of Allotment of the share and such other evidence as the Board may require to prove the title of the transferor of his right to transfer the share. Every instrument of transfer which shall be registered shall be retained by the Company, but any instrument of transfer which the Board may refuse to register shall be returned to the person depositing the same. The Company shall affect transfer, transmission, subdivision or consolidation within one month from the date of lodgement thereof. If the Board ref8uses whether in pursuance of Article 44 or otherwise to register the transfer of, or the transmission by operation of law of the right, to any share, the Company shall give notice of the refusal in accordance with the provisions of Section 111 (2) of the Act. On giving not less than seven days previous notice by advertisement in some newspaper circulating in the district in which the office is situated, the Transfer Books and Register of Members may be closed during such time as the Directors think fit, not exceeding in the whole forty five days in each year, but not exceeding thirty days at a time. The Company shall incur no liability or responsibility whatsoever in consequence of its registering or giving effect to any transfer of shares made or purporting to be made by any apparent legal owner thereof (as shown or appearing in the Register of Members) to the prejudice of persons having or claiming any equitable right, title or interest to or in the said shares, notwithstanding that the Company may have had notice of such equitable right, title or interest or notice prohibiting registration of such transfer and may have entered such notice, or referred thereto, in any book of the Company, and the Company shall not be bound or required to regard or attend or give effect to any notice 3which may be given to it of any equitable right, title or interest, o be under any liability whatsoever for refusing or neglecting so to do, though it may have been entered or referred to in some book of the Company; but the Company shall nevertheless, be at liberty to regard and attend to any such notice, and give effect thereto if the Board shall so think fit. No fee shall be charged for transfer of shares/ debentures or for effecting transmission or for registering any letters of probate, letters of administration and similar other documents. Transmission of registered shares. 50. The executor or administrator of a deceased member (not being one of several joint holders) shall be the only person recognized by the Company as having any title to the shares registered by the Company as having any title to the shares registered in the name of such member, and in case of death of any one or more of the joint holders shall be the only person or persons recognized by the Company as having any title to or interest in such
46.
Notice of refusal to register transfer.
47.
When Transfer Books and Registers may be closed.
48.
Company not liable for disregard of a notice prohibiting. Registration of a transfer
49.
share, but nothing herein contained shall be taken to release the estate the estate of the deceased joint holder from any liability on the share held by him jointly with any other person. Before recognizing any executor or administrator the Board may require him to obtain a grant of Probate or Letters of Administration, Succession Certificate or other legal representation, as the case may be, from a competent Court in India and having effect in Salem; provided nevertheless, that in any case where the Board in its absolute discretion thinks fit it shall be lawful for the Board to dispense with the production of probate or letters of Administration, Succession Certificate or such other legal representation, upon such terms as to indemnity or otherwise as the Board, in its absolute discretion, may consider adequate. As to transfer of shares of insane, deceased or bankrupt members. 51. Any Committee or guardian of a lunatic member or any person becoming entitled to or to transfer a share in consequence of the death or bankruptcy or insolvency of any members upon producing such evidence that he sustains the character in respect of which he proposes to act under this Article or of his title as the Board thinks sufficient, may, with the consent of the Board (which the Board shall not be bound to give), be registered as a member in respect of such share, or may, subject to the regulations as to transfer herein before contained, transfer such share. This Article is hereinafter referred to as the Transmission Article. (1) If the person so becoming entitled under the Transmission Article shall elect to be registered as holder of the share himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. (2) If the person aforesaid shall elect to transfer the share he shall testify his election by executing an instrument of transfer of the share. (3) The Board shall have the same right to decline or suspend registration as it would have had, if the deceased, lunatic or insolvent member had transferred the shares before his death, lunacy or insolvency. (4) All the limitations, restrictions and provisions of these Articles relating to the right to transfer and the registration of instruments of transfer of a share shall be applicable to any such notice or transfer as aforesaid as if the death, lunacy, bankruptcy or insolvency of the members had not occurred and the notice of transfer where a transfer signed by that member. Right of persons entitled to shares under the Transmission Article. 53. A person so becoming entitled to a share by reason of the death, lunacy, bankruptcy or insolvency of the holder shall, be entitled to the same dividends and to the advantages as he would he entitled to if he were the registered holder of the share, except that he shall not before being registered as a member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company. INCREASE AND REDUCTION OF CAPITAL Power to increase capital. 54. The Company in General Meeting may, from time to time by Special Resolution increase the capital by the creation of new shares of such amount as may be deemed expedient. Subject to any special rights or privileges for the time being attached to any shares in the capital of the Company then issued, the new shares may be issued upon such terms and conditions and with such rights and privileges
Election under Transmission Article.
52.
On what conditions new shares may be
55.
issued. attached thereto as may be determined by a Special Resolution passed by the Company and, if no direction be given, as the Board shall determine and in particular such shares may be issued with a preferential or qualified right to dividends and in the distribution of assets of the Company. 56. Except so far as otherwise provided by the conditions of issue or by these presents, any capital raised by the creation of new share shall be considered part of the then existing capital of the company and shall be subject to the provisions herein contained with reference to the payment of dividends, calls and instalment s, transfer and transmission, forfeiture, lien, surrender and otherwise. It, owing to any inequality in the number of new shares to be issued and the number of shares held by members entitled to have the offer of such new shares, any difficulty shall arise in the appointment of such new shares, or any of them amongst the members, such difficulty shall in the absence of any direction in the resolution creating the shares or by the Company in General Meeting be determined by the Board. The Company may from time to time by Special Resolution, reduce as capital and an6y capital Redemption Reserve Account or Share premium Account in any manner and with and subject to any incident authorized and consent required by law. Subject to the provisions of Section 100 to 104 of the Act, the Board may accept from any member the surrender, on such terms and conditions as shall be agreed, of all or any of the shares ALTERATION OF CAPITAL Power to subdivide and consolidate shares. 60. The Company in General Meeting may from time to time; (a) Consolidate and divided all or any of its share capital into shares of larger amount than its existing shares ; (b) Sub-divide its existing shares or any of them into shares of smaller amount than is fixed by the memorandum so, however, that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the shares from which the reduced share is derived; and (c) Cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person and dim9inish the amount of its share capital by the amount of the shares so cancelled. MODIFICATION OF RIGHTS Power to modify rights 61. If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of three fourths of the issued shares of that class or with the sanction of a Special Resolution passed at a separate Class Meeting of the holders of the issued shares of that class. To every such separate class Meetings the provisions applicable to general meeting shall apply, provided that quorum for such Class Meeting shall be three members present in person. CONVERSION OF SHARES INTO STOCK Conversion of 62. The Company, by Ordinary Resolution, subject to the provisions of Sections
How far shares to rank with existing shares.
Inequality in number of new shares.
57.
Reduction of capital etc.
58.
Surrender of shares.
59.
shares into stock. 94 to 96 of the Act, converts any fully paid up shares into stock; and reconvert any stock into paid up shares of any denomination. 63. The holders of stock may transfer the same or any part thereof in the same manner and subject to the same regulations as and subject to which the shares from which the stock arose might previously to conversion have been transferred, or as near thereto as circumstances admit, and the Directors may from time to time, fix the minimum amount of stock transferable provided that such minimum shall not exceed the nominal amount of the shares from which the stock arose. The holders of stock shall according to the amount of stock held by them have the same rights, privileges and advantages as regards dividends, voting at meetings of the Company and other matters as if they held the shares from which the stock arose, but no such privilege or advantage (except participation in the dividends and profits of the Company and in the assets on a winding up) shall be conferred by an amount of stock which would not, if existing in shares, have conferred that privilege or advantage. Such of the Articles of the Company as are applicable to paid up shares shall apply to Stock and the words Share and Share holder therein shall include Stock and Stock holder respectively. BORROWING POWERS Power to borrow. 66. The Board of directors may subject to the provisions of the Act borrow moneys for the purpose of the Company on such terms and on such conditions and on such security or otherwise as they may deem fit, provided that the moneys to be borrowed together with the moneys already borrowed by the Company (apart from temporary loans obtained from the Companys Bankers in the ordinary course of business for working capital requirements) shall not without the sanction of the Company in General Meeting exceed Rs. 25 crores over and above the aggregate of the paid up capital of the Company and its free reserves, that is to say, reserves not set apart for any specific purpose. (a) The Board of Directors may, at any time, with such sanction of the Company in General Meeting as may be required under the provisions of the Act mortgage, charge, pledge or hypothecate its undertakings, properties and assets of the Company, including the goodwill and uncalled capital or any part thereof as security for any loan borrowed or to be borrowed or for the due performance of any obligations undertaken by the Company and on such terms and conditions and in such manner as they may deem fit. (b) The Board of Directors, may, from time to time in exercise of the aforesaid borrowing powers issue debentures either non-convertible or convertible or debenture stocks on such terms and conditions as the Company may deem fit charging the undertakings, properties assets including goodwill and uncalled capital of the company or any part thereof as securi9tyh for repayment of such debentures debenture stocks or other securities. Terms of issued of debentures. 68. Any debentures debenture-stock, bounds or other securities may be issued at a discount, premium or otherwise and with any special privileges as to redemption, surrender, drawings, allotment of shares, appointment of
Transfer of stock.
Rights of stock holders.
64.
Stock and Stock holders.
65.
67.
Directors and otherwise, Debentures, debenture-stock, bounds and other securities may be made assignable free from any equities between the Company and the person to whom the same may be issued. PROVIDED that debentures with the right to allotment of or conversion into shares shall not be issued except in conformity with the provisions of Section 81(3) of the Act. Instrument of transfer. 69. Subject to the provisions of Section 108 of the Act no transfer of shares shall be registered unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferee has been delivered to the Company together with the Certificate or Certificates of the debentures. (a) The Board may at any time in their absolute discretion and without assigning any reason decline to register any transfer or debentures. (b) If the Board refuses to register the transfer of any debentures, the Company shall, within two months from the date on which the instruments of transfer was lodged with the Company, send to the transferee and the transferor notice of the refusal. Provided that the registration of a transfer shall not be refused on the grounds that the transferor is either alone or jointly with any other person or persons indebted to the Company on any account whatsoever except on a lien on shares. GENERAL MEETINGS Annual General Meeting. 71. (1) The Company shall in each year hold in addition to any other Meetings a General Meeting as its Annual General Meeting and shall specify the Meeting as such in its notice calling it, and not more than 15 months shall elapse between the date of one Annual General Meeting of the Company and that of the next, provided that the time at which any Annual General Meeting shall be held may be extended by the Registrar as provided in Section 166(1) of the Act by a further period not exceeding three months. (2) Every Annual General Meeting shall be called for at a time during business hours on a day that is not a public holiday and shall be held either at the Registered Office of the Company or at some other place within the City, town or village in which the Registered Office of the Company is situate. (3) All other General Meeting shall be referred to as extraordinary general meetings. Extraordinary General Meeting. 72. The Directors may whenever they think convene an extraordinary general meeting at such time and at such places as they may deem fit. Subject to the directions if any given by the Board, the Managing Director or Secretary may convene extraordinary General Meetings whenever he thinks fit at such time and place as he may deem fit. The Directo4rs shall, on the requisition of the holders of not less than 1/10th of such of the paid up capital of the Company as at the date of the requisition, carries the right to vote in regard to the matter set out in the requisition for consideration of an Extraordinary General Meeting, forthwith proceed to convene an Extraordinary General Meeting of the Company, and
Discretion of the Board to decline transfer.
70.
Extraordinary General Meeting by requisition.
73.
in case of such requisition the following provisions shall have effect; (1) The requisition must state the objects of the meeting and must be signed by the requisitionists and be deposited at the registered Office of the Company, and may consist of several documents in like from each signed by one or more requisitions. (2) If the Directors of the Company do not proceed within twenty one days from the date of the requisition being so deposite4d do cause a meeting to be called on a day not later than forty five days from the date of the deposit of the requisition. (a) the requisitionists, or (b) such of them as represent either a majority in value of the paid up capital held by all or them or not less than one tenth of such of the said up capital of the Company as at that date carries the right to voting in regard to that matter; may themselves convene the meeting, but any meeting so convened shall not be held after three months from the date of the deposit of such requisition. (3) Any meeting convened under this Article by the requisitionists shall be convened in the same manner as nearly as possible as that in which meetings are to be convened by the Directors but shall be held at the Companys Registered Office or some other place within the city, town or village in which the registered office of the company is situated. (4) A requisition by joint holders of shares may be signed by any one or more of such holders. Length of notice for calling meeting. 74. Subject as hereinafter mentioned in the Article, General Meetings shall be convened on not less than twenty one days notice to the members and every other person entitled to receive such notice specifying the place, day and hour of meeting and with a statement of the business to be transacted at the meeting and in every such notice there shall appear with reasonable prominence a statement that a member entitled to attend and vote instead of himself and that proxy need not be a member and such notice shall be given in manner as hereinafter provided, PROVIDED that in the case of Annual General Meeting, with the consent in writing of all the members entitled to vote there at and in case of any other Meetings with the consent of members of the Company holding not less than 95% of such part of the paid up capital of the Company as gives a right to vote at the Meeting, a Meeting may be convened by a shorter notice. In the case of a Meeting convened to pass a Special resolution such notice shall specify the intention to propose the resolution may be transacted at any General Meeting which is beyond the scope of the notice convening the Meeting or of the statement of business accompanying such notice. The accidental omission to give notice of any Meeting to or the non-receipt of any such notice by any of the members shall not invalidate the proceedings of or any resolution passed at the meeting.
Accidental omission to notice not to invalidate the meeting of resolution passed.
75.
PROCEEDINGS AT GENERAL MEETING Special Business 76. (a) All business shall be deemed special that is transacted at any
Extraordinary General Meeting and also that is transacted at an Annual General Meeting with the exception of business relating to : (i) the consideration of the accounts, Balance Sheet, Report of the Directors and Auditors ; (ii) the declaration of Dividend ; (iii) the appointment of Directors in the place of those retiring ; (iv) the appointment and fixing of the remuneration of the Auditors. (b) Where any items of business to be transacted at the meeting are deemed to be special as aforesaid, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business, including in particular the nature of the concern or interest, if any. Where any item of business consists of the according of approval to any document by the meeting, the time and place where the document can be inspected shall be specified in the statement aforesaid. Provided where any item of special business as aforesaid to the transacted at the Meeting of the Company relates to or affects any other company, the extent of shareholding interest in that other Company of every Director and the Managing Director of the Company, shall also be set out in the statement it the extent of such shareholding interest in not less than 20% of the paid-up share capital of that other company. Quorum. 77. Five members present in person and entitled to vote shall be quorum for a General Meeting. A body co9rp;orate being a member entitled to vote shall be deemed to be personally present if it is represented in accordance with Section 187 of the Act. No business shall be transacted at any General Meeting unless the quorum requisite shall be present at the commencement of the business.
Quorum to be present when business commenced. It quorum not present when meeting to be dissolved and when to be adjourned.
78.
79.
(a) If within half an hour from the time appointed for holding a General Meeting a quorum is not present, the Meeting, if called upon the requisition of Members shall stand dissolved.
(b) In any other case, the Meeting shall stand adjourned to the same day in the next week, at the same time and place or to such other day and at such other time and place as the Board may determine. (c ) If at the adjourned Meeting also a quorum is not present within half an hour from the time appointed for holding the Meeting, the Members present shall be the quorum. Resolution to be passed by Company in General Meeting. 80. Any act or resolution which under the provisions of these Articles or of the Act, is permitted or required to be done or passed by the Company in General Meeting shall be sufficiently so done or passed if effected by an Ordinary resolution as defined in Section 189(1) of the Act unless either the Act or these Articles specifically require such act to be done or resolution passed by a Special Resolution as defined in Section 189(2) of the Act.
Chairman of
81.
(1) The Chairman of the Board of Directors shall preside as Chairman at
General Meeting. every General Meeting of the Company. (2) If there be no such Chairman, or if at any Meeting he shall not be present within 15 minutes after the time appointed for holding such Meeting, or is unwilling to act as Chairman of the Meeting the Members present shall choose another Director, be present or if all the Directors present decline to take the Chair, then the Members present shall, on a show of hands or on a poll if property demanded, elect one of their number, being a member entitled to vote, to be chairman of the Meeting. Business confined to the election of Chairman while chair is vacant. Power to adjourn General Meeting. 82. No business shall be discussed at any General Meeting except the election of a Chairman whilst the Chair is vacant.
83.
(1) The Chairman may with the consent of any meeting at which a quorum is present sand shall, if so directed by the meeting adjourn the same from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the Meeting from which the adjournment took place.; (2) When a meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of the original meeting but save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting.
How Resolution decided at Meeting.
84.
Every resolution submitted to a meeting shall be decided in the first instance by a show of hands, and in the case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the Meeting shall have a casting vote provided he is a member entitled to vote at the meeting and on the resolution. At any General Meeting unless a poll is (before or on the declaration of the result of the show of hands) demanded in accordance with the provisions of Section 179 of the Act, a declaration by the Chairman that the resolution has or has not been carried either unanimously or by a particular majority, and an entry to that effect in the book containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact, without proof of the number of proportion of the votes cast in favour of or against the resolution. At any General Meeting, before or on the declaration of the result of the voting on any resolution on a show of hands, a poll may be ordered to be taken by the Chairman of the meeting of his own motion, and shall be ordered to be taken by him on a demand made in their behalf by (a) at least five members, having the right to vote on the resolution and present in person or by proxy, or (b) any member or members present in person or by proxy and having not less than one tenth of the total voting power in respect of the resolution or (c ) by any member or members present in person or by proxy and holding shares in the Company conferring a right to vote on the resolution being shares on which is not less than one tenth of the total sum paid up on all the shares conferring that right. The demand for a poll may be withdrawn at any time by the person or persons who made the demand. (a) If a poll is demanded on the election of the Chairman, it shall be taken forthwith in accordance with these presents, the Chairman elected on a show of hands exercising all the powers of the Chairman under these
What is to be evidence of the passing of the Resolution where poll not demanded.
85.
Demand for poll.
86.
Time of taking poll.
87.
presents. (b) If some other person is elected Chairman as a result of the poll, he shall be Chairman for the rest of the Meeting. (c) If poll is demanded on a question of adjournment, it shall be taken forthwith. Scrutinisers at poll. 88. (a) Where a poll is 6to be taken the Chairman of the Meeting shall appoint two scrutinisers, one at least of whom shall be a member (not being an officer or employee of the company) present at the meeting provided such a member is available and willing to be appointed, to scrutinize the votes given on the poll and to report to him thereon;. (b) The Chairman shall have power at any time, before the result of the poll is dictated, to remove a scrutiniser from office and to fill vacancies in the office of scrutiniser arising from such removal or any other cause; Manner of taking poll and result thereof. 89. (a) Subject to the provisions of these presents the Chairman of the meeting shall have power to regulate the manner in which a poll shall be taken.
(b) The result of the poll shall be deemed to be the decision of the Meeting on the resolution on which the poll was taken. Business may be preceded with notwithstanding demand for poll. Minutes. 90. The demand of a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which a poll has been demanded.
91.
The Directors shall cause minutes of all General Meeting to be kept in the manner prescribed by Section 193 of the Act in a book provided for the purpose. VOTE OF MEMBERS
Votes of Member.
92.
Every member of the Company holding any equity Shares shall have a right to vote in respect of such shares on every resolution placed before the Meeting. )On a show of hands, every such member present in person shall have one vote and every person present either as a proxy, if he is not entitled to vote in his own right, or as a duly authorized representative of a body corporate, shall have one vote. On a poll, every such member whether in person or by proxy shall have one vote for each share of which he is the holder. Where a Company or a body corporate (hereinafter called Member Company) is a member of the Company, a person duly appointed byresolu6tion in accordance with the provisions of Section 187 of the Act to represent such member company at a meeting of the company shall not, by reason of such appointment be deemed to be a proxy, and the lodging with the Company at the office or production at the meeting of a copy of such resolution duly signed by an office duty authorized of such member company as sufficient evidence of the validity of his appointment. Such a person shall be entitled to exercise the same rights and powers, including the right to vote by proxy on behalf of the member company which he
93.
Procedure where a company or body corporate is a member of the Company.
94.
represents, as that member company could exercise if it were an individual member. Provided that no member company shall vote by proxy so long as a resolution of its Board of Directors under the provisions of Section 187 of the Act in force and the representative named in such resolution is present at the general meeting at which the vote by proxy is tendered. Admission or rejection of votes. 95. (1) Any objection as to the admission or rejection of a vote, either on a show of hands or on a poll made in due time, shall be referred to the Chairman who shall forthwith determine the same, and such determination made in good faith shall be final and conclusive. (2) No objection shall be raised to the qualification of any voter except at the meeting or adjourned meeting at which the vote objected to is given or tendered and every vote not disallowed at such meeting shall be valid for all purposes. Right of member to use his votes. 96. On a poll taken at a meeting of the Company, a member entitled to more than one vote or his proxy or other person entitled to vote for him, as the case may be, need not, if he votes, use all his votes or cast in the same way all the votes he uses. Any person entitled under the transmission article to transfer any shares may vote at any general meeting in respect thereof in the same manner as if he were the registered holder of such shares provided that forty eight hours at least before the time of holding the meeting or adjourned meeting, as the case may be at which he proposes to vote, he shall satisfy the Board of his right to transfer such states, unless the Board shall have previously admitted his right to vote at any such meeting in respect thereof. If any member be a lunatic, idiot or non compos mentis, he may vote whether on a show of hands or at a poll by his committee, curator bonis or other legal curator and such last mentioned persons may give their vote by proxy. Whether there are joint registered holders of any share, any one of such persons may vote at any meeting either personally or by proxy in respect of such share as if he were solely entitled thereto; and if more than one of such joint holders be present at any meeting either personally or by proxy, that one of the said persons so present whose name stands first on the Register in respect of such share alone shall be entitled to vote in respect thereof. Several executors or administrators of a deceased member in whose name any share is registered shall for the purpose of this Article be demand joint holders thereof.
Votes in respect of deceased, insane and insolvent members.
97.
Joint holders.
98.
Title for Chairman of any meeting to be the judge of validity of any vote. 99. The Chairman of any meeting shall be the sole judge of the validity of every vote tendered at such meeting. The Chairman present at the taking of a poll shall be the sole judge of the validity of every vote tendered at such poll.
