3. Registration of 3
[asset reconstruction companies].—(1) No 1
[asset reconstruction company]
shall commence or carry on the business of securitisation or asset reconstruction without—
(a) obtaining a certificate of registration granted under this section; and
4
[(b) having net owned fund of not less than two crore rupees or such other higher amount as the
Reserve Bank, may, by notification, specify;]
Provided that the Reserve Bank may, by notification, specify different amounts of owned fund for
different class or classes of 3
[asset reconstruction companies]:
Provided further that a 1
[asset reconstruction company], existing on the commencement of this Act,
shall make an application for registration to the Reserve Bank before the expiry of six months from such
commencement and notwithstanding anything contained in this sub-section may continue to carry on the
business of securitisation or asset reconstruction until a certificate of registration is granted to it or, as the
case may be, rejection of application for registration is communicated to it.
(2) Every 1
[asset reconstruction company] shall make an application for registration to the Reserve
Bank in such form and manner as it may specify.
(3) The Reserve Bank may, for the purpose of considering the application for registration of a 1
[asset
reconstruction company] to commence or carry on the business of securitisation or asset reconstruction,
as the case may be, require to be satisfied, by an inspection of records or books of such 1
[asset
reconstruction company], or otherwise, that the following conditions are fulfilled, namely:—
(a) that the 1
[asset reconstruction company] has not incurred losses in any of the three preceding
financial years;
1. Subs. by Act 44 of 2016, s. 3, for “securitisation company or reconstruction company” (w.e.f. 1-9-2016).
2. Subs. by s. 3, ibid., for “qualified institutional buyer” (w.e.f. 1-9-2016).
3. Subs. bys. 3, ibid., for “securitisation companies or reconstruction companies” (w.e.f. 1-9-2016).
4. Subs. by s. 5, ibid., for clause (b) (w.e.f. 1-9-2016).
10
(b) that such 1
[asset reconstruction company] has made adequate arrangements for realisation of
the financial assets acquired for the purpose of securitisation or asset reconstruction and shall be able
to pay periodical returns and redeem on respective due dates on the investments made in the company
by the 2
[qualified buyers] or other persons;
(c) that the directors of 1
[asset reconstruction company] have adequate professional experience in
matters related to finance, securitisation and reconstruction;
3* * * * *
(e) that any of its directors has not been convicted of any offence involving moral turpitude;
4
[(f) that a sponsor of an asset reconstruction company is a fit and proper person in accordance
with the criteria as may be specified in the guidelines issued by the Reserve Bank for such persons;]
(g) that 1
[asset reconstruction company] has complied with or is in a position to comply with
prudential norms specified by the Reserve Bank;
5
[(h) that 1
[asset reconstruction company] has complied with one or more conditions specified in
the guidelines issued by the Reserve Bank for the said purpose.]
(4) The Reserve Bank may, after being satisfied that the conditions specified in sub-section (3) are
fulfilled, grant a certificate of registration to the 6
[asset reconstruction company] to commence or carry on
business of securitisation or asset reconstruction, subject to such conditions which it may consider, fit to
impose.
(5) The Reserve Bank may reject the application made under sub-section (2) if it is satisfied that the
conditions specified in sub-section (3) are not fulfilled:
Provided that before rejecting the application, the applicant shall be given a reasonable opportunity of
being heard.
(6) Every 1
[asset reconstruction company] shall obtain prior approval of the Reserve Bank for any
substantial change in its management 7
[including appointment of any director on the board of directors of
the asset reconstruction company or managing director or chief executive officer thereof] or change of
location of its registered office or change in its name:
Provided that the decision of the Reserve Bank, whether the change in management of a 8
[asset
reconstruction company] is a substantial change in its management or not, shall be final.
Explanation.—For the purposes of this section, the expression “substantial change in management”
means the change in the management by way of transfer of shares or 9
[change affecting the sponsorship in
the company by way of transfer of shares or] amalgamation or transfer of the business of the company.
4. Cancellation of certificate of registration.—(1) The Reserve Bank may cancel a certificate of
registration granted to a 8
[asset reconstruction company], if such company—
(a) ceases to carry on the business of securitisation or asset reconstruction; or
1. Subs. by Act 44 of 2016, s. 3, for “securitisation company or reconstruction company” (w.e.f. 1-9-2016).
2. Subs. bys. 3, ibid., for “qualified institutional buyers” (w.e.f. 1-9-2016).
3. Omitted by s. 5, ibid. (w.e.f. 1-9-2016).
4. Subs. by s. 5, ibid., for clause (f) (w.e.f. 1-9-2016).
5. Ins. by Act 30 of 2004, s. 3 (w.e.f. 11-11-2004).
6. Subs. by Act 44 of 2016, s. 3, for “securitisation company or the reconstruction company” (w.e.f. 1-9-2016).
7. Ins. by s. 5, ibid. (w.e.f. 1-9-2016).
8. Subs. by s. 3, ibid., for “securitisation company or a reconstruction company” (w.e.f. 1-9-2016).
9. Ins. by s. 5, ibid. (w.e.f. 1-9-2016).
11
(b) ceases to receive or hold any investment from a 1
[qualified buyer]; or
(c) has failed to comply with any conditions subject to which the certificate of registration has
been granted to it; or
(d) at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of sub-section
(3) of section 3; or
(e) fails to—
(i) comply with any direction issued by the Reserve Bank under the provisions of this Act; or
(ii) maintain accounts in accordance with the requirements of any law or any direction or
order issued by the Reserve Bank under the provisions of this Act; or
(iii) submit or offer for inspection its books of account or other relevant documents when so
demanded by the Reserve Bank; or
(iv) obtain prior approval of the Reserve Bank required under sub-section (6) of section 3:
Provided