Restrictions on Voting.
100.
No member shall be entitled to exercise any voting rights either personally or by proxy at any meeting or the Company in respect of any shares registered in his name on which any calls or other sums presently payable by him have not been paid or in regard to which the Company has, and has exercised, any of lien. On a poll votes may be given either personally or by proxy or in the case of a body corporate by a representative duly authorized as aforesaid. (1) Any member of the company entitled to attend and vote at the meeting shall be entitled to appoint another person whether a member of not as his proxy to attend and vote instead of himself. Every notice convening a Meeting of the Company shall state this. (2) The instrument appointing a proxy shall be in writing under the hand of the appointer or of his Attorney duly authorized in writing or if such appointer is a body corporate be under its common seal or the hand of its officer of Attorney duly authorized. PROVIDED that a member shall not be entitled to appoint more than one proxy to attend on the same occasion. PROVIDED further that the proxy so appointed shall have no right to speak at the Meeting; however, the instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding poll.
Proxies permitted.
101.
Proxy.
102.
Proxy either or specified.
103.
An instrument of proxy may appoint a proxy either for the purpose of a particular meeting specified in the instrument an any adjournment meeting hereof (called Special proxy) or it may appoint for a proxy for the purpose of every meeting of the company, or of every meeting to be held before a date specified in the instrument and every adjournment of any such meeting (called General Proxy). (1) The instrument appointing a proxy and the Power of Attorney or other authority (if any) under which it is signed, or a notorially certified copy of that power or authority shall be deposited at the office not less than forty eight hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote or in the case of a poll, not less than 24 hours before the time appointed for the taking of the poll and in default the instrument of proxy shall not be treated as valid.
Instrument appointing a proxy to be deposited at the office.
104.
(2) A proxy appointed for any meeting shall also ensure and be valid for every adjournment or postponement thereof or to the taking of poll in relation to such meeting. A member shall be entitled if he so desires to issue a proxy for adjourned meeting or postponed meeting or with regard to taking up polls in accordance with Clause mentioned above. (a) Every member entitled to vote at a Meeting of the Company or on any resolution to be moved thereat shall be entitled during the period beginning twenty four hours before the time fixed for the commencement of the Meeting and ending with conclusion of the Meeting, to inspect the proxies lodged at any time during the business hours of the Company, provided not less than three days notice in writing of the intention so to inspect is given to the Company. When vote by proxy valid through authority revoked. 105. A vote given an accordance with the terms of an instrument appointing a proxy shall be valid notwithstanding the previous death or insanity of the principal or the revocation of the instrument, or the transfer of the share in respect of which the vote is given, provided that no intimation in writing of the death, insanity, revocation or transfer of the share shall have been received by the Company at the office before the commencement of the Meeting or adjourned meeting at which the proxy is used, provided nevertheless that the Chairman of any meeting shall be entitled to require such evidence as he may in his discretion think fit of the due execution of an instrument of proxy and that the same has not been revoked. Every instrument appointing a proxy whether for a specified Meeting or otherwise, shall be retained by the Company and shall be in either of the forms specified in Schedule IX to the Act or a form as near thereto as circumstances will admit. DIRECTORS Number of Directors. 107. Subject to Sections 252 and 259 of the Act, the number of Directors shall be not less than three and not more than twelve.
Form of Instrument appointing a proxy.
106.
Power to increase or reduce the number of Director. Power of Directors to add to their number.
108.
Subject to the provisions of Sections 258 and 259 of the Act, the Company in General Meeting may, by Ordinary Resolution, increase or reduce the number of its Directors from time to time within the limits fixed in that behalf by these presents. The Directors shall have power at any time and from time to time to appoint any person, other than a person who has been removed from the Office of a Director of the Company under Article and as an addition to the Board but so that the total number of Directors shall not at any time exceed the maximum number fixed, but any Director so appointed shall hold office only until the next following Annual General Meeting of the Company and shall then be eligible for re-election. The Directors of the Company shall not be required to hold any qualification shares.
109.
No share qualification necessary for Directors. Directors fees and
110.
111.
Every Director of the Company (excluding Managing and whole time
expenses. Directors) shall be entitled to a sitting fee of Rs. 500 per meeting of the board and Rs. 250 per meeting of the Committee of the Board attended by him or to such other increased fee as may be determined by the Board of Directors from time to time. Every Director shall be entitled to be paid the actual travelling and other expenses incurred by him for attending such Meeting. 112. If any Director, being willing shall be called upon to perform extra services or to make any special exertions in going or residing away from the town in which the registered office/administrative office of the Company may be situated for any purposes, of the Company or in giving special attention to the business of the Company or as a member of a Committee of the Board, then, the Board shall reimburse him with the actual expenses incurred by him on behalf of the Company and the aboard may, subject to the provisions of the Act, and with such sanction or approval as may be necessary in respect thereof, remunerate the Director either by a fixed sum and/or by a percentage of profits or otherwise and such remuneration may be either in addition to or in substitution for any other remuneration to which he may be entitled. The continuing Directors may act notwithstanding any vacancy in their body but so that if the number falls below the minimum above fixed, the Board shall note except for the purpose of filing vacancies, act so long as the number is below the minimum. The office of a Director shall become vacant ipso facto on the happening of any of the evens specified in Section 283 of the Act. No Director or other person referred to in Section 314 of the Act shall hold an office or place of profit save as permitted by the Section. A Director of the Company may be or become a Director of any other Company promoted by this Company or in which it may be interested as a member, shareholder or otherwise and no such Director shall be accountable for any benefits received as a Directo5r or member of such Company. Subject to the provisions of Section 297 of the Act, a Director shall not be disqual9ified from contracting with the Company either as vendor, purchaser or otherwise for goods, materials or services or for under writing the subscription of any shares in or debentures of the Company nor shall any such contract or arrangement entered into by or on behalf of the Company nor shall any such contract or arrangement entered into by or on behalf of the Company with a relative of such Director, or a firm in which such Director or relative is a partner or with any other partner in such firm or with any other partner in such firm or with a private company of which such Director is a member or director, be avoided nor shall any Director so contracting or being such member or so interested be liable to account to the Company for any profit realized by any such contract or arrangements by reason of such Director holding office or of the fiduciary relation thereby established. Every Director shall comply with the provisions of Section 299 of the Act in regard to disclosure of his concern or interest in any contract or arrangement entered into or to be entered into by the Company. Save as permitted by Section 300 of the Act or any other applicable
Remuneration for extra services.
Directors may act notwithstanding vacancy.
113.
Vacation of office of Director. Office of profit.
114.
115.
Director of another company.
116.
Conditions under which Directors may contract wi6th company.
117.
Disclosure of Directors interest.
118.
Discussion
and
119.
voting Directors Interested. by provisions of the Act, no Director shall, as a Director, take any part in the discussion of, or vote on, any contract or arrangement in which he is in any way, whether directly or indirectly, concerned or interested, nor shall his presence court for the purpose of forming a quorum at the time of such discussion or vote. 120. The Board of Directors may when any Director (in this Article called the Original Director) has left or is about to leave the State in which the meetings of the Board are ordinarily held for not less than three months appoint any person to be an Alternate Director during the absence of the Original Director and such appointment shall have effect and such appointee, whilst he holds office as Alternative Director, shall be entitled to notice of Meetings of Directors and to attend and vote thereat accordingly, but he shall ipso factor vacate office if and when the Original Director vacated office as a Director or returns to the State aforesaid. Any casual vacancy occurring among the Directors may be filled up by the Directors either at a Meeting of the Board or by a resolution passed by circulation, but any person so chosen shall retain his office so long only as the vacating Director would have retained the same if no vacancy had occurred. PROVIDED that the Directors may not fill a casual vacancy by appointing any person who has been removed from the office of a Director of the Company under Section 284 of the Act. ROTATION OF DIRECTORS Rotation retirement Directors. and of 122. (1) At the Annual General Meeting of the Company in every year, one third of the Directors who are liable to retire by rotation for the time being or, if their number is not three or a multiple of three, then the number nearest to one third shall retire from office. (2) Ex officio Directors shall not be liable for retirement by rotation;. (3) The term Ex-officio means any Managing Director for the time being holding office as such. Retiring Director eligible for reelection. 123. A retiring Director shall be eligible for re-election and the Company at the Annual General Meeting at which a Director retires in the manner aforesaid may fill up the vacancy by appointing the retiring Director or some other person thereto, A retiring Director shall retain office until the dissolution of the Meeting at which his successor is elected. The Directors to retire in every year shall be those who have been longest in office since their last election; but, as between persons who became directors on the same day, those to retire shall, unless they otherwise agree among themselves, be determined by lot. If at any General Meeting at which an election of Directors ought to take place, the place of any retiring Director is not filled up, and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned to the same day in the next week at the same time and place, or if that day is a public holiday till the next succeeding day which is not a public holiday at the same time and place and if at the adjourned meeting also the place of retiring Director is not filled up and that meeting also has not
Power to appoint alternate Director.
Directors power of fill up casual vacancies.
121.
Which Director to retire.
124.
Retiring Directors to remain in office till successors appointed.
125.
expressly resolved not to fill the vacancy, then the retiring Director whose place has not been so filed up shall be deemed to have been re-elected at the adjourned meeting, subject to the provisions of Section 256 of the Act. Power to remove. 126. Subject to the provisions of Section 284 of the Act, the Company may be an ordinary resolution remove any Director before the expiration of the period of office, and by an ordinary resolution appoint another person in his stead, the person so appointed shall be subject to retirement at the same time as if he had become a Director on the day on which the Director in whose place he is appointed was last elected as Director. A person not being a retiring director shall be eligible for appointment to the office of a Director at any General Meeting if he or some other member intending to propose him as a Director has, not less than 14 days before the Meeting, left at the Registered Office of the Company a notice in writing under his hand signifying his candidature for the office of the Director, or the intention of such member to propose him as a candidate for that office, as the case may be. PROCEEDINGS OF DIRECTORS Meeting of Directors. 128. The Board shall meet at least once every three calendar months for the dispatch of business in accordance with the provisions of Section 285 of the Act and may adjourn and otherwise regulate is meetings and proceedings as it thinks fit provided that at least four such meetings shall be held every year. Notices in writing of every director for the time being in India and at his usual address in India to every other Director. A director may, at any time, and the Manager or Secretary shall, upon the request of a Director made at any time, convene a meeting of the Board. (a) The Board may appoint one of their body to be the Chairman of the Board and determine the period for which he is to hold office. (b) If no such Chairman of the Board is appointed or if at any meeting of the Board the Chairman is not present within 15 minutes after the time appointed for holding the same, the Directors present may choose one of their member to be chairman of that Meeting. (c ) If a Director who is neither a whole time Director nor a Managing Director is appointed as Chairman to be whole-time Chairman sand perform any special duties sand confer on him such powers on such terms and conditions as they may deem fit. (d) The Board may from time to time with the sanction of the Company in General Meeting by Special Resolution and of the Central Government fix the remuneration payable to the Chairman for performing all such special duties. (e) The Chairman shall exercise all such powers and perform all such duties subject to the superv9ision and directions of the Board of Directors and subject to such conditions and restrictions as the Bared may from time to time impose. Quorum. 131. The quorum for a meeting of the Board shall be one third of the total strength (any fraction contained in the one third being rounded off as one)
Right of persons other than retiring Directors to stand for Directorship.
127.
Director may summon Meeting. Chairman.
129.
130.
or two Di9rectors whichever is higher, provided that where, at any time the number of interested Directors is equal to or exceeds two thirds of the total strength, the number of the remaining Directors, that is to say, the number of the Directors who are not interested present at the meeting being not less than two, shall be the quorum during such time. Total strength means the total strength of the Board after deducting there from the number of Directors, if any, whose places are vacant at the time. Procedure where Meeting adjourned for want of Quorum. Powers of quorum. 132. If a meeting of the Board could not be held for want of quorum, then, the meeting shall automatically stand adjourned till the same day in the next week, at the same time and place, or if that is a public holiday at the same time and place. A meeting of the Board at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions by or under these Articles or the Act for the time being vested in or exercisable by the Board. Subject to the provisions of Section 316 , 372 and 386 of the Act, questions arising at any meeting shall be decided by a majority of votes, and in case of an equality of votes, the Chairman shall have a second or casting vote. The Board may, subject to the provisions of the Act, from time to time and at any time delegate any of its powers to a committee consisting of such Director or Directors as it thinks fit, and may from time to time, revoke such delegation. And Committee so formed shall, in the exercise, of the powers so delegated, confirm to any regulations that may from time to time be imposed upon it by the Board. The meetings and proceedings of any such committee consisting of two or more members shall be governed by the provisions herein contained for regulating the meetings and proceedings of the Board so far as the same are applicable thereto, and are not superseded by any regulations made by the Board under the last preceding Article. Acts done by a person, as a director shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provisions contained in the Act or in these Articles. Provided that nothing in this Article shall be deemed to give validity to acts done by a Director after his appointment has been shown to the Company to be invalid or to have terminated. Save in those cases where a resolution is required by Sections 292, 297, 316, 372(5) and 386 of the Act to be passed at a meeting of the Board, a resolution shall be as valid and effectual as if it had been passed at a meeting of the Board or committee of the Board, as the case may be, duly called and constituted, if a draft thereof in writing is circulated, together with the necessary papers, if any, to all the Directors or to all the members of the Committee of the Board, as the case may be, then in India (not being less in number than the quorum fixed for a meeting of the Board or Committee, as the case may be) and to all other Directors or members of the Committee at their usual addresses in India, and has been approved by such of them as are then in India or by a majority of such of them as are entitled to vote on the resolution.
133.
How question to be decided.
134.
Power to appoint committees and to delegate.
135.
Proceeding of Committee.
136.
When acts of a Director valid notwithstanding defective.
137.
Resolution without Board Meeting.
138.
Minutes of proceedings of the Board. 139. (1) The Company shall cause minutes of all proceedings of every Meeting of the Board and of every Committee of the Board to be kept by making within thirty days of the conclusion of every such Meeting, entries there of in books kept for the purpose with their pages consecutively numbered. (2) Each page of every such book shall be initialled or signed and the last page of the record of proceedings of each Meeting in such book shall be dated and signed by the Chairman of the said Meeting or the Chairman of the next succeeding meeting. (3) In no case the Minutes of proceedings of a Meeting shall be attached to any such book as aforesaid by pasting or otherwise. (4) The Minutes of each Meeting shall contain a fair and correct summary of the proceedings there at. (5) All appointments of officers made at any Meetings shall be included in the Minutes of the Meetings. (6) The Minutes shall contain. (a) The names of the Directors present at the Meeting and ; (b) In the case of each resolution passed at the Meeting, the names of the Directors, if any dissenting from or not concurring with the resolution. (7) (i) Nothing contained in sub-clauses (1) to (6) shall be deemed to require the inclusion in any such Minutes of any matter which, in the opinion of the Chairman of the meeting ; (a) is or could reasonably be regarded as, defamatory of any persons ; (b) is irrelevant or immaterial to the proceedings, or (c ) is detrimental to the interests of the Company. (ii) The Chairman shall exercise an absolute discretion in regard to the inclusion or non-inclusion of any matter in the minutes on the grounds specified in this sub-clause. (8) Minutes of Meetings kept in accordance with the aforesaid provisions shall be evidence of the proceedings recorded therein. POWERS OF DIRECTORS Management business Directors. of by 140. A. The General control and Management of the business of the Company shall be vested in the Directors, who in addition to the powers and authorities by these presents or otherwise expressly conferred upon them may exercise all such powers and do all such acts and things as may be exercised or done by the Company and are not by these present or by Statutes directed or required to be exercised or done by the Company in General Meeting but subject nevertheless to the provisions of the Statutes and of these presents such provisions as may from time to time be made or given by the General Meeting PROVIDED that no regulations so made shall invalidate any prior act of the Directors which would have been valid if such regulation had not been made.
B. Without prejudice in the general powers conferred by the above subclause but subject as aforesaid they may. (a) pay the costs, charges and expenses preliminary and incidental to the promotion of the Company. (b) Purchase or otherwise acquire for the Company any property rights or privileges, which the company is authorized to acquit at such price and generally on such terms and conditions as they think fit. (c ) To open any account or accounts with such banks as they may select or appoint and to make, draw, accept, endorse sign, discount, negotiate and discharge on behalf of the C9ompany, all cheques, bills of exchange, bill of lading, promissory notes, drafts, railway receipts, dock warrants, delivery orders, Government promissory notes and other negotiable instruments required for the business of the company. (d) Pay for any property, rights or privileges acquired by, or services rendered to the Company wholly or partially in cash, shares, bonds, debentures or other securities or the Company and any such shares may be issued either as fully paid up or with such amount credited as paid up thereon as may be agreed upon and any such bonds, debentures or other securities may be either specifically charged upon all or any part of the property of the company. (e) Secure the fulfilment of any co9ntracts, agreements or engagements entered into by the Company by mortgage or charges of all or any of the property of the Company and its uncalled capital to the time being (if any), or in such other manner as they may think fit. (f) Appoint, and at their discretion, remove or suspend such Agents, Managers, Officers, Clerks, Engineers, Electricians, Mechanics and other experts, servants, workmen for permanent, temporary or special services, and determine, their powers and duties and fix their salaries or emoluments, and require security in such instances and to such amount as the6y think fit. (g) Institute, conduct, defend, compound or abandon any legal proceedings by or against the company, or its officers or otherwise concerning the affairs of the Company an also but subject to the provisions of Section 293 and 295 of the Act, to compound and allow time for payment or satisfaction of any debt due to and of any claims or demands by or against the Company. (h) Refer any claims or demands by or against the Company to arbitration and perform the awards. (i) Make and give receipts, releases, and other discharges for money payable to the Company and for the claims and demands of the Company. (j) From time to time provide for the conduct of the affairs of the Company in different parts of India or outside India in such manner as they think fit, and in particular to establish branch offices and appoint any person to the Attorneys or Agents of the Company with such powers (including power to sub-delegate) and upon such terms as may be thought fit.
(k) To invest and deal with any of the moneys of the Company not immediately required for the purpose thereof upon such securities (not being shares in this company) and in such manner as they may think fit, and from time to time (1) To ex4ecute in the name and on behalf of the Company in favour of any Director or other person who may incur or be about to incur any personal liability for the benefit of the company such mortgages of the Companys property (present and future) as they th9ink fit, and any such mortgage may contain a power of sale and such other powers, covenants and provisions as shall be agreed on. (l) Enter into all such negotiations and contracts and rescind and vary all such contracts and execute and do all such acts, deeds and things in the name and on behalf of the Company as they may consider expedient for or in relation to any of the matters aforesaid or otherwise for the purposes of the Company. (m) From time to time make, vary and repeat bye-laws for the requisition of the business of the Company, its officers and servants. (n) To establish, maintain, support and subscribe to any national, charitable, benevolent, general or useful object or fund, and any institution, society, or club which may be for the benefit of the Company or its employees or which in the opinion of the Directors is calculated to promote the interests of the Company. Attorney of Company. the 141. The Directors may from time to time by power of attorney under the Seal or by a resolution appoint any person or persons to be the attorney or attorneys of the Company in India or elsewhere for such purpose and with such powers authorities and discretions (not exceeding those vested in or exercisable by the Directors under these presents) and for such period and subject to such conditions as they may from time to time think fit, and any such appointment may (if they think fit) be made in favour of any Company or of the Members, Directors, nominees or managers of any Company or firm, or otherwise in favour of any fluctuating body or persons, whether nominated directly or indirectly by the Directors, and any such power of attorney or any resolution may contain such provisions for the protection or convenience of persons dealing with such attorney or attorneys as the Directors think fit. Any such delegate or attorney as aforesaid may be authorized by the Directors to sub-delegate all or any of the powers, authorities and discretion for the time being vested on him. MANAGING AND WHOLE TIME DIRECTOR Managing Director. 143. (a) Subject to the provisions of Section 197 A, 198, 269 and 310 of the Act, the following provisions shall apply : (b) The Board of Directors may appoint or re-appoint one or more of their body, not exceeding two, to be the Managing Director or Managing Directors of the Company for such period not exceeding 5 years as they may deem fit, subject to such approval of the Central Government as may be necessary in that behalf. (c ) The remuneration payable to a Managing Director shall be determined by the Board of Directors subject to the sanction of the company in General
Power authorize delegation.
to sub-
142.
Meeting and of the Central Government. (d) If at any time there are more than one Managing Director, each of the said Managing Director may exercise individually all the powers and perform all the duties that a single Managing Director may be empowered to exercise or required to perform under the Companies Act or by these presents or by any Resolution of the Board and they shall exercise all those powers and perform their duties subject to the directions, supervision and control of the Board of Directors and subject also to such restrictions of conditions as the Board may from time to time impose. (e) The Board of Directors may at any time and from time to time designate any Managing Director as Deputy Managing Director or joint Managing Director or by such other designations as they deem fit. (f) A Managing Director shall not, whilst he continues to hold that office, be subject to retirement by rotation, and he shall not be taken into account in determining the retirement of directors by rotation, but he shall (subject to the provisions of any contract between him and the Company) be subject to the same provisions as to resignation and removal as the other Directors of the Company. He shall ipso facto and immediately, cease to be Managing Director if he ceases to hold the office of Director from any cause. (g) Subject to the supervision, control and directors of the aboard of Directors, the Managing Director/Managing Directors shall have the management of the whole of the business of the Company and of all its affairs and shall exercise all powers and perform all duties in relation to the Management of the affairs, except such powers and such duties as are required by law or by these presents to be exercised or done by the Company in General Meeting or by the aboard and also subject to such conditions and restrictions imposed by the Act or by these presents or by the aboard of Directors. Without prejudice to the generally of the foregoing, the Managing Director/Managing Directors shall exercise all the powers set out in Article 140 above except those which are by law or these presents or by any Resolution of the Board required to be exercised by the Board or by the Company in General Meeting. Whole Director. time 144. (a) Subject to the provisions of the Act and subject to the approval of the Central Government, if any, required in that behalf, the aboard may appoint one or more of their body, as whole time Director or Whole time Directors on such designation and on such terms and conditions as they may deem fit. The Whole time Directors shall perform such duties subject to the control, supervision and directions of the Board and subject thereto the supervision and directors of the Managing Director. The remuneration payable to the whole time Directors shall be determined by the Company in General Meeting subject to the approval of the Central Government, if any, required in that behalf. (b) A whole time director shall (subject to the provisions of any contract between him and the Company) be subject to the same provisions as to resignation and removal as the other Directors, and he shall, ipso facto and immediately, cease to be whole time Director, if he ceases to hold the office of Director from any cause except where he retires by rotation in accordance with the Articles at an Annual General Meeting and is re-elected as a Director at that Meeting.
Secretary. 145. The Board shall from time to time appoint, and may at their discretion remove any person with prescribed qualifications (hereinafter called the Secretary) to perform any functions w3hich by the Act or by these Articles for the time being of the Company are to be performed by the Secretary and to execute any other duties which may from time to time be assigned to the Secretary by the Board and by the Managing Director. The Board may also at any time appoint some suitable person as Assistant Secretary to perform such duties as may be assigned to him from time to time. SEAL The Common Seal. 146. (a) The Board shall provide a Common Seal for the purposes of the Company, and shall have power from time to time to destroy the same and substitute a new Seal in lieu thereof, and the Board shall provide for the safe custody of the Seal for the time being, and the Seal shall never be used except by the authority of the Board or a Committee of the Board previously given. (b) Every deed or other instrument to which the Seal of the Company is required to be affixed shall, unless the same is executed by a duly constituted attorney of the Company, be signed by one Director and the Secretary or such other person as the Directors may for the purpose appoint in whose presence the Seal shall have been affixed. Provided that in respect of share certificates, the Seal shall be affixed in accordance with the Companies (issue of Share Certificates) Rules, 1980 or any statutory modification or re-enactment thereof. RESERVES Reserves 147. The Board may, from time to time before recommending any dividend, set apart any and such portion of the profits of the Company as it thinks fit as Reserves subject to Section 205. (2A) of the Act to meet contingencies or for the liquidation of any debentures, debts or other liabilities of the Company, for equalization of dividends, for repairing, improving or maintaining any of the properties of the Company and for such other purposes of the Company as the Board in its absolute discretion tings conducive to the interests of the Company; and may invest the several sums so set aside upon such investments (other than shares of the Company) as it may think fit, and from time to time deal with and vary such investments and dispose of all or any part thereof for the benefit of the Company, and may divide the Reserves into such special funds as it thinks fit, with full power to employ the Reserves or any part thereof in the business of the company and without being bound to keep the same separate from the other assets. Investments of moneys. 148. All moneys carried to the reserves shall nevertheless remain and be profits of the Company applicable, subject to due provisions being made for actual loss or depreciation, for the payment of dividends and such moneys and all the other moneys of the Company not immediately required for the purposes of the Company, may, subject to the provisions of Sections 370 and 372 of the Act, be placed on loan or invested by the Board in or upon such investments or securities as it may select or may be used as working capital or may be kept at any Bank on deposit or otherwise as the Board may, from time to time, think proper. (1) The Company in General Meeting may, upon the recommendation of
Capitalization of
149.
Reserves. the Board, resolve.(a) that it is desirable to capitalize any part of the amount for the time being standing to the credit of any of the Companys reserves accounts, or to, the credit of the profit and loss account or otherwise available for distribution; and (b) that such sum be accordingly set free for distribution in the manner specified. (2) amongst the members who would have been entitled thereto, if distributed by way of dividend and in the same proportions. (3) The sum aforesaid shall not be paid in cash but shall be applied subject to the provisions contained in clause (3), either in or towards. (i) paying up any amounts for the time being unpaid on any shares held by such members respectively; (ii) paying up in full, unissued shares or debentures of the Company to be allotted and distributed, credited as fully paid up, to and amongst such members in the proportions aforesaid ; or (iii) partly in the way specified in sub-clause (1) and partly in that specified in sub-clause (ii). (4) A share premium account and a capital redemption reserve account may for the purposes of the regulation, only be applied in the paying up of unissued share to be issued to members of the Company as fully paid bonus shares. (6) The Board shall give effect to the resolution passed by the Company in pursuance of this regulation. Boards power on Capitalisation. 150. (1) Whenever such a resolution as aforesaid shall have been passed, the Board shall (a) make all appropriations and applications of the undivided profits resolved to be capitalized thereby, and all allotments and issue of fully paid shares or debentures, if any, and (b) generally do all acts and things required to give effect thereto. (2) The Board shall have full powers. (a) to make such provision, by the issue of fractional certificates or by payment in case or otherwise as it thinks fit, for the case of shares of debentures becoming distributable in fractions; and also (b) to autho5rise any person to enter, on behalf of all the members entitled thereto, into any agreement with the Company providing for the allotment to them respectively, credited as fully paid up, of any further shares or debentures to which they may be entitled upon such capitalization or (as the case may require) for the payment by the Company on their behalf, by the application thereto of their respective proporti0ons of the profits resolved to be capitalized, of the amounts or any part of the amounts remaining unpaid
their existing shares. (3) Any agreement made under such authority shall be effective and binding on all such members. Distribution of Capital profits. 151. The Company in General Meeting may at any time and from time to time resolve that any surplus money in the hands of the Company representing Capital profits arising from the receipt of money received or recovered in respect of or arising from the realization of any capital assets of the Company or any investment representing the same instead of being applied in the purchase of other capital assets or for other capital purposes be distributed amongst the Equity shareholders on the footing that they receive the same as capital and in the shares and proportions in which they would have been entitled to receive the same if it had been distributed by way of dividend, provided always that no such profit as aforesaid shall be so distributed unless they shall remain in the hands of the company a sufficiency of other assets to meet in full the whole of the liabilities and paid up share capital of the company for the time being. For the purpose of giving effect to any resolution under this Article, the Board shall have full power to settle any difficulty which may arise in regard to the distribut8ion as it thinks expedient. DIVIDENDS Right Dividends to 152. (1) The profits of the Company, subject to any special rights relating thereto created or authorized to be created by these present and subject to the provisions of the presents, as to the Reserve Fund, shall be divisible among the members in proportion to the amount of capital paid up on the shares held by them respectively on the last day of the year of account in respect of which such dividend is declared and in the case of interim dividends on the close of the last day of the period in respect of which such interim dividend is paid. (2) Where capital is paid up on any shares in advance of calls, upon the footing that the same shall carry interest, such capital shall not, whilst carrying interest, confer a right to participate in profits. Declaration dividends. of 153. The Company in General Meeting may declare a Dividend to be paid to the members according to their rights and interests in the profits subject to the provisions of the Act. No larger dividend shall be declared than is recommended by the Board, but the company in General Meeting may declare a smaller dividend. Subject to the provisions of Section 205 of the Act, no dividend shall be payable except out of the profits of the Company or out of moneys provided by the Central or a State Government for the payment of the dividend in pursuance of any guarantee given by such Government and no dividend shall carry interest against the Company. The declaration of the Board as to the amount of the net profits of the Company shall be conclusive. The Board may, from time to time pay to the holders of Equity shares such interim dividends as appear to the Board to be justified by the profits of the Company.
154.
Dividends to be paid 0out of profits only.
155.
156.
Interim Dividends.
157.
No member to receive dividend whilst indebted to the company and Companys right of reimbursement thereout. Dividend and call together. 158. No member shall be entitled to receive payment of any interest or dividend in respect of his share or shares, whilst any money may be due or owing from him to the Company in respect of such share or shares either alone or jointly with any other person or persons; and the board may deduct from the interest or dividend payable to any member all sums of moneys so due from him to the Company.
159.
Any General Meeting declaring a dividend may make a call on the members of such amount as the meeting fixes, but so that the call shall be made payable at the same as the dividend and the dividend may be set off against the call. No dividend shall be payable except in cash; provided that nothing in the foregoing shall be deemed to prohibit the capitalization of profits or reserves of the Company for the purpose of issuing fully paid up bonus shares or paying up any amount for the time being unpaid on the shares held by the members of the Company. The transfer of shares shall not pass the rights to any dividend declared thereon before the registration of the transfer by the Company. The Company may pay interest on Capital raised for the construction of works or buildings when and so far as it shall be authorized to do by Section 208 of the Act. No dividend shall be paid in respect of any share in except to the registered holder of such share or to his order or to his bankers but nothing contained in this Article shall be deemed to require the bankers of a registered share holder to make a separate application to the company for the payment of the dividend. Nothing in this Article shall be deemed to affect in any manner the operation of Article 160 hereof. No unpaid dividend shall bear interest as against the Company.
Dividend in cash.
160.
Effect of Transfer.
161.
Payment of interest on capital.
162.
To dividends payable.
whom
163.
Dividends not to bear interest. Payment by post.
164.
165.
Unless otherwise directed in accordance with Section 208 of the Act, any dividend, interest or other moneys payable in cash in respect of a share may in cash in respect of a share may be paid by cheque or warrant sent through the post to the registered address of that one of the joint holders who is the first named in the Register in respect of the joint holding or to such person and such addresses the holder or the joint holders, as the case may be may direct, and every cheque or warrant so sent shall be mode payable to the order of the person to whom it is sent. The Company shall not be liable for any cheque or warrant lost in transmission or fo9r any dividend lost to any members by the forged endorsement of any such 0cheque or warrant. No unclaimed dividends shall be forfeited by the Board and the company shall comply with the provisions of Section 208(a) of the Companies Act in respect of such dividends.
Procedure in the event of dividend warrant remaining unrealized.
155.
Any dividend declared by the Company and remaining unpaid or unclaimed shall be dealt with in accordance with the provisions of Sections 205 SA and 205 B of the Act or any statutory modification or re-enactment in force from time to time.
BOOK AND DOCUMENTS Books of Accounts to be kept. Where to be kept. 167. The Board shall cause proper books of accounts to be kept in accordance with Section 209 of the Act. The books of account shall be kept at the office such other place in India as the Board may decide and when the Board so decides, the Company shall within seven days of the decision, file with the Registrar a notice in writing giving the full address of that other place. (1) The Books of Accounts shall be open to inspection y any Director during business house. (2) The Board shall, from time to time, determine whether and to what extent, and at what times and places, and under what conditions or regulations, the books of accounts and books and documents of the Company, other than Minute Books relating to Board Meetings shall be open to the inspection of the members not being Directors and no member (not being a Director) shall have any right of inspecting any books of accounts or books or documents of the Company except as conferred by Law or authorized by the Board or by the Co9mpany in General Meeting. BALANCE SHEET AND ACCOUNTS Balance Sheet and profit and Loss Account. 170. At every Annual General Meeting the Board shall lay before the Company a Balance Sheet and Profit and loss Account made up in accordance with the provisions of Section 210 of the Act and such Balance Sheet and Profit sand Loss Account shall comply with the requirements of Section 210, 211, 212, 215 and 216 and of Schedule VI to the Act so for as they are applicable to the Company, but, save as aforesaid, the Boa4rd shall not be bound to disclose greater details of the result or extent of the trading and transactions of the Company then it may deem expedient. There shall be attached to every Balance Sheet Report laid before the Company in General Meeting a report by the Board complying with Section 217 of the Act. A copy of every Balance Sheet (including the Profit and Loss Account, the Auditors Report and every document required by Law to be annexed or attached to the Balance Sheet) shall as provided by Section 219 of the Act, not less than twenty one days before the meeting, be sent to every member debenture holder, trustee for debenture holders and other persons to whom the same is required to be sent by the said Section. The Company shall comply with Section 220 of the Act as to filling with the registrar copies of the Balance Sheet and Profit and Loss Account and documents required to be annexed or attached thereto. Every Balance Sheet and Profit and loss Account of the Company when audited and adopted by the Company in General Meeting shall be conclusive except as regards any error discovered therein within three months next after the adoption thereof whenever any such error is discovered within that period the accounts shall forthwith be corrected and thenceforth shall be conclusive.
168.
Inspection.
169.
Annual Report of Directors.
171.
Copies to be sent to members and others.
172.
Copies to Balance Sheet etc. to be f9iled. When accounts to be deemed finally settled.
173.
174.
AUDIT Accounts to be audited annually. Appointment and remuneration of Auditors. 175. Once at least in every year the books of accounts of the Company shall be examined by one or more Auditor or Auditors. The appointment, powers, rights, remuneration and duties of the Auditors shall be regulated by Sections 224 to 231 of the Act. SERVICE OF NOTICES AND DOCUMENTS How notice to be served on members. 177. (1) A notice or other document may be given by the Company to any member either personally or by sending it by post to him to his registered address or (if he has no registered address in India) to the address, if any, within India supplied by him to the Company for the giving of notice to him. (2) Where a notice or other document is sent by post. (a) service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the notice or document provided that where a member has intimated to the Company in advance that notices or documents sho0uld be sent to him under a certificate of posting or by registered post with or without acknowledgment due and had deposited with the Company a sufficient s8um to defray the expenses of doing so, service of the notice or document shall not be deemed to be effected unless it is sent in the manner intimated by the member, and (b) such service shall be deemed to have been effected. (i) in the case of a notice of a meeting at the expiration of forty eight hours after the letter containing the same is posted and (ii) in any other case at the time at which the letter would be delivered in the ordinary course of post. Notices to members who have not supplied addresses. 178. SA notice or other document advertised in a newspaper circulating in the neighbourhood of the office shall be deemed to be duly served on the day on which the advertisement appears on every member of the Company who has no registered address in India and has not supplied to the Company an address within India for the giving of notices to him. Any member who has no registered address in India shall, if so required to do by the Company, supply the Company with an address in India for the giving of Notice to him. A notice or other document may be served by the Company on the joint holders of a share by giving the notice to the joint holder named first in the register in respect of the share. A notice or other document may be served by the Company on the persons entitled to a share in consequence of the death or insolvency of a member by sending it through the post in a prepaid letter addressed to them by name, or by the t9itle of the representatives of the deceased, or assignee of the insolvent or by any the description at the address in India supplied for the purpose by the persons claiming to be so entitled, or until such an address has been so supplied, by giving the notice in any manner in which the same might have been given if the death or insolvency had not occurred. Every person who by operation of law, transfer or other means whatsoever
176.
Notice to joint holders.
179.
Notice to persons entitled by transmission.
180.
Transferee bound
181.
by prior Notice. shall become entitled to any share shall be bound by every notice in respect of such share which previously to his name and address being entered on the Register shall have been duly given to the person from where he derives his title to such share. 182. Subject to the provisions of these Articles, any notice or document delivered or sent by post to or left at the registered address of any member in pursuance of these. Articles shall, notwithstanding such member be then deceased and whether or not the Company have notice of his decease, be deemed to have been duly served in respect of any registered share, whether held solely or jointly with other persons by such member until some other person be registered in his stead as the holder or joint holders thereof and such service shall or all purposes of these presents be deemed a sufficient service of such notice or documents on his heirs, executors or administrators and all persons, if any, jointly interested with him any such share. Subject to the provisions of Sections 497 and 509 of the Act, in the ever of a winding up of the Company, every member of the Company who is no9t for the time being in Salem shall be bound within eight weeks after the passing of an effecting resolution to wind up the company voluntarily or the making of san order for the winding up of the company appointing some householder residing in the neighbourhood of the off9ice upon whom all summonses, notices process orders and judgments in relation to or under the winding up of the company may be served, and in default such nomination, the liquidator of the company shall be at liberty, on behalf of such member to appoint some person, and service upon by such appointee whether appointed by the member or the liquidator, shall be deemed to be good personal service on such member for all purposes, and where the liquidator makes any such appointment he shall, with all convenient speed, give notice thereof to such member by advertisement in some daily newspaper circulating in the neighbourhood of the office or by a registered letter sent by post and addressed to such member at his address as registered in the Register and such notice shall be deemed to be served on the day on which the advertisement appears or the letter would be delivered in the ordinary course of post. The provisions of this article shall not prejudice the right of the liquidator of the company to serve any notice or other document in any other document in any other member prescribed by this articles. AUTHENTICATION OF DOCUMENTS. Authentication of documents/ proceedings. 184. Save as otherwise expressly provided in the Act or these Articles, a document or proceeding requiring authentication by the company may be signed by a Director, Managing Director or any authorized office of the company and need not be under its seal. KEEPING OF REGISTERS AND INSPECTION Registers etc. to be maintained by the Company. 185. The Company shall duly keep and maintain at the office registers in accordance with sections49 (7), 143, 150, 151, 152(2), 301, 303, 307, 370 and 372 of the act and rule 7(2) of the companies (issue of share certificates) Rules, 1980. The company shall comply with the provisions of section 39, 118, 163, 192, 196, 219, 301, 302, 303, 304, 307, 362, 370 and 372 of the Act ads to the
Notice valid bound by prior Notice.
Service of process in winding up.
183.
Supply of copies of registers etc.
186.
supplying of copies of the registers, deeds, documents, instruments, returns, certificates and books therein mentioned to the persons therein specified when so required by such persons, on payment of the charges, if any, prescribed by the said section. RECONSTRUCTION Reconstruction. 187. On any sale of the undertaking the company the Board or the liquidators on a winding up may if authorized by a special resolution accept fully paid or partly paid up shares debentures or securities of any other company, whether incorporated in India or not, either then existing or to be formed for the purchase in whole or in part of the property of the company and the Board (if the profits of the company permit) or the inculcators (in a winding up may distribute such shares or securities, or any other property of the company amongst the members without realization, or vest the same in trustees for them, and any Special Resolution may provide for the distribution or appropriation of the cash shares or other securities benefit or property, otherwise then in accordance with the strict legal rights of the members or contributories of the company, and for the valuation of any such securities or property at such price and in such manner as the meeting may approve and all holders of shares, shall be bound to accept, and shall be bound by any valuation or distribution so authorized, and waive all rights in relation thereto, save only in case the companys proposed to be or is in the course of being wound up such statutory right (IF ANY) UNDER Section 494 of the Act as are incapable of being varied or excluded by the Articles. SECRECY Secrecy 188. Every Director, Manager, Secretary, Trustee for the Company its members or debenture holds, member of the Committee, Officer, Servant, agent, accountant or other person employed in or about the business of the company shall if so required by the Board or by the Managing director before entering upon his duties, sign a declaration pledging himself to observe a strict secrecy respecting all transactions of the company with its customers and the state of accounts with individuals and in matters relating thereto, and shall by such declaration pledge himself not to reveal any of the matters which may come to his knowledge in the discharge of his duties except when required so to do by the Board or by any General meeting or by Court of Law and excep6t so far as may be necessary in order to comply with any of the provisions in these articles contained. No members or other person (not being a Director) shall be entitled to enter upon the property of the company or to inspect or examine the premises or properties of the company withou6t the permission of the Board or of the Managing Director or subject to this Article to require discovery of or any information respecting any detail of the trading of the company or any matter which is of or may be in the nature of a trade secret mystery of trade, or secret process, or of any matter whatsoever which may relate to the conduct of the business of the company and which in the opinion of the Board or Managing Director will be inexpedient in the interest of the Company to communicate. WINDING UP Distribution of 190. If the company shall be wound up and the assets available for distribution
No members to enter the premises of the company without permission.
189.
assets. among the members are such as shall be insufficient to repay the whole of the paid up capital such assets shall be distributed so that as nearly as may be the losses shall be borne by the members in proportion to the capital paid up or which ought to have been paid up at the commencement of the winding up on the shares held by them respectively. And it in a winding up the assets available for distribution among the members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up the excess shall be distributed amongst the members in proportion to the capital at the commencement of the winding up paid up or which ought to have been paid up on the shares held by them respectively. But this Article is to be without prejudice to the rights of the notices of shares issued upon special terms and conditions. 191. If the company shall be wound up, whether voluntarily or otherwise the liquidators may with the sanction of a special resolution divide among the contributions, in specie or kind any part of the assets of the company and may, with the like sanction, vest any part of the assets, of the company in trustees upon such trust for the benefit of the contributions, or any of them,. As the liqwu9idators, with the like sanction shall think fit. INDEMNITY Right of Directors and others to indemnity. 192. (1) Subject to the provisions of Section 201 of the Act, the Managing Director and every and Director, Manager, Secretary and other officer or employee of the company shall be indemnified by the company against and it shall be the duty of the Directors out of the funds of the company to pay all costs, losses, and expenses, (including travelling expenses) which any such Managing Director, Director, Manager, Secretary, officer or Employee may incur or become liable to by reason of any contract entered into or act or deed done by him or in any other way in the discharge of the duties, as such Managing Director, Director, Manager, Secretary, Officer or Employee. (2) The company shall pay and bear all fees and other expenses necessary for filing any document or rerun with the Registrar or Companies which may be required to be filed under the Act, including any additional fee or ext5ra expenses or cause incurred by default in f9iling any such return. (3) Subject as aforesaid the Managing Director and every Director, Manager, Secretary or other Officer or Employee of the company and any person appointed as Auditors shall be indemnified against any liability incurred by them or him in defending any proceedings whether civil or criminal in which judgment is given in their or his favour or in which they or he is acquitted or discharged or in collection with any application under Section 633 relief is given to them or him by the court.
Distribution of Assets in specie.
MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION The following contracts which are or may be deemed material have been entered or are to be entered into by the Company. These contracts and also the documents for inspection referred to hereunder, may be inspected at the Corporate Office of the Company situated at 3, Dacres Lane 3rd Floor, Kolkata - 700 069 from 10.00 AM to 5 P.M on any business days from the date of this Information Memorandum until the date of closure of the Issue. A. Material Contracts 1. Debenture Trust Agreement dated 14.05.2012 executed between the Company and the Debenture Trustee B. Material Documents 1. Certificate of Incorporation of the Company dated November 12, 1992. 2. Memorandum and Articles of Association of the Company. 3. The certificate of registration No. B-07-00396 dated March 01, 2012 (in lieu of CoR 07-00396 dated December 11, 1998) issued by Reserve Bank of India/s 45 IA of the Reserve Bank of India, 1934. 4. Credit rating letters dated [11.05.2012] from Crisil. 5. Copy of the Board Resolution dated April 24, 2012 approving this Issue. 6. Resolution passed by the shareholders of the Company at the Extraordinary General Meeting held on November 05, 2011 approving this issue. 7. Consents of the Directors, Auditors, Debenture Trustee, Credit Rating Agencies, Legal Advisor to the Issue, Bankers to the Issue, Bankers to the Company and the Registrar to the Issue, to include their names in the Information Memorandum to act in their respective capacities. 8. Appointment of Compliance Officer for the issue and consent dated November 05, 2011 thereto. 9. Annual Reports of the Company for the last three Financial Years. 10. Tripartite Agreement dated 24.08.2011 and 30.08.2011 between us, the Registrar to the Issue and CDSL and NSDL, respectively for offering depository option to the investors.
DEBENTURE TRUSTEE The Company has appointed IL&FS Trust Company Limited (ITCL) as the Debenture Trustee. All the rights and remedies of the Debenture holders shall vest in and shall be exercised by the Debenture Trustee without referring to the Debenture holders. All investors are deemed to have irrevocably given their authority and consent to IL&FS Trust Company Limited to act as their Debenture Trustee and for doing such acts and signing such documents to carry out their duty in such capacity. Any payment by the Company to the Debenture Trustee on behalf of the Debenture holders shall discharge the Company pro tanto to the Debenture holders. Resignation/retirement of the Debenture Trustee shall be as per terms of the trust deed to be entered into between the Company and the Debenture Trustee. A notice in writing to the Debenture holders shall be provided for the same. The Debenture Trustee shall duly intimate the Debenture holders on occurrence of any of the following events: (a) failure of the Company to create a charge on the assets for the secured Debentures if any; (b) revision of credit rating assigned to the Debentures. ITCL has given its written consent for its appointment as debenture trustee to the Issue under Regulation 4(4) of the SEBI Regulations and inclusion of its name in the form and context in which it appears in this Information Memorandum/ Disclosure Document In case of any contradiction between this Information Memorandum / Disclosure Document and the Transaction Document/(s) to be signed / already signed with the Debenture Trustee (ITCL), the contents of the latter shall prevail.
ANNEXURE I: UNDERTAKING BY THE COMPANY The Company undertakes that: In the event the Debentures are issued in physical form, the Company shall use a common form of transfer
Mr. Monoranjan Roy, Managing Director
Mr. Rajkumar Roy, Director,
Mr. Sandeep Thakur, Director
Mr. Arup Thakur Director- Finance & CFO
Authorised Signatory L R N Finance Limited
Ayan Sengupta
Annexure: C
1. Introduction 1.1.1 Over the last four decades since 1964, when Chapter III B was inserted in the Reserve Bank of India Act 1934, giving limited powers to the Bank to regulate deposit taking companies, the Reserve Bank has been taking gradual steps to bring the non banking financial (NBFC) sector of the country within the ambit of its regulation. In January 1997, sweeping changes were made to the RBI Act, 1934, particularly Chapters III-B, III-C, and V of the Act with the primary objective of putting in place a comprehensive regulatory and supervisory framework, aimed at protecting the interests of depositors as well as ensuring the sound functioning of NBFCs. 1.1.2 In the period following the last amendment of the Act in 1997, the non-banking financial sector has evolved considerably in terms of operations, variety of market products and instruments, technological sophistication, etc. Over recent years the NBFCs have assumed increasing significance and have added considerable depth to the overall financial sector. The regulatory responses on the part of RBI have also kept pace with the evolution of this sector. In particular, regulation has adequately addressed the issue of depositor protection, a major concern of RBI. There has been a gradual, regulation induced reduction in the number of deposit taking NBFCs, including Residuary Non-Banking Finance Companies (RNBCs), from 1,429 in March 1998, to 311 in March 2010. The deposits held by these companies (including RNBFCs) decreased from Rs. 23,770 crore, comprising 52.3 percent of their total assets, to Rs. 17,273 crore, comprising 15.7 percent of their total assets. 1.1.3 The NBFC sector more generally has seen a fair degree of consolidation , leading to the emergence of larger companies with diversified activities. This consolidation and acquisition activity has contributed to growth in the number of NBFCs with an asset base in excess of Rs. 100 crore. To ensure the sound development of these companies the regulatory response has been to introduce exposure and capital adequacy norms, for NBFCs with assets of Rs. 100 crore and above. 1.1.4 The recent global financial crisis has however highlighted the importance of widening the focus of NBFC regulations to take particular account of risks arising from regulatory gaps, from arbitrage opportunities and from the inter-connectedness of various activities and entities comprising the financial system. The regulatory regime for NBFCs is lighter and different in many respects from that for the banks. The steady increase in bank credit to NBFCs over recent years means that the possibility of risks being transferred from the more lightly regulated NBFC sector to the banking sector in India can no longer be ruled out. That said, given the growing importance of this segment of the financial system, it has become equally important to ensure that the dynamism displayed by NBFCs in delivering innovation and last mile connectivity for meeting the credit needs of the productive sectors of the economy is not curbed. There has emerged therefore a need to rationalise the type and nature of NBFCs being regulated so that the objectives of regulation are met in an optimal and balanced manner. 1.1.5 In light of the above, the objective of this report is to revisit the broad principles that underpin the regulatory architecture for NBFCs (excluding MFIs and RNBCs). The report intends to examine in depth the risks in the NBFC sector in the current scenario and recommend appropriate regulatory and supervisory measures to address these risks with the aim of creating a strong and resilient financial sector which is vital for all round economic growth of the country. 1.2 Constitution of the Working Group
1.2.1 Against the backdrop of the developments in the NBFC sector described above, the BFS in its meeting held on September 29, 2010, desired that a Working Group be constituted with experts to study the issues and concerns in the NBFC sector. Accordingly, a Working Group (WG) was set up under the Chairmanship of Smt. Usha Thorat, Director, Centre for Advanced Financial Research and Learning (CAFRAL) with Shri Sanjay Labroo, Director, Central Board, Reserve Bank of India, Dr Rajiv B. Lall, Managing Director and Chief Executive Officer, Infrastructure Development Finance Corporation, Shri Bharat Doshi, Executive Director and Group Chief
Financial Officer, Mahindra & Mahindra, Shri Pratip Kar, Director, Globsyn Business School, Kolkata, to examine a range of emerging issues pertaining to the regulation of the sector. Ms Uma Subramaniam Chief General Manager In-Charge DNBS was Member Secretary. 1.3 Terms of Reference
1.3.1
The terms of reference for the Working Group are as under: To review the concept of "principal business" for the purpose of requiring registration of NBFCs and to re-examine the need for separate regulatory categories of NBFCs as well as the practicality of having differentiated regulation by type of non-bank financial activity; To reassess the entry point norms for NBFCs in terms of their capital structure To revisit the current framework on exemptions to certain categories of NBFCs with the objective of addressing regulatory arbitrage issues. To review the policy framework on permitting multiple NBFCs within a single group and to review the risks arising out of registering captive NBFCs floated by manufacturing or industrial houses; To examine the need for convergence of regulation of NBFCs with that of best regulatory practices of banks; To recommend comprehensive 'Disclosure norms' for NBFCs; To examine the need, if any, to prescribe professional qualifications for Independent Directors on the Boards of NBFC-ND-SIs; To examine the need, if any, for monitoring assets in one or other type of NBFC; To arrive at a set of principles to guide the frequency and depth of supervision/inspection/regulation of various types and sizes of NBFCs based on their interconnectedness with other institutions. Approach adopted by the Working Group
1.4
1.4.1 In all the Working Group held twelve meetings over a period of 5 months. The Group met with representatives of various trade associations of NBFCs, and also had consultations with SEBI and other market participants. Responses on the issues under examination were also invited from a range of stakeholders. 1.5 Organization of the Report
1.5.1 The report is divided into thirteen sections. The introductory section is followed by a section on historical background and assessment of the evolution of the sector in the decade since the amendment to the RBI Act in 1997, and includes a short summary of the changes in the regulatory framework of NBFCs. The remaining sections deal in depth with the issues examined by the Group. The recommendations of the Group are summarized in the last section. 1.6 Acknowledgements
1.6.1 The Working Group is indebted to Smt. Shyamala Gopinath, former Deputy Governor, RBI for the support and guidance provided to the Group. The Committee is especially grateful to Shri G. S. Hegde, Principal Legal Advisor, for his valuable insight and contributions at every
stage of its deliberations. The Working Group would like to convey its deepest gratitude and admiration for the superlative effort of team RBI comprising of C.R. Samyukhta, Archana Mangalagiri, Reena Banerjee, Tuli Roy, Sindhu Pancholy and Mangesh Deshpande. They brought their extensive knowledge to the rich debate within the group. They also worked tirelessly to meet challenging deadlines to bring this Report to its completion. In addition, K. R. Krishnakumar, M. Sreeramulu, S. Pitre and P. D. Dey worked enthusiastically behind the scenes, to provide data analysis, charts and diagrams. 2. Background The NBFC Sector
2.1 Types of NBFCs 2.1.1 NBFCs have been classified on the basis of the kind of liabilities they access, the type of activities they pursue, and of their perceived systemic importance. 2.2 Liabilities Based Classification 2.2.1 NBFCs are classified on the basis of liabilities into two categories, viz, Category A companies, (NBFCs having public deposits or NBFCs-D), and Category B companies, (NBFCs not having public deposits or NBFCs-ND). NBFCs-D are subject to requirements of capital adequacy, liquid assets maintenance, exposure norms (including restrictions on exposure to investments in land, building and unquoted shares), ALM discipline, reporting requirements, while till 2006 NBFCs-ND were subject to minimal regulation. 2.3 Activity Based Classification 2.3.1 Presently NBFCs are classified in terms of activities into five categories, viz., Loan Companies (LCs), Investment Companies (ICs), Asset Finance Companies (AFCs), Infrastructure Finance Companies (IFCs) and Systemically Important Core Investment Companies (CICs-NDSI). The eligibility criteria for such a classification are given in Annex II. 2.4 Size Based Classification 2.4.1 In 2006, non-deposit taking NBFCs with assets of Rs. 100 crore and above were labelled as Systemically Important Non-Deposit taking NBFCs (NBFCs-ND-SI), and prudential regulations such as capital adequacy requirements, exposure norms along with, reporting requirements were made applicable to them. CME and ALM reporting and disclosure norms were made applicable to them at different points of time. 2.5 Profile of the NBFC Sector 2.5.1 The total number of NBFCs was 12,662 as on March 31, 2010, comprising 311 deposit taking NBFCs (NBFCs-D), 295 systemically important non deposit taking companies, (NBFCsND-SI) and 12,056 other non-deposit taking NBFCs (NBFC-ND). 2.5.2 The number of NBFCs-D (excluding RNBCs) and the amount of deposits held by them have been showing a sharp decline over the years. Table 1 and Chart 1 below show the trend in the amount of deposits held by them as a share of bank deposits for the years 1998, 2006 and 2010.
2.5.3 At the same time, the NBFC-ND-SI sector, which constitutes 70 per cent of total assets of NBFCs, recorded significant growth. Their number increased from 151 in March 2006 to 295 in March 2010, and their assets grew from Rs. 250,765 crore, to Rs. 566,853 crore in the same period. Table 2 and Chart 2 give the growth of assets in the NBFC sector as a whole, (NBFC-D and NBFCND-SI), since 1997-98.
2.5.4 Table 3 and Chart 3 indicate that bank borrowings constitute an important source of funds for NBFCs. The NBFCs-ND-SI are significant from the systemic point of view as they also access public funds indirectly through commercial papers, debentures and inter-corporate deposits apart from bank finance. Table-4 and Chart 4 give the details in this regard.
2.5.5 Category wise profitability of NBFCs: Table 5 and Chart 5 show the growth of assets as per type of NBFCs while Table 6 and Chart 6 gives the ROE, ROA and leverage ratio for various types of NBFCs.
2.6 Extant Regulatory Framework 2.6.1 Annex IV lists the various regulatory changes since 1964 for the NBFC sector. Amendments to the Act in 1997 bestowed comprehensive powers on RBI to regulate and supervise NBFCs. The salient features of the amendments made to Chapter IIIB of the RBI Act in 1997 include, (a) making it mandatory for NBFCs to obtain a Certificate of Registration (CoR) from RBI and to maintain a minimum level of Net-Owned Funds (NOF); (b) requiring deposit taking NBFCs to maintain a certain percentage of assets in unencumbered approved securities; (c) requiring all NBFCs to create a reserve fund and to transfer a sum which is not less than 20 per cent of their profits every year; (d) empowering RBI to determine policy and issue directions with respect to income recognition, accounting standards etc.; (e) empowering RBI to issue directions
to NBFCs or their auditors with respect to their balance sheets, profit and loss account, disclosure of liabilities, etc.; (f) empowering RBI to order a special audit of NBFCs; (g) empowering RBI to prohibit NBFCs from alienating assets and (h) empowering RBI to file winding up petitions against NBFCs. 2.6.2 The initiatives taken with respect to deposit taking NBFCs had brought in discipline in their functioning, besides reducing the instances of default in repayment obligations to the depositor community. ALM guidelines were introduced in 2001 to address the liquidity risk faced by deposit taking companies; capital adequacy and credit concentration norms made them more robust. A floating charge over liquid assets in favor of depositors was stipulated in 2005. In addition a Fair Practices Code for lending was prescribed in 2006, directed towards ensuring transparency in pricing of loans and ethical behavior towards borrowers. Corporate governance framework was introduced in 2007 to ensure more professionalism in NBFCs and KYC norms were also made applicable to them. 2.6.3 The objectives of NBFC regulations have undergone refinement over the past decade to keep pace with new developments. The emergence of large non-deposit taking companies posing increasing systemic risk came to be recognized. In November 2004, the scope of the off-site monitoring system was widened to include reporting by large non-deposit taking companies with asset size of Rs 500 crore and above, in recognition of the fact that their inter-linkages with the broader financial system incorporating both the banks as well as the capital market could pose increasing systemic risk. The scope of reporting was expanded in September 2005 to include NBFCs with asset size of Rs. 100 crore and above. All non-deposit taking NBFCs with an asset size of Rs. 100 crore and above were termed Systemically Important in December 2006, and the focus of regulation and supervision of these entities was made sharper with the introduction of capital adequacy and exposure norms. 2.6.4 Since then, additional regulatory measures have been introduced in a calibrated manner to reflect the RBIs emerging focus on non-deposit taking NBFCs and systemic risk related issues. Capital adequacy requirements and credit concentration norms were imposed on NBFCs-ND-SIs, with effect from April 2007 and ALM reporting and disclosure norms on CRAR, exposure to real estate sector and maturity pattern of assets and liabilities were introduced in August 2008 for these companies. In September 2008 reporting requirements were introduced for NBFCs with an asset size of above Rs. 50 crore. In August 2010 the dispensation previously granted to Core Investment Companies was removed, bringing systemically important core investment companies also under the regulatory framework. 2.7 Scope of the Working Group 2.7.1 The terms of reference of the Working Group limit it to the areas enunciated therein. In particular the Working Group did not have the remit to address legislative changes and therefore has worked within the existing legal framework. Nonetheless in certain areas, the Group has found it fit to make some suggestions for legal amendments whenever such a possibility arises in the future. It should also be clarified that micro finance regulation is not covered by the Group (being separately dealt with by the proposed new bill in Parliament). Primary dealers in government securities and asset reconstruction companies are also not dealt with by the Working Group. While primary dealers are registered as NBFCs, they are regulated by the Internal Debt Management Department of RBI. Securitization and Reconstruction Companies (SC&RC) are governed and regulated by a separate framework under SARFAESI Act. RNBCs are also not covered.
3. Definition and Classification of NBFCs
3.1 Entry Point Norms 3.1.1 In terms of Section 45IA of the RBI Act, 1934, no NBFC shall commence or carry on the business of NBFI without having NOF of Rs. 25 lakh or such other amount not exceeding Rs. 2 crore as may be specified by RBI. NOF has been defined in the Act.1 There is a statutory ceiling on the maximum amount that may be specified by RBI as the entry level NOF requirement. However, for considering an application of a company for grant of a Certificate of Registration (CoR), the RBI is required to satisfy itself that the NBFC concerned has an adequate capital structure and earning prospects2. 3.1.2 The RBI Act 1934 capped the NOF at Rs. 2 crore in 1997. Although the requirement of NOF presently stands at Rs. 2 crore, companies that were already in existence before April 21, 1999 are allowed to maintain NOF of Rs. 25 lakh and above. With effect from April 1999 the Bank has not been registering any new NBFC the NOF of which is below Rs. 2 crore. This notwithstanding, NBFCs may maintain NOF more than Rs. 2 crore. Since then, the NBFC sector has undergone a sea change from being small family run businesses, primarily using own funds, to large sized NBFCs dependant largely on public funds. The general increase in the price level since 1999 by itself would call for an increase in the capital requirements necessary for NBFC registration. Apart from this, any financial intermediary must also invest in technology to be efficient and competitive and reap economies of scale, which requires more capital. NBFCs have entered into many of the newer areas of financial services such as the payments system, capital markets which include underwriting, IPO financing, margin financing, and M&A financing. NBFCs are now also into derivatives and structured products. They have entered into the markets for raising funds through CPs and NCDs apart from accessing bank funds directly. Given these developments, a requirement of Rs. 2 crore in start up NOF is grossly inadequate from the perspective of financial soundness and solvency. A higher threshold for start up capital is also warranted to ensure that only serious players enter the sector. The Working Group is in agreement with the view that section 45IA(1)(b) of the RBI Act with respect to NOF needs to be amended. Instead of specifying a ceiling for the NOF that an NBFC should have, the Act should stipulate a minimum NOF to be specified by the RBI that any NBFC must have in order to be registered. The Working Group is of the view that these legal changes may be considered at the appropriate time. 3.1.3 The basic objective of regulating non deposit taking NBFCs is to address systemic risk issues. It is not the intention of the regulator to protect wholesale lenders and investors who are expected to exercise prudence while lending to NBFCs. However if NBFCs reliant on a large amount of public funds deploy such funds into high risk assets there is a risk of contagion to other financial institutions. The Working Group feels that the very act of registration with the RBI confers a certain legitimacy to the NBFC as a regulated entity and may give lenders to that NBFC a sense of unwarranted comfort. Increasing the minimum start up capital required for NBFCs seeking registration would require amending section 45IA of the RBI Act. Although an NBFC may have the NOF of Rs. 2 crore required under the Act, it cannot commence or carry on the business of NBFC without a CoR issued by RBI. While Section 45IA(4)(d) requires RBI to be satisfied about the capital structure of a company before granting CoR, RBI may specify a certain
Net Owned Funds has been defined in the RBI Act 1934 as (a) the aggregate of paid up equity capital and free reserves as disclosed in the latest balance sheet of the company, after deducting there from (i) accumulated balance of loss, (ii) deferred revenue expenditure and (iii) other intangible asset; and (b) further reduced by the amounts representing (1) investment of such company in shares of (i) its subsidiaries; (ii) companies in the same group; (iii) all other NBFCs and (2) the book value of debentures, bonds, outstanding loans and advances (including hirepurchase and lease finance) made to and deposits with (i) subsidiaries of such company and (ii) companies in the same group, to the extent such amounts exceed ten percent of (a) above.
1 2 Section 3 under
45IA(4)(d) of RBI Act, 1934.
section 45NC of RBI Act
minimum capital base and asset size for granting CoR and grant exemption3 from the requirement of registration to those NBFCs that do not meet the minimum capital base or asset size threshold specified by it. The spirit behind such exemptions is not to create entry barriers for small innovative players from entering the NBFC sector especially for lending to small businesses, but to refocus regulatory resources to where the risks may lie. Regulatory directions issued by RBI to registered NBFCs would also apply to NBFCs that may be exempted from the requirement of obtaining CoR. All other provisions of Chapter IIIB of the RBI Act and the directions, orders, circulars and guidelines issued there under continue to apply to such NBFCs.
3.1.4 The Working Group is of the view, that as these are not deposit taking NBFCs there would be hardly any systemic risk emanating from smaller non deposit taking NBFCs. Hence, the Working Group proposes that small non deposit taking NBFCs with assets of Rs. 50 crore or less could be exempt from the requirement of RBI registration. Not being deposit taking companies and being small in size, no serious threat perception is perceived to emanate from them. This would at the same time also reduce the cost of regulation. Such a measure would not prevent small but potentially dynamic and innovative startup companies from entering the area of financial activity. In fact, it might incentivize such companies to increase their capital and assets to the minimum levels that would allow them to get registered over a reasonable period of time. If the asset sizes of existing NBFCs with asset sizes below Rs. 50 crore, increase to over the threshold within a period of two years, a fresh CoR from the Bank will not be required. However, if they are unable to reach this threshold within the two year period they have to apply to the Bank for a fresh CoR on their achieving an asset size of Rs. 50 crore. 3.1.5 The Working Group deliberated on whether NBFCs that fund their activities out of their owned funds should be exempt from registration with the regulator on the grounds that they do not pose any risk to any public funds. The Working Group however feels that even entities that do not rely on public funds could pose systemic risks if the size of their operations are material especially in certain sensitive markets. Further, if excluded from registration requirements there could be a temptation to try to avoid regulatory oversight through the use of a variety of instruments that are ostensibly equity but could be quasi debt. Indeed, the Working Group is given to understand that there are a number of registered NBFCs that are apparently capitalised only with equity, but in fact the investment in their equity capital is based on funds borrowed offshore. These companies undertake investment and lending activity in India, thereby circumventing the capital controls on external borrowings. Besides, even if currently engaged in activities without any public funds in India, such large asset sized entities have the potential to take on such leverage at any point in time. NBFCs that are not leveraged or do not have any access to public funds up to a certain minimum size could however be considered for exemption from registration, but not regulation. As and when the regulator observes risks arising out of the activities of such exempted NBFCs, the exemption may be adequately modified to cover such risk generating NBFCs or may be withdrawn totally as the situation warrants. Based on these considerations, the Working Group recommends that NBFCs with asset size below Rs. 1000 crore and not accessing any public funds may be exempted from registration. Those, with asset sizes of Rs. 1000 crore and above, need to be registered and regulated even if they have no access to public funds. 3.1.6 Currently, only deposit taking NBFCs are required to take prior approval of the Bank for any change in their management, either due to sale, takeover or amalgamation. There is no such requirement of prior approval of Reserve Bank for change in the controlling interest of a registered non-deposit taking NBFC. There are cases where companies do not apply for a Certificate of Registration but acquire an existing registered NBFC. This circumvents the due diligence process carried out by the Bank on the fit and proper criteria of management. The Working Group recommends that all registered NBFCs, both deposit taking and non-deposit taking, should take prior approval from the Reserve Bank, where there is a change in control or transfer of shareholding directly or indirectly - in excess of 25 percent of the paid up capital of the company. Control may be defined as right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person individually or persons acting in concert4, directly or indirectly, by virtue of shareholding or shareholder agreements or by any other name. Prior approval of RBI should also be required for any mergers of NBFCs under Section 391-394 of the Companies Act, 1956 or acquisitions by or of an NBFC, which are governed by the SEBI Regulations for Substantial Acquisitions of Shares and Takeover. 3.2 The Working Group recommends that a. the Reserve Bank should, under Section 45NC, exempt all non deposit taking NBFCs from the requirement of registration if their individual asset sizes are below Rs. 50 crore; the Reserve Bank should, under Section 45NC, exempt from registration all NBFCs with asset size below Rs. 1000 crore that are not accessing public funds (public funds are raised either directly or indirectly through public deposits, commercial papers, debentures, inter-corporate deposits, guarantees and bank finance or any other debt instrument, but exclude funds raised by issue of share capital and/ or instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue from registration with RBI). However, an annual certificate of their Statutory Auditors certifying the NOF, total asset size and whether they have accessed any public funds in the financial year should be submitted to Reserve Bank. NBFCs with asset size more than Rs. 1000 crore should be registered and regulated even if they are carrying on the business of an NBFC with their own funds; existing NBFCs-ND with asset size of less than Rs. 50 crore may be encouraged to deregister with the RBI; NBFCs-ND which do not get themselves deregistered will have to apply afresh under section 45IA for obtaining a CoR if their asset size exceeds Rs. 50 crore after two years (from the date on which RBI issues suitable Notification under section 45NC); the minimum NOF requirement for all new NBFCs wanting to register with the Bank could be retained as at present viz., Rs. 2 crore (till the RBI Act is amended), but a minimum asset size of more than Rs. 50 crore should be insisted upon by the RBI; all registered NBFCs, both deposit taking and non-deposit taking, should take prior approval from the Reserve Bank, where there is a change in control or transfer of shareholding directly or indirectly in excess of 25 percent of the paid up capital of the company. Prior approval of RBI should also be required for any mergers of NBFCs under Section 391-394 of the Companies Act, 1956 or acquisitions by or of an NBFC, which are governed by the SEBI Regulations for Substantial Acquisitions of Shares and Takeover. Principal Business a Relook at the Definition
b.
c.
d.
e.
f.
g.
4.
4.1.1 Section 45I(c) of the Reserve Bank of India Act defines the expression Financial Institution as financing, acquisition of shares, stocks, bonds etc., letting or hiring of goods, insurance business, management of chits and kuries and collection of monies for awarding prizes or gifts. In the changed scenario, there is a need to revisit this list of businesses, which, if carried on by a non-banking institution, makes it a financial institution.
Persons acting in Concert as defined in Regulation 2, sub-regulation (1) clause (e) of the SEBI Regulations for Substantial Acquisitions and Takeovers.
4
4.1.2 It may be noted that the expression financial institution has been defined in the RBI Act for the purpose of identifying the institutions which need to be regulated by RBI under Chapter IIIB of the RBI Act. With insurance business now being regulated by a dedicated regulator, namely, IRDA under the IRDA Act, 1999, it is clear that insurance business need not be included in Section 45I (c). Similarly, the Chit Funds Act, 1982, which regulates chit funds is adequate to deal with chit funds and it should not be necessary to bring chit funds again under this section. There is every reason for not bringing the companies carrying on the business of prize chits under the regulatory purview of RBI as the same is a banned activity dealt with under the Prize Chits and Money Circulation schemes (Banning) Act, 1978. 4.1.3 An NBFC is defined in terms of Section 45I(c) of the RBI Act 1934 as a company engaged in granting loans/advances or in the acquisition of shares/securities, etc. or hire purchase finance or insurance business or chit fund activities or lending in any manner provided the principal business of such a company does not constitute any non-financial activities such as (a) agricultural operations (b) industrial activity (c) trading in goods (other than securities) (d) providing services (e) purchase, construction or sale of immovable property. 4.1.4 Further in terms of Section 45I(f)(ii) of the RBI Act, a company would also be an NBFC if its principal business is that of receiving deposits under any scheme or arrangement. The Act has however remained silent on the definition of principal business and has thereby conferred on the regulator, the discretion to determine what is the principal business of a company for the purposes of regulation. In case of companies that carry on multiple activities which are both financial and non-financial, it would be necessary to define what constitutes the 'principal business' and lay down a base criterion to decide whether a company is an NBFC or not. Accordingly, the test applied by RBI to determine what is the principal business of a company was articulated in the Press Release 99/1269 dated April 8, 1999 issued by RBI. As per the said press release, a company is treated as an NBFC if its financial assets are more than 50 per cent of its total assets (netted off by intangible assets) and income from these financial assets is more than 50 per cent of its gross income. Both these tests are required to be satisfied in order for the principal business of a company to be determined as being financial for the purpose of RBI regulation. 4.1.5 The extant definition of principal business allows companies to carry on a multiplicity of activities including non financial activities that are not regulated by the RBI. Besides, unlike in the case of banks, a registered NBFC can conduct non-financial activities like real estate development, construction and manufacturing and trading activities which could pose risk to its financial activity. Registration with the RBI provides the NBFC with opportunities to raise leverage to levels not normally available to non-financial companies. High leverage can in turn lead to investments in unregulated risky ventures, impact their balance sheets, and contribute to systemic risk. The RBI also faces operational issues in monitoring such entities, both off-site and on-site and any adverse development could result in reputational risk to the RBI. The Working Group is of the view that the part of the business (referred to in section 45I(c) of the RBI Act) of a company which has to be financial in nature in order for the company to be treated as a financial institution should necessarily be a significant part of the overall business of the company. The intent of the statute that RBI should not get involved in regulating non financial business is clearly spelt out in the relevant clauses of section 45I(c) which exclude from the definition of financial institution entities whose principal business is agriculture, industrial activity, trading or construction. If a material part of the business of a company is agriculture, industrial activity, trading or purchase, sale or construction, the Working Group is of the view that RBI should not be required to regulate such companies. 4.1.6 The Working Group examined a) whether there is a need to have a twin criteria of financial assets and financial income for defining principal business and b) whether or not the threshold percentage of a companys assets and the income accruing from those assets should be raised to a level above the current 50 percent. The members were of the view that financial assets alone would be an insufficient indicator of the principal business of a company. There could, for
instance, be smaller professional service enterprises that might need to deploy the bulk of their surplus funds into financial assets it would be inappropriate to capture such companies into the NBFC regulatory fold. Unless the income criterion is applied, such professional service companies will also be brought into the NBFC regulatory fold. The income of such companies from their professional service will be much more than the income from their financial assets. They will not come under the NBFC regulatory fold if the twin criteria of assets and income are applied, As such, the Working Group is satisfied that it is appropriate to continue to have the twin criteria of financial assets and financial income for determining the principal business of a company for bringing it into the NBFC regulatory fold. 4.1.7 In general, the Working Group is of the view that financial activity is a specialised one and should not be combined with non financial activity. At the same time it is acknowledged that it is not legally possible to prohibit any entity from combining the two activities. Hence the attempt should be to encourage companies classified as NBFCs to move gradually towards undertaking essentially only financial activities and other such activities that are allied with or incidental to the principal activity of lending and investing. While the members are of the view that the extant practice of using both the financial asset and the income criteria to identify a company as an NBFC is appropriate and should be retained, for the purpose of defining a companys principal business it is felt that the minimum share of financial assets, and the income deriving there from, be increased to 75 per cent from the current level of 50 percent so that the primary content of business reflects financial activity as defined in the RBI Act. The increase in the threshold percentage level should ensure that a financial company focuses primarily on financial business. 4.1.8 For the purpose of computing total financial assets, cash and bank deposits maturing within 30 days, government securities, treasury bills eligible for repos, investments in money market mutual funds or investments in money market instruments maturing within 30 days which are kept for liquidity purposes and advance payment of taxes and deferred tax payments, may be deducted from the numerator and denominator5. 4.1.9 While using the income criteria, it was noted that financial income as a share of a companys total income could fluctuate quite considerably on account of market factors. Therefore, the income criteria to be used should be average income for three years on moving average basis. 4.1.10 Increasing the threshold percentage in this manner could mean that several companies currently classified as NBFCs with more than 50 per cent of their total assets in financial assets and more than 50 per cent of their income arising from such financial assets, would suddenly cease to be NBFCs. The Group felt that a reasonable time frame should be allowed to existing NBFCs either to cease to be NBFCs by deregistering or continue to be NBFCs by increasing their financial assets and income to the 75 per cent level within a period of three years. Deposit taking NBFCs that fail to reach the level of 75:75 within three years should not be allowed to accept fresh deposits or renew fresh deposits. They should prepay deposits within a timeframe and convert to non banking non financial companies. The Working Group recognises that its recommendation of increasing the bar from more than 50:50 to 75:75 and more could have the impact of several currently significant participants in financial markets falling outside the purview. The Working Group at the same time realises that
4.1.11
For the sake of clarity: A) Total Assets are total balance sheet assets. B) Total Financial Assets are all those assets that are financial in nature. C) Liquid Assets are i) cash and bank deposits maturing within 30 days; ii) government securities, treasury bills and eligible for repos; and iii)investments in money market mutual funds or money market instruments maturing within 30 days and advance payment of taxes and deferred tax payments. D) A company would be deemed to have met the financial asset test if the ratio (Total Financial Assets - Liquid Assets)/(Total Assets Liquid Assets) is greater than 75%.
5
the main driver for registering as an NBFC is the leverage that it allows. Companies not fulfilling the 75 per cent bar could be significant players in the financial markets but would for all purposes be treated as non financial companies. These companies would not enjoy the same perception that the market normally has of companies that are regulated by the RBI and so would not be able to leverage in excess of what is normally feasible for non-financial companies. Nevertheless, the Working Group feels it necessary to underline the fact, that there could be some very large companies that have large borrowings from the market and banks and though not deemed to be financial companies have material presence in the financial markets and need to be monitored. The Working Group recommends that this may be considered by the Financial Stability Development Council. It was noted that the latest Financial Stability Report of RBI released in June 2011 has highlighted the point that financial stability / systemic risk concerns may be present even in a single or in a group of non-financial companies that have access to all sources of market borrowing including CPs, loans from abroad.
4.2 The Working Group recommends that i. the twin criteria of assets and income for determining the principal business of a company need not be changed. However, the minimum percentage threshold of assets and income should be increased to 75 per cent. Accordingly, the financial assets of an NBFC should be 75 per cent or more (as against more than 50 per cent) of total assets and income from these financial assets should be 75 per cent or more (as against more than 50 percent) of total income; ii. existing non deposit taking NBFCs should be given a period of three years to comply with the revised definition of principal business. An incremental approach may be adopted to graduate to the revised criteria and milestones may be specified for NBFCs so that they do not slip back in fulfilling the criteria within the 3 year period. If they are unable to reach the asset and income thresholds respectively within the three year period, they should be deregistered by RBI as an NBFC through a public notification. Existing deposit taking NBFCs failing to achieve deposit taking the 75:75 criteria in three years time should not be allowed to accept fresh deposits or renew fresh deposits thereafter. They should prepay deposits within a timeframe and convert to non banking non financial companies; iii. for the purpose of computing total financial assets, cash and bank deposits maturing within 30 days, government securities, treasury bills eligible for repos, investments in money market mutual funds or investments in money market instruments maturing within 30 days which are kept for liquidity purposes and advance payment of taxes and deferred tax payments, may be deducted from the numerator and denominator. For the purpose of computing income, the three year moving average may be used; iv. the financial activities as given in the Act may be suitably amended to exclude insurance business, management of chits and kuries and collection of monies for awarding prizes or gifts. 4.2.1 The matrix given in Annex III summarizes the recommendations for entry point norms recommended for NBFCs. Categories of NBFCs and the Practicality of Differentiated Regulation by Type of Activity
5.
5.1.1 No defined homogenous pattern has emerged in terms of business models, nature of operations, funding patterns or asset size for NBFCs. Therefore different categories of NBFCs
with differential regulatory dispensations have evolved in tune with the demands of the economy and the industry. 5.1.2 An activity based categorisation of NBFCs was laid down in the Non-Banking Financial Companies Acceptance of Public Deposits (RBI) Directions, 1998. NBFCs were divided into 4 categories: Equipment Leasing Companies (EL), Hire-Purchase Companies (HP), Investment Companies (IC), and Loan Companies (LC). 5.1.3 Subsequently, in 2006, based on a request from the industry, a separate category of NBFCs, termed Asset Finance Companies (AFC) was created to differentiate NBFCs engaged in tangible lending from riskier NBFCs which were either into unsecured lending or were investing in stock markets/real estate and whose assets were subject to greater volatility. NBFCs that were essentially financing hire-purchase and leasing assets were reclassified as AFCs. An AFC was defined as a company where more than 60 percent of its business was in the financing of physical assets supporting productive/economic activity. Similarly, in 2010, NBFCs primarily financing infrastructure projects were classified as a separate category of Infrastructure Finance Companies (IFCs), provided a minimum of 75 percent of total assets of the company were deployed in infrastructure loans. Such companies were allowed higher exposure norms and access to bank funds. They were also allowed access to ECB which is not allowed for other NBFCs. 5.1.4 A new category of Systemically Important Core Investment Companies (CIC-ND-SI) was created in 2010 for those companies with an asset size of Rs. 100 crore and above that were only in the business of investment for the sole purpose of holding stakes in group concerns, not trading in these securities and accepting public funds. A regulatory framework in the form of Adjusted Net Worth and leverage limits was put in place for CIC-ND-SIs and they were given exemption from NOF, capital adequacy and exposure norms. CICs-ND-SI were required to hold a minimum of 90 percent of net assets in the form of exposure to group companies of 60 percent was to be invested in the equity of group companies. 5.1.5 Thus presently there are five categories of NBFCs, viz., Asset Finance Companies (AFCs), Investment Companies (ICs), Loan Companies (LCs), Infrastructure Finance Companies (IFCs) and Systemically Important Core Investment Companies (CIC-ND-SIs). Table 7 below gives the number of such companies as on March 31, 2011.
Table 7: Different Categories of NBFCs (As on March 2011)
5.1.6 A Table on the differential regulation for the 5 categories of NBFCs is provided in Table 8 below. Table 8: Differences in Regulation for Different Categories of NBFCs Sl. No 1. Category AFC Differences in Prudential Norms NOF of Rs. 25 lacs (2 crore for companies incorporated after April 1999) An NBFC NDSI which is an AFC can exceed credit concentration norms by 5 percent with the approval of the Board Can accept deposits without credit rating; can accept higher level of deposits than LCs/ICs, if holding minimum investment grade rating and in compliance with prudential norms Impaired Hire Purchase assets and overdue lease rentals treated as NPAs after 12 months. Loans overdue for more than 6 months are classified as NPAs Bank exposure to AFCs may exceed those for LCs/ICs by 5%. Banks to risk weight claims on AFCs as per the ratings assigned to the AFCs by rating agencies. NOF of Rs. 25 lakh (2 crore from April 1999) No difference in prudential norms between LC and IC Not permitted to accept deposits without credit rating Asset Classification Loans overdue for more than 6 months are classified as NPAs Impaired Hire Purchase assets and overdue lease rentals treated as NPAs after 12 months 4. IFC NOF of Rs. 300 crore Credit Rating of minimum A grade CRAR 15 percent with minimum Tier I at 10 percent Can exceed Credit Concentration norms in lending to single and group borrowers by 10 and 15 percent and for lending and investment to single and single group of borrowers by 5 and 10 percent Cannot accept deposits Allowed to borrow under ECB route. Bank exposure to IFCs may exceed that for LCs/ICs by 5%. (10% if for onlending for infrastructure sector) Banks to risk weight IFC loans as per the ratings assigned to NBFCs by rating agencies Impaired Hire Purchase assets and overdue lease rentals treated as NPAs after
2. 3.
LC IC
Sl. No Category Differences in Prudential Norms 12 months. Loans overdue for more than 6 months are classified as NPAs 5. CIC- NDSI Exempt from capital adequacy and credit concentration norms Capital requirements in the form of Adjusted Net Worth to be 30 percent of risk weighted assets and outside liabilities capped at 2.5 times of the Adjusted Net Worth 5.1.7 The Working Group re-examined these various categories with a view to ascertaining the need for maintaining different categories of NBFCs and different corresponding regulatory frameworks. i. Loan and Investment Companies: A Loan Company is defined as a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own,. An Investment Company means any company which is a financial institution carrying on as its principal business the acquisition of securities. Most NBFCs, other than CICND-SIs and IFCs, are into a mix of loan and investment activities and the number of pure loan or pure investment NBFCs is negligible. As on March 31 2011, there were a total of 312 NBFCs-ND-SI. Of these, 189 companies were categorized by RBI as investment companies and 103 were categorized as loan companies, the remaining being IFCs and AFCs. Out of 189 NBFCs-ND-SI categorized as investment companies, only 35 were purely into investment activities and only 21 companies out of the remaining 106 NBFCs-ND-SI, categorized as loan companies, were purely into lending activities. The remaining companies were carrying on a mix of investment and loan activities. Since there is no difference in the regulatory and supervisory framework for loan and investment companies, a company may freely alter the business model depending on market forces. Thus there does not appear much relevance in continuing with two separate categories. Asset Finance Companies: AFCs are defined as .. any company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive / economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising there from is not less than 60% of its total assets and total income respectively 5.1.8 As stated above, NBFCs were initially categorized on the basis of activity, i.e., loan, investment, hire purchase or equipment leasing. Differential regulatory prescriptions were put in place based on perceptions of realizability of assets, i.e., as HP and EL companies were financing real goods, they were allowed to accept deposits without rating and also accept a larger amount of deposits. The category of AFC was created in 2006, based on the request of industry that NBFCs financing productive assets or the real sector should be differentiated from those NBFCs whose operations in the sensitive sectors had implications for financial stability. 5.1.9 Though the withdrawal of tax deductions led to several NBFCs moving away from hire purchase or equipment leasing activities, they continued to be characterized as AFCs in view of the change in definition to financing of real/productive assets, such assets typically being capital equipment, commercial vehicles, tractors, automobiles etc. While many of these activities may be also carried out by loan companies, there is merit in the argument that financing of productive assets is a major contributor to economic growth. Further, the argument advanced in
ii.
2006 by the industry and accepted by RBI, that broad brush approach for all NBFCs may not be followed, remains valid. 5.1.10 However, it is undeniable that the distinction between the financing models of Loan Companies and AFCs is often blurred. To avoid this, not only do AFCs need to be more focused in their business model, but the regulatory framework also needs refinement. On the same analogy as that applied for IFCs, the minimum requirement for classification as AFC should be that their principal business be asset financing, i.e., at least 75 percent of their assets should be deployed in financing of real/productive assets and 75 percent of their income should be derived from such assets. However, funds deployed for purposes of liquidity management should be excluded from assets for the purpose of calculating this threshold percentage. Thus assets would exclude cash and bank deposits maturing within 30 days, government securities, treasury bills, investments in money market mutual funds or money market instruments maturing within 30 days, and advance payment of taxes and deferred tax payments. Existing AFCs may be given a period of three years to comply with the revised criteria. 5.1.11 Presently, LCs and ICs complying with all prudential requirements and with minimum investment grade rating may accept public deposits up to 1.5 times NOF. Unrated AFCs may accept public deposits up to 1.5 times NOF or Rs. 10 crore, whichever is lower. However, an AFC with minimum investment grade rating may accept public deposits up to 4 times its NOF. There is no particular logic in allowing acceptance of such differential amounts of deposits, as acceptance of liabilities cannot be linked to type of asset. Thus rated AFCs should not accept deposits more than 2.5 times their NOF. AFCs presently exceeding the limit may not renew or accept fresh deposits till such time as they reach the revised limit. 5.1.12 IFCs were created on the request of industry that there should be a separate category of infrastructure financing NBFCs in view of the critical role played by them in providing credit to the infrastructure sector. A differential regulatory framework was also put in place for CICs-NDSI in view of perceptions of interconnectedness and systemic risk. The Working Group does not feel it necessary to bring any change to the IFC category. However, in alignment with the recommendation for AFCs, a similar method may be adopted for calculating the quantum of assets deployed in infrastructure finance, i.e., funds deployed for purposes of liquidity management should be excluded from total assets for the purpose of calculating whether or not a company meets the 75% of assets and income tests. 5.2 The Working Group recommends that i. in view of the fact that there is no difference in the regulatory framework for loan companies and Investment companies and since most of the NBFCs-ND-SI are a mixture of loan and investment companies, a single category of loan/investment company should be made;
ii.
AFCs should be retained as a separate category of NBFC provided however such companies are predominantly engaged in the asset finance business;
principal business for AFCs may be redefined: a minimum of 75 per cent of the assets of AFCs (as against 60 per cent presently) should be in asset financing activities and at least 75 per cent of total income should be from these asset financing activities. Existing AFCs may be given a period of three years to conform to the revised principal business criteria without any slip back as and when it reaches a higher percent of asset financing; for the purpose of calculating if a company meets the 75 per cent asset and income thresholds, the revised definition of financial assets as given in footnote 5 on page 132 (page 26 in original RBI paper) may be adopted for all NBFCs including Asset Finance and Infrastructure Finance Companies;
iii.
iv.
v. the limit for acceptance of deposits for rated AFCs should be reduced from 4 times NOF to 2.5 times NOF. AFCs presently exceeding this limit may not renew or accept fresh deposits till such time as they reach the revised limit. Table 9: Recommendation on Rationalisation of Categories of NBFCs Category Loan Companies Investment Companies Asset Finance Companies Recommendation Should be merged into a single category of Loan and Investment Companies Should be retained as a separate category A minimum of 75 per cent of the assets and income should be from asset financing activity The limit for accepting deposits by AFCs be reduced to 2.5 times their NOF Retained as a separate category Retained as a separate category.
Infrastructure Finance Companies Core Investment Companies 6.
Regulatory Arbitrage and Convergence in Regulation:
6.1.1 There are differences and similarities between banks and NBFCs. On the liabilities side, banks mobilize retail deposits, offer checking accounts and form the bulwark of the payment system. They also access the wholesale funding markets. On the other hand, NBFC-NDs obtain wholesale funding or access the capital markets through CPs, NCDs, ICDs and bank borrowing. On the assets side there is hardly any difference as both banks and NBFCs undertake loaning and investment activities. Some NBFCs may, however, be more focused on capital market related activities. Unlike in many countries, NBFCs in India are not barred from undertaking non financial activities such as, real estate activity, along with financing and investing activities. 6.1.2 The policy and regulatory framework in India deals with NBFCs and banks very differently. On the policy side, banks are required to maintain a cash reserve requirement which stands at 6 percent of their net demand and time liabilities on which they earn no interest and statutory liquidity ratio (SLR) of 24 percent of net demand and time liabilities on which the average yield was at 6.97 percent in 2010-2011. Banks require RBI approval for branch expansion, although there have been some relaxations for under banked areas, as the spread of branches in banked areas has now been linked to their extending their presence in unbanked areas. Banks have limits on their exposure to capital markets and they are not allowed to finance the purchase of land or mergers and acquisitions (with a few exceptions). They are expected to have Board approved limits on exposure to the real estate sector. Banks have mandated Priority Sector Lending (PSL) targets at 40 per cent of their total credit. On the other hand, non deposit taking NBFCs have no cash reserve requirements or SLR, no restrictions on branch expansion, no PSL targets, no restrictions on their financing activities such as for M&A and capital market while NBFC-D have limited restrictions on branch expansion, capital market and real estate. Even the SLR prescribed for deposit taking NBFCs is at 15 percent of their deposit liabilities as compared to 24 percent stipulated for banks. There are restrictions on foreign and foreign bank ownership in banks whereas for NBFCs, 100 percent FDI is allowed under automatic route for 18 permitted activities. 6.1.3 As far as prudential regulations are concerned, there are a number of differences. The CRAR for NBFCs is higher at 15 per cent compared to 9 percent for banks taking into account their size, concentration risk and lighter touch regulation in other areas. The period for classifying loans as NPAs in case of NBFCs is higher at 180/360 days compared to 90 days for banks. There
are some differences in the provisioning framework as well. The regulatory framework for ownership and governance are also very different. The Banking Regulation Act 1949 empowers the RBI to stipulate the qualifications of Directors of a bank and to appoint and remove them. These powers are not available to the RBI under the RBI Act, 1934 in respect of the NBFCs. 6.1.4 A revised framework was put in place in 2006 to address the regulatory gaps and arbitrage between banks and the NBFCs sponsored by them. The capital adequacy, credit concentration norms and CME exposure limits were made applicable to the bank group as a whole, including the bank sponsored NBFCs. However, despite these efforts, some elements of regulatory arbitrage still persist between bank sponsored NBFCs and banks, inasmuch as the restrictions on (i) loans against shares to individuals (restricted at Rs. 20 lakhs per individual for banks), (ii) financing mergers and acquisitions, (iii) financing purchase of land are applicable to banks but not applicable to their own NBFCs. Further, while banks are required to fix, with the approval of their Boards, limits on their real estate exposure, unsecured exposures and exposure to other sectors, these do not apply to the bank group as a whole. 6.1.5 The Working Group debated on the need for bringing in policy and regulatory convergence between banks and NBFCs to minimize regulatory arbitrage opportunities. The Financial Sector Assessment Handbook, 2009 has recommended that bank like financial institutions that provide similar products/services should be regulated similarly. Internationally, the role of non-banks or "shadow banks" has been under the scanner and it is increasingly felt that financial entities should be regulated on the basis of the activities undertaken by then not on the basis of their structure. Since the products of the NBFCs are by and large the same or similar to those provided by banks (viz., loans and advances and investments in securities), there is a case for making at least the prudential regulation of NBFCs, at the minimum, similar to that of banks. 6.1.6 While there are forceful arguments for regulatory convergence, there are equally forceful views against it. In this alternative perspective, NBFCs and banks are not viewed as similar to each other, but rather as complementary entities. NBFCs serve niche areas and are more flexible and borrower friendly. In many cases, particularly in the rural and semi-urban areas, they have contributed to last mile connectivity and offered products which banks have not been able to. They have served the needs of clients in the SME sector and in the transport industry where banks have been hesitant to cater to. The NBFCs have also provided funding for equipment purchase, second hand truck purchases, various types of mergers and acquisitions, infrastructure and real estate projects that add productive capacity in the economy. Thus NBFCs play a valuable economic role which must be supported through an appropriately designed regulatory framework. It is argued by some that the absence of regulatory diversity may lead to convergence of business conduct which results in amplifying systemic instability, especially during periods of stress. A range of regulatory regimes could in fact encourage market participants to pursue a variety of business strategies within the financial sector such that the sector may be more resilient to contagion from systemic financial stress. 6.1.7 In view of the above, the Working Group has consciously refrained from pursuing the option of bringing in exact bank like policies for NBFCs such as limits on capital market exposures, real estate lending, priority sector lending, CRR, SLR and so on. The Working Group is of the view that the policy and regulatory arbitrage between banks and NBFCs would be best addressed through the calibrated use of prudential measures such as, higher capital (already part of regulation) higher risk weights for sensitive sectors like real estate and capital markets, and liquidity ratio for NBFCs. In addition it was felt that the rapidly evolving NBFC sector could benefit from the introduction of some of the best practices of banks in the areas of governance, compensation, accounting and disclosure norms (including off balance sheet exposures). In making its recommendations the Working Group is mindful, that the aggregate assets of NBFCs are only 10 per cent of that of the banking sector. (Table 2). 6.1.8 The regulatory arbitrage between bank sponsored NBFCs and banks has largely been addressed by the regulatory changes made in 2006. In addition, the Working Group recommends
that the Board approved limits for banks exposure to real estate should be applicable for the bank group as a whole, where there is an NBFC in the group. However in case of NBFCs that are not sponsored by banks or are not part of any banking group, the regulatory gaps still persist. These could get addressed to a certain extent by the recommendations of the Working Group for higher risk weight for capital market exposure and commercial real estate (CRE) exposure to be applicable to NBFCs that are not bank sponsored or do not have a bank in the Group. In case of bank sponsored NBFCs, the risk weights for CME and CRE should be the same as specified for banks. 6.1.9 The Working Group is of the view that asset classification and provisioning norms, including those for standard assets, should be similar for banks and NBFCs, irrespective of the entity in which they reside. On the same analogy, the deductions (based on an appropriate method) for provisions for taxation purposes, applicable to banks should be available to NBFCs. 6.1.10 In the event there is a rapid increase in the NBFCs' access to public funds or borrowing from banks, leading to a possible build-up of systemic risk, RBI would always have the option to take appropriate measures. In this context the Working Group also feels that the RBI should start collecting data on the sectoral flow of credit from about 80 odd NBFCs that account for 80 per cent of the total assets of all NBFCs to be in tandem with similar data for sectoral flow of credit from banks. 6.1.11 In view of the growing importance of NBFCs in financing sensitive sectors, the Working Group feels that whenever RBI takes macro prudential measures for banks, such measures should also be applicable to the NBFCs. Thus, whenever RBI raises/ lowers risk weights and provisioning norms for banks as a part of macro prudential measures to address systemic risk, such measures should also be applicable to similar assets of NBFCs. 6.1.12 On the other hand, the Working Group recognizes the anomaly that unlike banks and PFIs, most NBFCs (except those registered as PFIs under Section 4A of the Companies Act) do not enjoy the benefits deriving from the SARFAESI Act even though their clients and/or borrowers may be the same. 6.1.13 Financial institutions all over the world are moving towards rationalization and standardization of accounting norms. The RBI may review the accounting norms prescribed for NBFCs and apply the same norms for them as laid down for banks and further encourage NBFCs to follow the principles enunciated in AS 30. 6.2 The Working Group recommends that i. the Tier I capital for CRAR purposes should be specified as 12 per cent to be achieved in three years for all registered deposit taking and non-deposit taking NBFCs; the Board approved limits for banks exposure to real estate should be applicable for bank group as a whole, where there is an NBFC in the group; the risk weights for NBFCs that are not sponsored by banks or that do not have any bank as part of the Group may be raised to 150 per cent for capital market exposures and 125 per cent for CRE exposures. In case of bank sponsored NBFCs, the risk weights for CME and CRE should be the same as specified for banks; the Liquidity Ratio should be introduced for all registered NBFCs such that cash bank balances and holdings of government securities fully cover the gaps, if any, between cumulative outflows and cumulative inflows for the first 30 days;
ii.
iii.
iv.
v. the asset classification and provisioning norms (including standard asset provisioning norms) should, in a phased manner, be made similar to that of banks for all registered NBFCs irrespective of size; the tax treatment for provisions made by NBFCs for regulatory purposes should be similar to that for banks; whenever RBI implements any macro prudential measures to address systemic risk, such measures should be made applicable to NBFCs as well; NBFCs may be given the benefit under SARFAESI Act, 2002; the RBI may review the accounting norms prescribed for NBFCs and apply the same norms for them as laid down for banks and further encourage NBFCs to follow the principles enunciated in AS 30.
vi.
vii.
viii. ix.
6.3 Gaps in Regulation between Stock Broking firms, Investment/Merchant Banks and NBFCs 6.3.1 The RBI (in exercise of the powers conferred to it by Section 45NC of the RBI Act) has so far granted exemption from registration, maintenance of liquid assets and creation of reserve funds to NBFCs carrying on the business of stock broking and merchant banking provided they are not accepting deposits, are registered by SEBI and acquire securities as part of their merchant banking/stock broking activities. This exemption was given as they were undertaking predominantly non-fund based activities. It was also perceived that these would not pose any risk or compromise depositors interest, as they are non-deposit taking entities and function directly under the oversight of SEBI. Hence dual regulation is avoided. It was also the understanding that the leverage of stock broking entities and merchant bankers would be extremely limited and banks are allowed to finance their working capital activities. The Working Group understands that stock brokers are involved in fund based margin financing subject to SEBI regulations. It is understood that SEBI has allowed stock brokers to access public funds to the extent of 5 times NOF for margin financing with additional stipulation that margin should be at least 50 percent. Merchant bankers also raise public funds for their underwriting obligation and IPO financing. Both stock brokers and merchant banks access public funds in the form of bank borrowing, CPs, NCDs from the market including from mutual funds. Anecdotal evidence suggests that stock broking entities also receive funding support from the NBFC arms within the group. There are, however, no prudential CRAR type prescriptions on such entities. 6.3.2 The Working Group deliberated on whether it should recommend withdrawal of the exemption provided under Section 45NC of the RBI Act to NBFCs carrying on the business of stock broking and merchant banking activities, if such entities were accessing public funds in excess of their owned funds and had credit exposures beyond Rs. 100 crore, to bring them under the prudential regulation applicable to NBFCs viz. capital adequacy, liquidity, exposure norms etc. 6.3.3 However to be effective, the Working Group noted that this would involve change in the definition of principal business to include fee based income in the income criteria, with the result of bringing a variety of activities into the NBFC regulatory net with unintended consequences. Moreover it would again raise the issue of dual regulation with its concomitant implications. Instead the members feel that the NBFCs may be subject to similar regulations as banks, for lending to stock brokers and merchant banks6. They could also be subjected to similar regulation as stipulated by SEBI for stock brokers while undertaking margin financing. Also, the supervisory framework for larger NBFCs that have brokers and merchant bankers in the group should look into the implications of the spill-over risks of such entities on the parent or group NBFC arm and
6 Reference
is drawn to circular DBOD.No.Dir.BC.6/13.03.00/2011-12 dated July 1, 2011
adopt a financial conglomerate approach for supervision of such entities. The Working Group would however urge that the issue of SEBI regulated entities undertaking fund based business without CRAR type of stipulations may be reviewed by the Sub-Committee of the FSDC. 6.4 Gaps in Regulation under Companies Act 1956 6.4.1 The Working Group observed that gaps in regulation are also seen in the context of private placement of capital by companies registered under the Companies Act and registered as NBFCs as they are exempt from the provisions of private placement specified under Section 67 of the Companies Act 1956. This has resulted in some NBFCs raising unlimited amounts of retail money that tantamount to surrogate deposits, which is in essence an NBFI activity, but escapes regulation as such. RBI may take steps to ensure that this gap is plugged, if necessary, with inter regulatory co-ordination. 6.5 Government Owned NBFCs and other NBFCs 6.5.1 Government owned companies have so far been exempted from Section 45 IB and 45 IC of the RBI Act as also from the Prudential Norms Directions, except reporting requirements. They are thus not subject, for example, to any of the NBFC regulations pertaining to prudential norms, including capital adequacy and credit exposure. This was done in consultation with Government, and it was assumed that the functioning of these entities would be overseen by the respective ministries to which they were attached. At the time this decision was taken few supervisory concerns were envisaged, particularly regarding to repayment of deposits held by such entities. 6.5.2 In 2006, when the focus of regulatory concern widened to encompass issues of systemic importance and systemic risk, it was realised that Government owned NBFCs, even if monitored by their respective ministries, could pose high risk on account of their significantly large balance sheets and their interconnectedness with the broader financial system. Besides, they were recipients of large funds from the budgets and hence accountable to the public. Accordingly, both Centre and State owned NBFCs were advised in December 2006 to prepare and submit, in consultation with Government, a road map to RBI by March 31, 2007 for compliance with NBFC regulations. 6.5.3 The Working Group noted that very little progress has been made in this regard.
6.6 The Working Group recommends that i. NBFCs should be subject to similar regulations as banks while lending to stock brokers and merchant banks. Further they could be subject to similar regulation as stipulated by SEBI for stock brokers while undertaking margin financing; the supervisory framework for NBFCs that have brokers and merchant bankers in the group, where the total assets in the group exceeds Rs 1000 crore, should adopt a financial conglomerate approach and examine the implications of the spill-over of risk of such entities on the parent NBFC or group NBFC arm and issue appropriate directions for cushioning such risk; in general, all Government owned entities that qualify as NBFCs under the prescribed principal business criteria should be required to comply with the regulatory framework applicable to NBFCs at the earliest.
ii.
iii.
6.7 Regulatory Convergence between Banks and Deposit taking NBFCs 6.7.1 Regulation of NBFCs was introduced in 1964 as an adjunct to the monetary and credit policy of the country and for protection of depositors' interests. The RBI Act 1934 was amended in 1997 with the objective of strengthening the regulation of deposit taking companies. Since then,
RBI has taken steps to improve discipline and transparency in the sector. Apart from regulatory and legislative initiatives, RBI has stepped up industry consultation, depositor education and coordination with other regulators. Various measures have been taken to improve capital adequacy and reporting standards of deposit taking NBFCs, including Residuary Non-Banking Finance Companies. 6.7.2 The number of NBFC-D deposit and their aggregate outstanding deposit liabilities have been declining since 2002 (Table I, Chart 1). Following the RBI's direction to RNBCs to cease and desist from taking fresh deposits, the Aggregate Liabilities to Depositors held by the two RNBCs has also registered a decline. Out of the total number of 280 odd reporting deposit taking entities as on March 2010, only twenty have assets of over Rs. 100 crore and can be considered systemically important. Approximately 90 percent of the reporting NBFCs-D has assets less than Rs. 50 crore, and NOF of around 4 percent of NRFCs-D is less than Rs. 2 crore. 6.7.3 As the regulatory stance of the RBI has been to discourage the acceptance of deposits by non banking entities no new NBFC incorporated after July 1997 has been given permission to accept deposits. The Working Group is of the view that the present stance of RBI in not allowing registration of any new deposit taking company, should continue. As long as deposit taking companies continue to exist, the regulatory and supervisory framework for them should be similar to that for banks. Internationally, regulations for deposit acceptance are similar for all entities accepting deposits, whether banks or non-banks. Many of the suggestions made in earlier sections bring about convergence in the regulations between banks and NBFCs. Elsewhere, the Working Group has already recommended that the deposits raised by AFCs should be reduced to 2.5 times NOF from the present 4 times NOF (See para 5.1.11). 6.8 The Working Group recommends that i. the present policy stance of RBI not to allow registration of any new deposit taking company should continue; all existing NBFCs-D should be credit rated. Unrated AFCs should not be permitted to accept deposits; existing unrated NBFCs-D should be given a period of one year to get themselves rated if they wished to continue to accept deposits. Thereafter, they should not be allowed to accept any fresh deposits or renew existing deposits till they get themselves rated.
ii.
iii.
7.
Multiple NBFCs
7.1.1 The database on registered NBFCs has revealed that there are many companies which have multiple NBFCs within their group. The industry has represented before the Working Group that each NBFC served a different purpose and the regulatory treatment itself has spawned multiple NBFCs. Operational efficiencies arising out of specialization, dynastic reasons, tax planning were some of the other reasons given for multiple NBFCs. 7.1.2 While corporate groups may find it useful to set up multiple NBFCs within the group, the Working Group is of the view that multiple NBFCs that are part of a corporate group or are floated by common set of promoters should not, for regulatory and supervisory purposes, be viewed on a stand-alone basis, but should be viewed in aggregate. The total assets of all NBFCs must be taken together to determine whether they satisfy the cut-off limit of Rs. 100 crore, as certified by their Statutory Auditors. For this purpose, the definition of group should be the same as applicable for CICs.
7.2 The Working Group recommends that i. for the purpose of applicability of registration and supervision, the total assets of all NBFCs in a group should be taken together to determine the cut off limit of Rs. 100 crore. Capital adequacy, exposure and other prudential regulatory norms in such cases would be applicable to each entity in the group as applicable to NBFCs with assets of over Rs. 100 crore; their respective Statutory Auditors may certify the asset sizes of all the NBFCs within the group for this purpose; the concept of group should be the same as applicable for CICs. Captive NBFCs
ii.
iii. 8.
8.1.1 A recent phenomenon in the NBFC sector is the establishment of captive NBFCs. A captive finance company is one where a major portion of its portfolio in receivables is generated by the sales of products and services of the parent or the group. It functions as an extension of a corporates marketing activities. In most cases such captives operate as a core but separate subsidiary of the parent and in some cases as a distinct operating division. In most cases in India, captive NBFCs are generally wholly owned by the parent company. However, they may engage both in captive finance and financing unrelated parties, depending on the strategic mission of the captive NBFC. Typically, this model is adopted by the automotive, agricultural and construction equipment industries. 8.1.2 Captive NBFCs are set up to put the company's products within the reach of consumers and to ensure that the company has a steady pool of buyers. The business franchise of such NBFCs is inextricably linked to the fortunes of its parent. A key feature of a captive NBFC is that its credit decision takes into account not only the return from granting captive loans, but also the return from the sale of products purchased with captive loans. Internationally captives are also found to be highly leveraged as they are supported by direct finance from banks on their own standing and are often recipients of subordinated loans from their parents. Conversely, as in India, since the captive NBFC is a regulated entity, it has a greater ability to mobilize funds from the capital markets, which it can then lend to its parent. Hence even with an arms length relationship, interconnectedness between the parent and the captive can be high. The parent company can exercise a high degree of control over the captive, besides very often, also sharing management and strategy. Again, since the fortunes of the captives are linked to that of the parent, it is likely that credit underwriting standards are weaker and they hold credits that are riskier in nature7. Asset recalls, if any, can further stress such NBFCs. Economic cycles, competitive trends and regulatory changes are likely to affect both the parent and the subsidiary NBFC in the same way, potentially amplifying risk. Any major challenges confronting the parent could threaten the operations and asset values of the captive NBFC, and in the worst case scenario jeopardize its existence as an going operating entity even if it is managed on arms length basis.
In an empirical study conducted by John M. Barron, Andrew B Chong and Michael B. Staten viz., The Emergence of Captive Finance Companies and Risk Segmentation of the Consumer Loan Market the authors have used the regression model to compare consumer loans extended by banks and captive finance companies. According to the authors, the empirical analysis provides clear evidence that a captive automobile loan is less likely to be repaid than a bank automobile loan.results verify..that a captive finance companys credit standard is more lenient than that of a bank, which shows that the consumer automobile loan market in the US is segmented by banks and captive finance companies on the basis of consumers risk characteristics.
7
8.1.3 The Working Group notes that internationally, many automobile manufacturers hold a finance arm within the group. In many cases, by virtue of being regulated entities, the finance arms of these corporates have fared better than their parent entities. Besides, the parents of captives often provide credit risk mitigation in the form of full or partial residual value guarantees, receivable purchase agreements, first loss guarantees and rental guarantees that protect their captive financial arms from the adverse impact of asset concentration. Captive NBFCs generally have a more diversified liability base compared to their parent companies. There are also compelling economic incentives for the parent to support its financial arm through capital infusions given that captives can account for a substantial portion of the parents profitability and cash flows and may also share the same brand name. 8.1.4 Rating agencies often find it difficult to assess the credit profiles of captive NBFCs on a stand-alone basis. There is reluctance on the part of rating agencies to assign a rating higher than its parent to the captive finance arm of a corporate. By nature, a captives business focus is narrower than its counterparts with a greater degree of product and customer concentration, thereby increasing the credit risk on its asset portfolio. That said, several captive NBFCs registered with the RBI have diversified into lending not related to the parents product. In general, the Group felt that a higher cushion of capital than for normal NBFCs may be warranted for captives. 8.2 The Working Group recommends that i. as a model, captive NBFCs are commercial business decisions and hence should be permitted to exist; captive NBFCs, the business models of which focus mainly (90 per cent and above) on financing parent companys products, should be asked to maintain Tier I capital at 12 per cent from the time of registration; the supervisory risk assessment should take into account the risk of the parent company on the captive NBFC. Liquidity Management of NBFCs
ii.
iii.
9.
9.1.1 Liquidity is the ability of financial institutions to meet their payment obligations by quickly realizing value from their assets. As financial institutions are involved in maturity transformation, liquidity risks are endemic to them, with assets being mostly illiquid and of longer tenure than their liabilities. A variant of liquidity risk is funding risk, or the difficulty experienced by financial institutions in their ability to raise funds from market and other sources. One of the important hallmarks of the 2008 financial crisis, across jurisdictions, was the inability of financial institutions to roll over or obtain new short-term funding. Supervisors also failed to recognize the degree to which providers of wholesale funding had changed from banks to money market mutual funds. The heightened volumes in over-the-counter (OTC) derivatives also added to the demands on liquidity. 9.2 Basel III: International framework for liquidity risk measurement, standards and monitoring:
9.2.1 The Basel Committee on Banking Supervision has developed two internationally consistent regulatory standards for liquidity risk supervision, which are the Liquidity Coverage Ratio and the Net Stable Funding Ratio. The Liquidity Coverage Ratio stipulates that an institution should maintain adequate levels of liquid assets which can be converted to cash at very short notice to enable it to survive a 30 day time horizon. The objective is to promote shortterm resilience of the liquidity risk profile of institutions by ensuring that they have sufficient high-quality liquid assets to survive a significant stress scenario lasting 30 calendar days. The
Liquidity Coverage Ratio has two components: (a) value of the stock of high-quality liquid assets in stressed conditions; and (b) total net cash outflows. LCR is defined as: Stock of high quality liquid assets Total net cash outflows over the next 30 calendar days
9.2.2 The stock of liquid assets should enable the institution to survive until Day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions would be taken by management and/or the supervisory authorities for an orderly resolution of the situation. 9.2.3 The second objective of the Basel Committee recommendations is to promote resilience over a longer time horizon by creating additional incentives for institutions to fund their activities with more stable sources of financing on an ongoing basis. The Net Stable Funding Ratio has a time horizon of one year and has been developed to capture structural issues to provide a sustainable maturity structure of assets and liabilities should there be: a significant downgrade of the institutions credit rating, a partial loss of its deposits, a sharp reduction in its secured or unsecured wholesale funding, and/or an increase in its derivative collateral calls or its contractual off-balance sheet exposures. The Net Stable Funding ratio seeks to calculate the proportion of long term assets which are funded by long term stable funding which it prescribes should be greater than 100 percent. 9.2.4 The tightening of liquidity in the immediate wake of the global crisis of 2008-09 impacted the Indian NBFC sector which largely funded itself in the wholesale markets from banks and mutual funds. NBFCs that were more leveraged, more dependent on CPs and short term bank borrowing with little flexibility in shedding assets faced more stress. There were several pockets of stress in the sector. Sanctioned credit lines from banks were frozen. In response, several NBFC businesses either downsized their balance sheets or rationalized their branches and deferred their expansion plans. Business activities of NBFCs decelerated with loan book and investment growth slowing down considerably. 9.2.5 NBFCs that had overseas parents were able to mobilize some temporary liquidity support. The Reserve Bank had to step in with a series of measures to provide respite to financially stressed NBFCs in 2008-2009. They were allowed to raise short term foreign currency borrowings under certain conditions and borrow from the central bank liquidity adjustment facility through the commercial banks as a temporary measure. NBFCs were given access, against collateral of CPs of good quality issued by them, to an indirect lender of last resort facility (traditionally available only to banks) through an SPV structure. They were also allowed further time to comply with the increased capital adequacy requirements. Risk weights on bank exposure to NBFCs were brought down. Systemically important non deposit taking NBFCs were permitted to augment their capital by issuing perpetual debt instruments qualifying as capital. 9.2.6 The crisis of 2008 more than emphasized the need for effective liquidity management to cope during times of stress. Hence there is a need for additional regulatory measures on liquidity maintenance. 9.3 Extant Regulatory Requirements on liquidity for the NBFC Sector 9.3.1 Having recognized the liquidity risks that NBFCs-D could face, RBI has stipulated maintenance of a statutory liquidity requirement (SLR) at 15 percent of aggregate deposits on a daily basis. This percentage is lower than what the banks are required to hold because NBFCs do not have access to current account or savings deposits. ALM guidelines have been made applicable to NBFC-Ds with deposits of Rs. 20 crore and above. The ALM guidelines monitor structural liquidity, short term dynamic liquidity and interest rate sensitivity. Gap analysis is used to measure the mismatches over various time intervals. The main focus is on the short term mismatches of up to 30/31 days. Under these guidelines NBFC-Ds are required to ensure that the
negative gap in the 1-30/31 day bucket does not exceed 15 percent of the cash outflows under normal circumstances. 9.3.2 The crisis of 2008 brought home the realization that the norms relating to ALM and liquidity risk management are of equal importance to NBFCs-ND, as they do not have access to low cost deposits, nor are they permitted to operate in the call money market. Their fund raising capabilities are mostly restricted to raising commercial papers, non-convertible debentures with maturities between 3 months to one year, inter-corporate deposits and borrowings from banks, which are typically all of shorter maturity than their assets. Asset Liability Management (ALM) guidelines have been mandated for NBFC-ND-SIs with assets of Rs. 100 crore and above and for deposit taking NBFCs with deposits more than Rs. 20 crore. Such NBFCs are required to maintain a gap not exceeding 15% of their net cash outflows in the 1-30/31 day bucket. There is no such requirement for smaller NBFCs with asset sizes below Rs. 100 crore that do not hold public deposits. 9.3.3 The liquidity issues facing NBFCs were debated by the members of the Working Group. Members noted that while minimum CRAR for NBFCs is higher than that for banks, in times of turbulence this may not be sufficient to deal with potential liquidity stress. Hence, the issue of liquidity risk for NBFCs remains inadequately addressed. Apart from a quarterly return, no other regulatory requirements have been stipulated for NBFCs-ND below asset sizes of Rs. 100 crore. 9.3.4 However, liquidity issues are different for different subsets of NBFCs. A one-size-fits-all approach may not be appropriate. The large NBFCs, especially IFCs, have very long term assets and comparatively short term liabilities, thus carrying ALM mismatches and possible refinancing risk in their balance sheets. ALM mismatches for NBFCs which are into retail financing may not be as marked as in the case of IFCs. Retail focused NBFCs are often able to reduce the maturity of their assets through securitization and bilateral assignments. An analysis of the liquidity mismatches for 177 large NBFC-ND-SIs shows that more than 60 percent have positive mismatches in their ALM in the first two buckets. 9.3.5 Under the new liquidity related stipulations of Basel lll, banks are categorized as wholesale banks and retail banks, and the new norms are applicable to both. Taking all aspects into consideration, the Working Group is of the view that all NBFCs should have a liquidity cushion for any stress faced up to the 30 day period. All NBFCs, both deposit taking and non deposit taking should hold Government securities equal to the gap between their total inflows and outflows up to the 30 day period. While some members of the Group felt that NBFCs being in the nature of wholesale banks (at least on the liabilities side of the balance sheet) should have access to the RBI repo window, it was acknowledged that the LOLR facility is normally reserved for banks which are subject to a much tighter regulatory regime than NBFCs. It was noted that NBFCs would in any event have the opportunity to use committed credit lines or government securities maintained by them as part of a liquidity buffer for repos in the market in the event of stress. 9.4 The Working Group recommends that i. all registered NBFCs deposit taking and non deposit taking - should maintain high quality liquid assets in cash, bank deposits maturing within 30 days, government securities, treasury bills eligible for repos, investment in money market instruments maturing within 30 days equal to the gap between total net cash inflows and outflows over the 1 to 30 day time bucket as a liquidity coverage requirement. Issues in Corporate Governance
10.
10.1.1 The need for adopting good corporate governance practices has been the focus of attention of all financial entities. This is critical from the perspective of investors and stake holder
confidence more generally. In recognition of this, RBI has prescribed a governance code for NBFCs as part of best practices. Corporate governance guidelines have been prescribed for all deposit taking companies with deposits above Rs. 20 crore and above and systemically important non-deposit taking NBFCs. These entail constitution of Risk Management, Audit and Nomination Committees as well as some regulations on disclosure and transparency. Listed NBFCs are also expected to adhere to the corporate governance rules under the Clause 49 Listing Agreement of SEBI. While due diligence is undertaken on significant shareholders and directors at the time of registration there are no prescriptions for qualifications for directors or a system for continuing due diligence as in case of banks. Further in the event the RBI feels that any director is not fit or proper there are no powers for removal of such a person. In addition, there are no guidelines on connected lending or remuneration practices which are engaging regulators universally. 10.1.2 With the increasing size, interconnectedness and systemic significance of NBFCs, it is important that the directors and share holders who are responsible for steering the company are fit and proper and have the necessary qualifications. At the time of granting CoR to a company, RBI is required to satisfy itself that the conditions specified in Section 45IA(4) of the Act are fulfilled. Those conditions include, (a) that the affairs of the NBFCS are not being or not likely to be conducted in a manner detrimental to the interest of its present or future depositors and (b) that the general character of the management or the proposed management of the NBFC shall not be prejudicial to public interest or the interest of its depositors. In order to satisfy itself about the general character of the management of an NBFC and how its affairs are conducted, it will be necessary for RBI to know as to who are or will be managing the company. As such, due diligence is conducted with respect to significant shareholders and the directors. However, there is no specific provision in the Act which requires an NBFC to take the approval of RBI for any change in the management of NBFC. 10.1.3 In paragraph 3.2 above, the Working Group has recommended that any change in control or change in shareholding, directly or indirectly above 25% should be with the prior approval of RBI. It has also recommended prior approval of RBI for any mergers of NBFCs under Section 391394 of the Companies Act, 1956 or acquisitions by or of an NBFC, which are governed by the SEBI Regulations for Substantial Acquisitions of Shares and Takeover. As a long term measure, the Working Group recommends that suitable amendments may be carried out in the RBI Act giving powers to RBI over management of NBFCs similar to that available and proposed in the case of banks. 10.1.4 The restrictions on the number of directorships with respect to NBFCs are governed by the provisions of sections 275 and 278 of the Companies Act, 1956. As regards NBFCs, there are no restrictions on the number of directorships on the lines of the restrictions set forth in section 16 of BR Act for banking companies. Because under section 278 of Companies Act, the directorships in private companies are not counted for the purposes of section 275 of that Act (under which a person cannot be a director of more than fifteen companies), persons who are directors in more than fifteen companies also become directors of NBFCs. It is observed that directors of many companies applying for Certificate of Registration are on the Boards of a large number of companies, including NBFC group companies and foreign companies. Instances of as many as 24 directorships have been observed. Multiple directorships are inconsistent with principles of good governance. 10.1.5 It is equally important to extend the due diligence and fit and proper norms to the principal shareholders of the companies. In small privately held businesses shareholders play an active role in the affairs of the company. The same principle is applicable to large, professionally managed NBFCs where the Board of Directors is different from the shareholders, and where the shareholders are represented in the Boards and hence play an active part in shaping the policies of the NBFCs. It may be mentioned that at present, under the acknowledgement procedure put in
place by RBI, any change in shareholders beyond 5 percent in banking companies invites a due diligence exercise on the new shareholders by the RBI. Appropriate statutory provisions8 in this regard are proposed to be inserted in the BR Act. The Working Group is satisfied that similar statutory provisions should be made for NBFCs also. 10.1.6 An equally important corporate governance issue not addressed by regulation is adoption of appropriate measures to contain connected lending in NBFCs. In view of their growing systemic significance and professionalization of management, many large NBFCs have themselves adopted such measures. Nevertheless, there is need to put appropriate regulation in place to avoid instances of diversion of funds, including borrowed funds, to Directors, their relatives, or to firms that the Directors are associated with or have substantial or beneficial interest in. The Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision in September 1997 state that in order to prevent a contagion risk, and to prevent abuses arising from connected lending, banking supervisors must ensure that lending to related companies and individuals are on an arms length basis, and that such credits are clearly identifiable, effectively monitored and appropriate steps are taken to control (in terms of quantitative limits) or mitigate risks. 10.1.7 The global financial crisis of 2008 has demonstrated the risks from ill designed incentive based compensation packages being offered to the management. The remuneration packages encouraged short term performance goal setting at the cost of long term success of companies resulting in excessive risk taking by the management of companies. The disconnect between performance based compensation and actual value added to companies has been one of the core issues of the financial crisis and has prompted the Financial Services Board to recommend that sound compensation principles must be embedded in any financial reform. These include risk alignment and variable pay structures, claw back clauses besides appropriate disclosures. While these issues are being debated for suitable adaptability in the Indian context, they are nevertheless pertinent from a governance perspective. 10.1.8 The Working Group in their deliberations on corporate governance in the NBFC sector agreed that due diligence of Directors is important. The Joint Parliamentary Committee (JPC) on the Stock Market Scam has also observed in their report that it is imperative for the banks to follow strategies and techniques which are basic to the tenets of sound corporate governance, which include capable and experienced Directors, efficient management, coherent strategy and business plan and clear lines of responsibility and accountability. The Working Group is of the view that all NBFCs with asset size of Rs. 1000 crore and above whether listed or not should comply with clause 49 of SEBIs listing agreement. These requirements ought to be mandatory for all NBFCs with asset size of Rs. 1000 crore and above and could be advised but not mandatory for those below it. The uniform application of clause 49 of SEBI's Listing Agreement stipulations should result in the necessary improvement in the qualification, professionalism, and independence of NBFCs Directors, impose appropriate limitations on the number of directorships that can be held by one person, and induce greater disclosure. 10.1.9 Clause 49 mandates that there should be an independent and qualified audit committee in which all members are to be financially literate and at least one to have expertise in accounting or financial management. It also requires that a Director shall not be a member in more than 10 committees across all companies in which he is a director. There is also the requirement of submission of quarterly reports, disclosure of compensation to its non-executive directors, disclosure of all related party transactions, remuneration to directors etc.
8 Clause
5 of The Banking Laws (Amendment) Bill, 2011 (Bill no 18 of 2011) proposing insertion of Section 12B in BR Act.
10.1.10 The G-20 has made recommendations for the design of remuneration systems of risk taking entities. The Working Group also feels that it is useful to mandate NBFCs to adopt a remuneration policy based on the general principles now accepted internationally to curb excessive risk taking. 10.2 The Working Group recommends that i. in regulating NBFCs, RBI should have the legal powers relating to management similar to those available under BR Act for banks. This may be considered at the time of comprehensive legislation change for the financial sector; all registered NBFCs with assets of Rs. 1000 crore and more whether listed or not, should be required to comply with Clause 49 of SEBI listing Agreements, including induction of Independent Directors and disclosures pertaining to connected lending. NBFCs with assets of Rs. 100 crore and more but less than Rs. 1000 crore may be encouraged to adopt Clause 49 principles in their governance practices; compensation guidelines when finalized for banks may also be issued to NBFCs; all Boards of NBFCs with assets of Rs. 1000 crore and above should have in place a Remuneration Committee to decide on the compensation to be paid to the Management of NBFCs. Broad principles must be laid down to ensure that remuneration practices do not lend themselves to excessive risk taking by managers of NBFCs; NBFCs below the Rs. 1000 crore asset size threshold may consider adopting these best practices, though the Working Group is not mandating their adoption; continuing due diligence on directors may be ensured; there should be disclosures on connected lending and other exposures to connected parties in the published annual report; Disclosures for NBFCs
ii.
iii. iv.
v.
vi. vii.
11.
11.1.1 Presently, balance sheet disclosures by NBFCs are largely guided by those laid down by the Companies Act 1956, SEBI disclosure regulations for listed companies, and a few items mandated by the RBI. The disclosures mandated by RBI require all NBFCs (irrespective of whether they hold public deposits or not) to attach a schedule to their balance sheet containing additional particulars of assets and liabilities and details of their non-performing assets. NBFCsND-SI, have to disclose their Capital to Risk Asset Ratio (CRAR), their exposure (both direct and indirect) to the real estate, and the maturity pattern of their assets and liabilities. Additionally, if the NBFC is a listed entity it has to comply with the SEBI Code of Corporate Governance under Clause 49. On the whole though NBFC disclosures have been kept simpler and do not call for much detail because they have been applied uniformly to a whole range of NBFCs with asset sizes varying from as little as Rs. 0.25 crore to as large as Rs. 90,000 crore. 11.1.2 The IMFs Global Financial Stability Report of April 2008 states that "providing timely and consistent reporting of exposures and valuation methods to the public, particularly for structured credit products and other illiquid assets, will help alleviate uncertainties about regulated financial institutions positions". It also states "nearly all emerging market countries should review the reliability and depth of detail in financial institutions public disclosures and the robustness of their accounting frameworks as uncertainty about the health of major financial institutions breeds financial instability".
11.1.3 The provisions of the Companies Act are applicable to all companies, including NBFCs, while SEBI disclosure norms apply to all listed entities. However, these disclosure norms do not differentiate between manufacturing, trading or financial companies. Financial institutions are exposed to risks arising out of counterparty failures, funding and asset concentration, interest rate movements, and risks pertaining to liquidity and solvency. Being highly leveraged as compared to manufacturing or trading entities, the capacity of financial institutions to absorb losses is hence typical lower than their commercial counterparts. It follows that the bar for disclosure should be set higher for financial institutions than for non-financial ones. Given the growing inter linkages between NBFCs and other market participants and the increasing complexity of their product offerings there is now need for greater transparency and rigor in the disclosure norms that apply to NBFCs. Lessons from recent global developments only reinforce this conclusion. 11.1.4 The issue however is not just to mandate more disclosure for NBFCs. The need for greater disclosure must be carefully balanced against the cost of such disclosure and the risk of creating information overload for stake holders. It serves no purpose if relevant disclosures get buried under a sea of less significant information. 11.1.5 The members of the Working Group agree that NBFC disclosure norms could be brought closer to those that apply to banks. Since NBFCs are prone to concentration risk and thereby correlation risk, as they are predominantly into financing of a particular sector or product, certain disclosures on the sectoral concentration and borrower concentration is required. Being a market regulator SEBI disclosure requirements in Clause 49 do not mandate disclosure of interconnectedness of an NBFC to the financial sector, both on the liabilities side and on the asset side. NBFCs may need to disclose the number of loans and advances made to other NBFCs as well as their interconnectedness with the mutual funds. The aim is to ensure that market participants and investors are provided the relevant information on the risks being undertaken by the company. As provided in Clause 49, the NBFC should disclose transactions with related parties and subsidiaries. The present disclosure requirements for NBFCs do not mandate disclosure of complex derivative and structured products involving leveraged positions, risks involved, corporate governance processes, exposure to sensitive sectors and overseas dealings. NBFCs should also disclose the number of frauds, if committed. 11.1.6 Exhaustive and detailed disclosures on the lines of banks, however, would be onerous and expensive for NBFCs and not commensurate with their size and volume of activities. The Working Group agree that greater disclosure requirements should be restricted to NBFCs with asset size above Rs 50 crore. Such NBFCs should be required to provide uniform information on the health of their assets and their exposure to sensitive sectors. Further, disclosures should be extended to cover their off-balance sheet and non-fund based activities, including guarantees, derivatives, securitization and bilateral assignments of loans. It is expected that the latter would make the calculation of capital adequacy requirements for NBCs more accurate than they are currently. 11.1.7 The Working Group also agrees that all NBFCs must be required to additionally disclose details of movements in NPAs. 11.2 The Working Group recommends that i. mandatory disclosures under Clause 49 of the listing agreement should be made applicable to all NBFCs, whether listed or not, with assets of Rs. 100 crore and above; all registered NBFCs should disclose their registration with another regulator such as SEBI, IRDA, Stock Market and Commodity Exchanges, as well as any credit ratings assigned by rating agencies; all registered NBFCs should disclose penalties, if any, levied by any regulator;
ii.
iii.
iv. NBFCs with assets of Rs 100 crore and above should, in addition disclose their provision coverage ratio, liquidity ratio, Asset Liability profile, extent of financing of parent company products, movement of NPAs, details of all off-balance sheet exposures, structured products issued by them as also securitizations/assignments; Information as required in iv. above should be made available on the website of an unlisted NBFC with asset size of Rs. 1000 crore and above. Supervisory Framework for the NBFC Sector
v.
12.
12.1.1 Across the world, central banks and financial regulators have traditionally used supervisory practices as a tool to periodically ensure the safety and the soundness of financial institutions as also to protect the interest of the depositors, investors and other stakeholders of these institutions. In the aftermath of the recent financial crisis in 2008-09 preservation of the financial stability of institutions and markets has emerged as one of the foremost and key objectives of financial supervision. A study of the financial crisis has revealed that while the regulation of financial institutions may have been robust, less attention had been paid to supervision, supervisory resources and compliance with the regulatory framework. According to expert opinion while there is a need for a micro prudential approach to supervision, the importance of also adopting a macro prudential perspective to supervision cannot be overemphasized. The supervisory authorities must remain continually vigilant by identifying and monitoring large capital inflows and outflows, incipient asset market bubbles, sudden changes in market sentiment and expectations and other factors that may affect the stability of the financial system. 12.1.2 Various international bodies such as the G-20, the Bank for International Settlements (BIS), central banks and other supervisory authorities around the world are now actively engaged in the process of prescribing a wide range of measures to evaluate and contain local and cross border systemic risks for the purpose of promoting a robust and sound global financial system. 12.2 Extant Supervisory Framework 12.2.1 The supervisory framework for Non-Banking Finance Companies in India was created in 1997 with the objective of protecting the interest of depositors. The emergence of large complex interconnected non deposit taking NBFCs with increased scope and sophistication brought in tighter regulations but supervision did not keep pace with the enhanced regulations. 12.2.2 The existing framework for supervision of NBFCs primarily consists of a system of i) offsite supervision involving scrutiny of periodical returns and statements containing financial and prudentially important data submitted by the NBFCs and ii) on- site supervision of the books of account and other records of the NBFCs. 12.3 On-Site Supervision 12.3.1 Under the current framework effective from January 2005, deposit taking NBFCs are inspected at varying intervals depending on the size of their deposits and supervisory concerns which come to light during on-site assessment or off-site surveillance. With effect from 2006, a separate and distinct class of institutions, viz., systemically important non deposit taking NBFCs (NBFC-ND-SIs)9, was identified for the purpose of closer monitoring. However, a detailed assessment of NBFC-ND-SIs commenced from the year 2010.
9 The
threshold for categorization as NBFC-ND-SI was fixed in 2006 at Rs 100 crore.
12.4 Off-Site Surveillance 12.4.1 A comprehensive framework for off-site returns has been put in place for deposit taking NBFCs and for non deposit taking NBFCs with asset size of Rs. 100 crore and above. This comprises of returns of varying periodicity on balance sheet financials, compliance to prudential regulations on NOF, capital adequacy, exposure norms, capital market exposure, adherence to the minimum capitalization norms under the FDI norms besides other requirements. For deposit taking companies there is the mandate to report on their maintenance of statutory liquid assets. 12.4.2 A watch is kept on companies which are likely to become systemically important in the near future and data requirements have been mandated for companies with asset size between Rs. 50 and Rs. 100 crore. 12.4.3 In addition to the above returns, all NBFCs, are required, at the end of March every year, to submit an annual certificate duly certified by their Statutory Auditors, that the company is engaged in the business of NBFI as required by its original CoR. 12.4.4 The system of offsite reporting by NBFCs-D and NBFCs-ND-SI is currently quite comprehensive. However some rationalisation is being envisaged to make it symmetric across both categories. 12.5 Government Owned NBFCs 12.5.1 Government owned NBFCs, although registered with the RBI, have been exempted from Prudential Norms Directions and also from on site supervision. In 2006, when the new regulatory category of NBFCs viz., NBFC-ND-SI, was created, several Government-owned companies came within the systemically important category. The Bank felt that in view of their size and interconnectedness with the wider financial system, their ability to impact financial markets and their reliance on the public exchequer, such companies should also be brought under the Bank's prudential norms directions. Consequently they were asked to provide a roadmap for adherence to the NBFC prudential norms directions. 12.6.1 The members of the Working Group examined the present framework for supervision of NBFCs. The Group is of the view that for supervision to be meaningful it should be timely, focused on risks as thrown up by offsite returns and by market intelligence. Supervision should be forward looking and identify both current and potential risks, including likely contribution to systemic risk. Inspections should invariably focus on the quality of governance and management. Early warning mechanisms should be in place for timely detection of potential risks. 12.6.2 The Group is of the view that the present system of inspection of deposit taking NBFCs should continue. It was felt that the periodicity based on risk and size was appropriate. However, this should be supplemented with supervision of NBFCs-D selected on a random basis as well, irrespective of the size. The supervision of NBFCs with assets over Rs. 1000 crore should be intensive and continuous. Inaddition to the present CAMELS system, supervisory focus for such NBFCs should be expanded to include macro prudential parameters to identify system wide risks for maintaining financial stability. The inspection should, apart from regulatory compliance, also focus on potential risks on account of the business model followed by such NBFCs. Aspects such as single product focus, funding strategy, complex liability products, securitisation and assignment of loans, interconnectedness, counterparty credit risk, substitutability etc. should be examined. The rating criteria for such NBFCs should be suitably modified to incorporate these new elements. Compliance failures should lead to penalties which will have to be placed in the public domain and form part of the public disclosure requirements for the entity concerned. Offsite returns for all registered NBFCs, deposit taking and non deposit taking should be uniform in content and periodicity.
12.6.3 A mechanism should also be evolved to carry out periodical stress testing exercises based on historical as well as hypothetical scenarios to gauge the vulnerabilities of large systemically important institutions to unexpected changes in the macroeconomic environment and to design appropriate action to enhance their resilience. 12.7 Supervision of Government owned NBFCs 12.7.1 The Working Group is of the view that supervision should be ownership neutral. Government owned NBFCs being recipients of budgetary support and public borrowings are deeply interconnected to financial markets through both the liability and the asset sides of their balance sheets. There is also the risk of moral hazard on account of the implicit sovereign guarantees they hold. Their enormous growth in the last fifteen years and lack of substitutability could pose serious systemic risk in the event of a severe financial downturn and hence they must be subjected to active regulation and supervision. 12.8 Supervision of Conglomerates 12.8.1 Due to serious limitations to the stand alone approach to supervision in addressing the risks associated with NBFCs there is a need for introducing conglomerate-wide supervision. A large number of NBFCs are part of groups comprising stock brokerages, merchant banking institutions, and insurance firms, sharing a common brand, logo or name. The financial inspection of NBFCs presently being carried out by RBI does not provide for the review of the overall activities of NBFCs on a group basis. The regulation and monitoring of the financial operations of such large, complex financial conglomerates have been brought under the Financial Conglomerate regulations for banks, provided they hold a banking arm as well. The NBFC sector comprises of many such groups which together can impact the financial system. They have not all been identified as Financial Conglomerates as they do not have significant presence in a given sector. 12.9 Supervisory Resources 12.9.1 The members observed that the expanded mandate for the scope of supervision may require enhanced levels of supervisory resources, both in terms of numbers and skills which the current structure does not support. 12.10 The Working Group recommends that i. the existing supervisory framework has to be enhanced to reflect the ongoing changes in perception of risk due to existence of regulatory arbitrage, rapid asset growth, extent of interconnectedness with the financial sector, speed of innovations and technological advancement in the NBFC sector; a system of comprehensive supervision based on a forward looking CAMELS plus approach should be introduced for all NBFCs with asset size of above Rs. 1000 crore. The rating model should be revised and made more granular taking into account the contribution to systemic risk by way of assessment of various risks pertaining to concentration, funding models, asset liability mismatches, liquidity, counterparty credit, complex structured off-balance sheet exposures, securitization and credit transfer, leverage, cross border transactions, etc. As the identification and quantification of systemic risks is still evolving, the model adopted has to keep pace with the developments in the field; NBFCs with assets of Rs 1000 crore and above should be inspected comprehensively on an annual basis. Such NBFCs should also be subject to stress testing on an annual basis;
ii.
iii.
iv. NBFCs with less than Rs. 1000 crore should be inspected at intervals depending on size, risk perception based on offsite returns and market intelligence. Also a few inspections and scrutinizes may be carried out at random to ensure an element of surprise; the existing supervisory approach adopted for deposit taking NBFCs which is more on lines of those for banks may be continued; off-site returns should be uniform in content and periodicity for all registered NBFCs (including deposit taking and non deposit taking); Monthly data on sectoral flow of credit should be collected from all NBFCs with assets of over Rs 1000 crore; All Government entities meeting the principal business criteria for NBFCs should, without exception, be subject to supervisory oversight by the RBI; NBFCs which are part of financial groups that do not include a banking company may be subject to conglomerate supervision. For this purpose, guidelines may be evolved in consultation with other regulators; NBFCs that have stock brokers and merchant bankers as part of the group may be inspected from the view point of assessing the spill-over risk to the NBFC on account of the own account lending and investment activities of such stock brokers and merchant bankers; supervisory resources in terms of numbers and skills should be enhanced to meet the demands of supervision. Summary of Recommendations Particulars Definition and Classification of NBFCs i. The Reserve Bank should, under Section 45NC, exempt all non deposit taking NBFCs from the requirement of registration if their individual asset sizes are below Rs. 50 crore. The Reserve Bank should, under Section 45NC, exempt from registration all NBFCs with asset size below Rs. 1000 crore that are not accessing public funds (public funds are raised either directly or indirectly through public deposits, commercial papers, debentures, inter-corporate deposits, guarantees and bank finance or any other debt instrument, but exclude funds raised by issue of share capital and/ or instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue from registration with RBI. However, an annual certificate of their Statutory Auditors certifying the NOF, total asset size and whether they have accessed any public funds in the financial year should be submitted to Reserve Bank. NBFCs with asset size more than Rs. 1000 crore should be registered and regulated even if they are carrying on the business of an NBFC with their own funds. Existing NBFCs-ND with asset size of less than Rs. 50 crore may be encouraged to deregister with the RBI. NBFCs-ND which do not get themselves deregistered will have to apply afresh under section 45IA for obtaining a CoR if their asset size exceeds Rs. 50 crore after two years (from the date on which RBI issues suitable
v.
vi.
vii.
viii.
ix.
x.
13. Section 3.2
ii.
iii.
iv.
Section Particulars Notification under section 45NC). v. The minimum NOF requirement for all new NBFCs wanting to register with the Bank could be retained as at present viz., Rs. 2 crore (till the RBI Act is amended), but a minimum asset size of more than Rs. 50 crore should be insisted upon by the RBI. All registered NBFCs, both deposit taking and non-deposit taking, should take prior approval from the Reserve Bank, where there is a change in control or transfer of shareholding directly or indirectly in excess of 25 percent of the paid up capital of the company. Prior approval of RBI should also be required for any mergers of NBFCs under Section 391-394 of the Companies Act, 1956 or acquisitions by or of an NBFC, which are governed by the SEBI Regulations for Substantial Acquisitions of Shares and Takeover.
vi.
vii.
4.2
Principal Business A Relook at the Definition i. The twin criteria of assets and income for determining the principal business of a company need not be changed. However, the minimum percentage threshold of assets and income should be increased to 75 per cent. Accordingly, the financial assets of an NBFC should be 75 per cent or more (as against more than 50 per cent) of total assets and income from these financial assets should be 75 per cent or more (as against more than 50 percent) of total income. Existing non deposit taking NBFCs should be given a period of three years to comply with the revised definition of principal business. An incremental approach may be adopted to graduate to the revised criteria and milestones may be specified for NBFCs so that they do not slip back in fulfilling the criteria within the 3 year period. If they are unable to reach the asset and income thresholds respectively within the three year period, they should be deregistered by RBI as an NBFC through a public notification. Existing deposit taking NBFCs failing to achieve deposit taking the 75:75 criteria in three years time should not be allowed to accept fresh deposits or renew fresh deposits thereafter. They should prepay deposits within a timeframe and convert to non banking non financial companies. For the purpose of computing total financial assets, cash and bank deposits maturing within 30 days, government securities, treasury bills eligible for repos, investments in money market mutual funds or investments in money market instruments maturing within 30 days which are kept for liquidity purposes and advance payment of taxes and deferred tax payments, may be deducted from the numerator and denominator. For the purpose of computing income, the three year moving average may be used.
ii.
iii.
5.2
The financial activities as given in the Act may be suitably amended to exclude insurance business, management of chits and kuries and collection of monies for awarding prizes or gifts. Categories of NBFCs and the Practicality of Differentiated Regulations by Type of Activity i. In view of the fact that there is no difference in the regulatory framework for loan companies and Investment companies and since most of the NBFCs-ND-SI are a mixture of loan and investment companies, a single
iv.
Section Particulars category of loan/investment Company should be made. ii. Asset Finance Companies should be retained as a separate category of NBFC provided however such companies are predominantly engaged in the asset finance business. Principal business for AFCs may be redefined: a minimum of 75 per cent of the assets of AFCs (as against 60 per cent presently) should be in asset financing activities and at least 75 per cent of total income should be from these asset financing activities. Existing AFCs may be given a period of three years to conform to the revised principal business criteria without any slip back as and when it reaches a higher percent of asset financing. For the purpose of calculating if a company meets the 75 per cent asset and income thresholds, the revised definition of financial assets as given in footnote 5 on page 132 (page 26 in original RBI paper) may be adopted for all NBFCs including Asset Finance and Infrastructure Finance Companies.
iii.
iv.
6.2
Limit for acceptance of deposits for rated AFCs should be reduced from 4 times NOF to 2.5 times NOF. AFCs presently exceeding this limit may not renew or accept fresh deposits till such time as they reach the revised limit. Regulatory Arbitrage and Convergence in Regulation i. The Tier I capital for CRAR purposes should be specified as 12 per cent to be achieved in three years for all registered deposit taking and non-deposit taking NBFCs. The Board approved limits for banks exposure to real estate should be applicable for the bank group as a whole, where there is an NBFC in the group. The risk weights for NBFCs that are not sponsored by banks or that do not have any bank as part of the Group may be raised to 150 per cent for capital market exposures and 125 per cent for CRE exposures. In case of bank sponsored NBFCs, the risk weights for CME and CRE should be the same as specified for banks. The Liquidity Ratio should be introduced for all registered NBFCs such that cash bank balances and holdings of government securities fully cover the gaps, if any, between cumulative outflows and cumulative inflows for the first 30 days. The asset classification and provisioning norms (including standard asset provisioning norms) should, in a phased manner, be made similar to that of banks for all registered NBFCs irrespective of size. The tax treatment for provisions made by NBFCs for regulatory purposes should be similar to that for banks. Whenever RBI implements any macro prudential measures to address systemic risk, such measures should be made applicable to NBFCs as well.
v.
ii.
iii.
iv.
v.
vi.
vii.
viii. ix.
NBFCs may be given the benefit under SARFAESI Act, 2002. The RBI may review the accounting norms prescribed for NBFCs and apply
Section Particulars the same norms for them as laid down for banks and further encourage NBFCs to follow the principles enunciated in AS 30. Gaps in Regulation between Stock Broking firms, Investment/Merchant Banks and NBFCs i. NBFCs should be subject to similar regulations as banks while lending to stock brokers and merchant banks. Further they could be subject to similar regulation as stipulated by SEBI for stock brokers while undertaking margin financing. The supervisory framework for NBFCs that have brokers and merchant bankers in the group, where the total assets in the group exceeds Rs 1000 crore, should adopt a financial conglomerate approach and examine the implications of the spill-over of risk of such entities on the parent NBFC or group NBFC arm and issue appropriate directions for cushioning such risk.
6.6
ii.
6.8
In general, all Government owned entities that qualify as NBFCs under the prescribed principal business criteria should be required to comply with the regulatory framework applicable to NBFCs at the earliest. Regulatory Convergence between Banks and Deposit taking NBFCs i. The present policy stance of RBI not to allow registration of any new deposit taking company should continue. All existing NBFCs-D should be credit rated. Unrated AFCs should not be permitted to accept deposits.
iii.
ii.
7.2
Existing unrated NBFCs-D should be given a period of one year to get themselves rated if they wished to continue to accept deposits. Thereafter, they should not be allowed to accept any fresh deposits or renew existing deposits till they get themselves rated. Multiple NBFCs i. For the purpose of applicability of registration and supervision, the total assets of all NBFCs in a group should be taken together to determine the cut off limit of Rs. 100 crore. Capital adequacy, exposure and other prudential regulatory norms in such cases would be applicable to each entity in the group as applicable to NBFCs with assets of over Rs. 100 crore. Their respective Statutory Auditors may certify the asset sizes of all the NBFCs within the group for this purpose.
iii.
ii.
8.2
iii. The concept of group should be the same as applicable for CICs. Captive NBFCs i. As a model, captive NBFCs are commercial business decisions and hence should be permitted to exist. Captive NBFCs, the business models of which focus mainly (90 per cent and above) on financing parent companys products, should be asked to maintain Tier I capital at 12 per cent from the time of registration.
ii.
9.4
The supervisory risk assessment should take into account the risk of the parent company on the captive NBFC. Liquidity Management of NBFCs
iii.
Section Particulars All registered NBFCs deposit taking and non deposit taking - should maintain high quality liquid assets in cash, bank deposits maturing within 30 days, government securities, treasury bills eligible for repos, investment in money market instruments maturing within 30 days equal to the gap between total net cash inflows and outflows over the 1 to 30 day time bucket as a liquidity coverage requirement. Issues in Corporate Governance i. i. In regulating NBFCs, RBI should have the power relating to management similar to those available under BR Act for banks. This may be considered at the time of comprehensive legislation change for the financial sector. All registered NBFCs with assets of Rs. 1000 crore and more whether listed or not, should be required to comply with Clause 49 of SEBI listing Agreements, including induction of Independent Directors and disclosures pertaining to connected lending. NBFCs with assets of Rs. 100 crore and more but less than Rs. 1000 crore may be encouraged to adopt Clause 49 principles in their governance practices. Compensation guidelines when finalized for banks may also be issued to NBFCs. All Boards of NBFCs with assets of Rs. 1000 crore and above should have in place a Remuneration Committee to decide on the compensation to be paid to the Management of NBFCs. Broad principles must be laid down to ensure that remuneration practices do not lend themselves to excessive risk taking by managers of NBFCs. NBFCs below the Rs. 1000 crore asset size threshold may consider adopting these best practices, though the Working Group is not mandating their adoption. Continuing due diligence on directors may be ensured.
10.2
ii.
iii.
iv.
v.
vi. vii.
11.2
There should be disclosures on connected lending and other exposures to connected parties in the published annual report. Disclosures for NBFCs i. Mandatory disclosures under Clause 49 of the listing agreement should be made applicable to all NBFCs, whether listed or not, with assets of Rs. 100 crore and above. All registered NBFCs should disclose their registration with another regulator such as SEBI, IRDA, Stock Market and Commodity Exchanges, as well as any credit ratings assigned by rating agencies. All registered NBFCs should disclose penalties, if any, levied by any regulator. NBFCs with assets of Rs 100 crore and above should, in addition disclose their provision coverage ratio, liquidity ratio, Asset Liability profile, extent of financing of parent company products, movement of NPAs, details of all off-balance sheet exposures, structured products issued by them as also securitizations/assignments. Information as required in iv. above should be made available on the
ii.
iii.
iv.
v.
Section 12.10 Particulars website of an unlisted NBFC with asset size of Rs. 1000 crore and above. Supervisory Framework for the NBFC Sector i. The existing supervisory framework has to be enhanced to reflect the ongoing changes in perception of risk due to existence of regulatory arbitrage, rapid asset growth, extent of interconnectedness with the financial sector, speed of innovations and technological advancement in the NBFC sector. A system of comprehensive supervision based on a forward looking CAMELS plus approach should be introduced for all NBFCs with asset size of above Rs. 1000 crore. The rating model should be revised and made more granular taking into account the contribution to systemic risk by way of assessment of various risks pertaining to concentration, funding models, asset liability mismatches, liquidity, counterparty credit, complex structured off-balance sheet exposures, securitization and credit transfer, leverage, cross border transactions, etc. As the identification and quantification of systemic risks is still evolving, the model adopted has to keep pace with the developments in the field. NBFCs with assets of Rs. 1000 crore and above should be inspected comprehensively on an annual basis. Such NBFCs should also be subject to stress testing on an annual basis. NBFCs with assets less than Rs. 1000 crore should be inspected at intervals depending on size, risk perception based on offsite returns and market intelligence. Also a few inspections and scrutinizes may be carried out at random to ensure an element of surprise. The existing supervisory approach adopted for deposit taking NBFCs which is more on lines of those for banks may be continued. Off-site returns should be uniform in content and periodicity for all registered NBFCs (including deposit taking and non deposit taking). Monthly data on sectoral flow of credit should be collected from all NBFCs with assets of over Rs 1000 crore. All Government entities meeting the principal business criteria for NBFCs should, without exception, be subject to supervisory oversight by the RBI. NBFCs which are part of financial groups that do not include a banking company may be subject to conglomerate supervision. For this purpose, guidelines may be evolved in consultation with other regulators. NBFCs that have stock brokers and merchant bankers as part of the group may be inspected from the view point of assessing the spill-over risk to the NBFC on account of the own account lending and investment activities of such stock brokers and merchant bankers. The supervisory resources in terms of numbers and skills should be enhanced to meet the demands of supervision.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
Annex I Recommended Legislative Changes: 1. Section 45I (c) of RBI Act lists out six activities namely financing, acquisition of shares and securities, hire purchase, insurance, managing chit funds, and collecting money under any scheme etc., as financial business. Companies which carry on such business are NBFCs unless their principal business is carrying on agricultural operations, industrial activities, trading in goods and services or construction and allied activities. There have been many changes in the financial landscape in the recent past. The setting up of IRDA in 1999 to regulate the insurance sector and regulation of Chits by the State Governments calls for revising the list of activities specified in Section 45 I(c). The Working Group is of the view that insurance business and chit fund business should be omitted from Section 45I(c) whenever the amendments are taken up. New forms of business which may require to be regulated by RBI may be separately identified for inclusion in Section 45 I(c) at that time, or flexibility may be given to RBI to include in the said list of businesses, any other business from time to time. Over the years the entry point norms for registering as an NBFC has remained capped at Rs. 2 crore as specified under the Act. In contrast, the entry point norms to start an insurance business is Rs. 100 crore and it is Rs. 10 crore for stock brokers who desire currency exchange memberships (type clearing member). Thus the entry point capital limit presently for NBFCs has not kept pace with the changing times. As discussed in Section 3 of the Report, the present limit of Rs. 2 crore is too small to enable a financial entity to carry on business in such a manner that there are economies of scale and scope. A higher entry barrier in the form of a higher NOF requirement is necessary so that only serious players enter the sector. Hence, a minimum requirement of Rs. 2 crore in start up NOF is grossly inadequate from the perspective of financial soundness and solvency. The Working Group feels as and when the RBI Act amendments are taken up, Section 45IA (1) (b) ofthe RBI Act 1934 should be amended to prescribe entry level criteria as a floor without a cap on the power of RBI to specify a higher requirement of NOF. Banks and NBFCs are in similar businesses of lending and investing. Since the assets of the two financial entities are similar, it is necessary that they be subject to similar prudential norms for asset classification, income recognition and provisioning. However, the tax treatments for provisions are not similar. It is therefore proposed that the tax treatment for provisions made by NBFCs for regulatory purposes should be similar to that for banks. Unlike banks and PFI, most NBFCs (except those which are PFIs under Section 4A of the Companies Act) do not enjoy the benefits deriving from the SARFAESI Act even though their clients/borrowers may be exactly the same. The Working Group is of the view that there is a good case for considering NBFCs to be notified by Central Government under Section 2(1) (m) (iv) of SARFAESI Act. In regulating NBFCs, RBI should have the power to legally prescribe fit and proper conditions and have the powers to remove the directors in the event they are not found fit or proper and even appoint directors where it is necessary to do so in public interest and in the interest of financial stability. There should also be powers to supersede the Board in the interest of financial stability and constitute a fresh Board. Also provisions similar to those in banks for obtaining prior approval of RBI for any significant acquisition of ownership and control in any NBFC could be made part of the legislation. This may be considered at the time of comprehensive legislation change for the financial sector. Suitable amendments may be carried out in the RBI Act, 1934, making it obligatory for NBFCs to obtain prior approval of the RBI for any merger, acquisitions or change in management or control.
2.
3.
4.
5.
6.
Annex II Definition of Principal Business for Various Existing Categories of NBFCs Sl. No. 1. Category Loan Company Eligibility Principal business should be that of making loans (defined as more than fifty percent of assets deployed in lending and more than fifty percent of income arising from such assets) Principal business should be that of investments (defined as more than fifty percent of assets deployed in Investment activity and more than fifty percent of income arising from such assets) Sixty percent of assets deployed in financing real/physical assets for productive / economic activity, and sixty percent of income arises from such assets Minimum 75 per cent of assets deployed in infrastructure loans ; NOF of Rs. 300 crore or above; minimum credit rating 'A' or equivalent CRAR of 15 percent (with a minimum Tier I capital of 10 percent). Has to be a non deposit taking company Not less than 90% of net assets are in the form of investment in group companies; Not less than 60% of net assets are held as equity stake in group companies The CIC does not trade in its investments except through block sale for the purpose of dilution or disinvestment; The CIC does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the Reserve Bank of India Act, 1934 except limited investments for the purpose of liquidity management apart from deployment for group companies.
2.
Investment Company
3.
Asset Finance Companies Infrastructure Finance Companies
4.
5.
Systemically Important Core Investment Companies
Annex III Matrix on Recommendations for Registration Asset size Principal Recommendations business (Asset/Income) >Rs. 50 < 75/75 Can be registered and a transition time of 3 years will be given to achieve the principal crore business criteria <Rs. 50 <75/75 NBFCND can seek deregistration or transition time of 2 years can be given to crore achieve the asset size and principal business criteria NBFC-D will be given as period of 2 years to achieve the asset size and principal business criteria. If the required levels have not been achieved for both D and ND after the specified transition period deposit acceptance will be limited to 50 percent of NOF Non-deposit taking NBFCs can seek deregistration. Deposit taking NBFCs will be given a period of 2 years to achieve the asset size while continuing to fulfill principal business criteria. If the required levels are not achieved after the specified transition period by Deposit taking NBFCs, deposit acceptance should be limited to 50 percent of NOF Transition time of 3 years can be given to achieve the revised principal business criteria, failing which, such companies should not be regarded as NBFCs and the deposits collected should be repaid. Will be required to register
New Companies Existing companies (D and ND)
Existing companies (D and ND)
<Rs. 50 crore
>75/75
Existing companies (D and ND)
>Rs. 50 crore
<75/75
Multiple NBFC-nondeposit taking in the same group Existing Companies
>Rs.100 crore
>75/75
>Rs.1000 crore
>75/75
Not accepting public funds Will be required to register #
# In case of multiple NBFCs in the same group, (group being defined as in the case of core investment companies), the aggregate asset sizes of all NBFCs in a group will be taken together for the purpose of registration and supervision
Annex IV Regulation of NBFCs Historical Evolution
1.
February 01, 1964 Chapter III B was inserted in the Reserve Bank of India Act, 1934 Gave only limited powers to Reserve Bank i.e. on regulation of deposit acceptance by NBFCs. 1974 - Chapter V (on Penalties) was inserted in RBI Act, 1934. February 15, 1984 - Chapter lll C (to regulate deposit taking activities of UIBs) was inserted in RBI Act, 1934. 1992 - Working Group on Financial Companies by RBI (Chairman: Dr. A.C. Shah). Reserve Bank of India Act, 1934, did not confer RBI with adequate powers to make the recommendations mandatory. April 1993 System of registration for NBFCs with NoF Rs. 50 lakh and above was introduced. June 1994- RBI prescribed prudential norms as an attempt to regulate the assets of the companies. 1995
2. 3.
4.
5.
6.
7.
Khanna Committee (Expert Group on Designing a Supervisory framework for NBFCs) -.Recommendations laid foundation to the supervisory framework of NBFCs. The supervision of the NBFC sector was brought under the jurisdiction of the Board for Financial Supervision (BFS) (July 01).
8.
1997 - Department of Non-Banking Supervision (DNBS), was formed by segregating FCW from DoS, for focused attention to the supervision of NBFCs by 16 Regional Offices. March 1997 - the Reserve Bank of India (Amendment) Act was passed amending Chapter lll B, lll C and V of RBI Act, 1934.
9.
10. April 30, 1997 - Reserve Bank of India (Non-Banking Financial Companies) Returns Specifications 1997 was issued. 11. January 02, 1998 - New Regulatory Framework for NBFCs NBFCs were classified into 3 categories for purposes of regulation, viz, (i) those accepting public deposits; (ii) those which do not accept public deposits but are engaged in the financial business, and (iii) core investment companies which hold at least 90 per cent of their assets as investments in the securities of their group/holding/subsidiary companies. New entry point norm of Rs. 25 Lakh. While NBFCs accepting public deposits were to be subjected to the entire gamut of regulations, those not accepting public deposits would be regulated in a limited manner.
In respect of new NBFCs (which are incorporated on or after April 20, 1999 and which seek registration with the Reserve Bank), the minimum NOF was raised to Rs. 2 crore.
12. January 31, 1998 - Directions were issued as under: Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 Non-Banking Financial Companies Auditors Report (Reserve Bank) Directions, 1998. 13. August 1998- Task Force on Non-Banking Finance Companies under the Chairmanship of Shri C M Vasudev, Special Secretary (Banking), Ministry of Finance to examine the adequacy of then legislative framework was set up. 14. October 1998 - The Task Force submitted its Report to the Government. Recommendations included: higher CRAR for NBFCs than banks, statutory powers to RBI to appoint depositors' grievance redressal authorities, review of prudential norms etc. 15. April 08, 1999 Press Release issued by RBI defining principal business. A company will be treated as an NBFC if its financial assets are more than 50 per cent of total assets (netted off against intangible assets) and income from financial assets is more than 50 per cent of the gross income. both these criteria are required to be fulfilled as the determinant factor for principal business of a company. 16. January 13, 2000 On the lines of scheduled commercial banks, all NBFCs having asset size of Rs. 50 crore or above were advised to have compulsory internal audit system and also constitute an Audit Committee from among the members of their Board of Directors. 17. January 13, 2000 Exemptions were granted to NBFCs (Section 25 Companies) engaged in micro financing activities, MBCs (Potential Nidhis) and Government companies (registration applicable) from Core provisions of RBI Act, 1934 and Directions, subject to eligibility criteria. 18. June 09, 2000 - Guidelines for entry of NBFCs into insurance business was issued. 19. December 13, 2000 - Financial Companies Regulation Bill, FCRB was introduced in the Lok Sabha. The Standing Committee on Finance submitted its report in July 2003, making 21 recommendations for amendments in the FCRB. The Committee recommended that only deposit taking companies should be covered under the new legislation. 20. June 27, 2001 The concept of asset liability management was introduced in 2001 for all NBFCs with asset base of Rs. 100 crore or holding public deposits of Rs. 20 crore or more. 21. November 28, 2002 - Venture Capital Fund Companies registered with SEBI and not holding public deposits were exempted from core provisions of RBI Act and Directions. 22. January 08, 2003 - Stock broking companies, registered with SEBI and not holding public deposit were exempted from core provisions of RBI Act and Directions.
23. March 29, 2003 - As part of implementation of the recommendation of the Working Group on Redesigning of Financial Statements of NBFCs, additional schedule to Balance Sheet of NBFCs was stipulated for all NBFCs. 24. June 18, 2003 - In terms of amended FEMA Notification No. 94 dated June 18, 2003, Foreign Direct Investments (FDI) was permitted under automatic route for 18 specified NBFC activities subject to minimum capitalization norms. 25. 2004 - Several all India associations and State level associations formed a Self Regulatory Organisation named Finance Industry Development Council (FIDC). 26. June 2004 Discussions were held with NBFCs regarding their plan of action for voluntarily phasing out of their acceptance of public in line with international practices. NBFCs-ND were advised that they would require Rs. 2 crore NoF before applying for permission to accept public deposits. 27. February 2005 - the Government of India (GOI) was advised by RBI that a separate legislation, viz., FCRB 2000, for financial companies was not necessary since the initiatives taken by RBI and the change in the composition of the sector, had addressed the issues to a great extent. 28. September 06, 2005 - A system of monitoring the capital market exposure of NBFCs-NDSI through monthly returns was brought in. 29. December 2005 - The concept of Corporate Governance was introduced in 2005 with directions to rotate partners of statutory auditors after three years and further elaborated in August 2007. 30. September 28, 2006 - Guidelines on Fair Practices Code was issued to NBFCs. 31. December 06, 2006 - A new category of NBFCs formed as Asset Finance Companies by combining the classes of Equipment Leasing and Hire Purchase Companies. 32. December 12, 2006 Systemic significance of the sector was recognized and NBFCs with asset size of Rs. 100 crore and above classified as systemically important companies Capital adequacy requirements and credit concentration norms introduced. NBFCs allowed to issue co-branded credit cards with scheduled commercial banks without risk sharing and with prior approval of RBI subject to certain eligibility criteria. 33. February 22, 2007 - The need for differential regulation was recognized for deposit taking and non deposit taking companies and separate prudential norms were issued for them in February 2007. 34. April 27, 2007 - submission of an annual statement of capital funds, risk asset ratio etc., as at end of March every year in form NBS-7 was stipulated for NBFCs-ND-SI. 35. August 01, 2008 - Guidelines for NBFC-ND-SI as regards capital adequacy, liquidity and disclosure norms was issued Increase in Capital adequacy to 12% w.e.f March 31, 2010 and 15% w.e.f March 31, 2011 introduction of ALM reporting and disclosure norms for NBFC-ND-SI
36. September 24, 2008 NBFCs with asset size of Rs. 50 crore and above but less than Rs. 100 crore were advised to submit online, a quarterly return on important financial parameters. 37. October 29, 2008 - NBFCs-ND-SI were permitted to issue Perpetual Debt Instruments (PDI) in accordance with the guidelines issued. 38. September 17, 2009 Instructions on takeover / acquisition of a deposit taking NBFC, would require prior permission of RBI were issued. 39. September 18, 2009 -NBFCs were allowed to participate in Interest Rate Futures market subject to prescribed conditions. 40. February 12, 2010 - New class of NBFCs viz; IFCs introduced and eligibility criteria stipulated. 41. July 09, 2010 - Issue of guarantees by NBFCs-ND-SI treated as akin to access to public funds for considering applications for special dispensation from exposure norms. 42. August 09, 2010 NBFCs permitted to participate in currency futures only for hedging. 43. August 11, 2010 NBFCs-ND-SI permitted to participate in repo of corporate debt securities. 44. August 12, 2010 and January 05, 2011 Guidelines and Notification on Core Investment Companies (CICs) issued. 45. September 16, 2010 NBFCs permitted to participate in currency options for hedging. 46. January 17, 2011 - Provisioning requirement for standard assets - a general provision at 0.25 per cent of the outstanding standard assets introduced. 47. Feb 02, 2011 - Gold loans not to be treated as agricultural loans and the priority sector status for such bank lending was removed (RPCD circular). 48. Feb 17, 2011 - CRAR requirement of NBFCs-D raised to 15% from the extant 12% w.e.f March 31, 2012. 49. March 30, 2011 - NBFCs were prohibited from contributing capital to any partnership firm or to be partners in partnership firms. 50. May 27, 2011 - contribution made by the group entities in an insurance JV along with the NBFC brought within the ceiling of 'not more than 50% of the paid up equity capital of the insurance JV'. Group concept in this case has been revised on the lines of CICs.

IM

Încărcat de

Informații document

Descriere originală:

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

IM

Încărcat de

Drepturi de autor:

Formate disponibile

Information Memorandum/Disclosure Document Dated May 12, 2012 Strictly Confidential, not for Public Circulation For Private

L R N Finance Ltd Regd Office: 153,Kamarajapuram,

Nungambakkam, Chennai- 600034.

ISSUE OPENS ON ISSUE CLOSES ON*

May 16, 2012 November 15, 2012

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

The Company / Issuer / LRN Finance Limited/LRN

we, us, our Allotment Intimation

Debentures Debenture holder(s) Debenture Trustee Depository/(ies) Designated Account DP DRR

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

EGM FEMA Regulations

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Overseas Corporate Body / OCB

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Partnership firms in the name of the partners,

Issue Price No. Of Debentures Issuance Depositories Tenor

Call / Put Option

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Issue Amount Rating Security

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

Information Memorandum / Disclosure Document

Private & Confidential/ Not For Public Circulation

118.55 0.00 0.03 6.99 0.00 125.57

118.55 0.00 0.22 7.09 0.00 125.86

250.00 788.70 207.40 69.82 0.00 1315.92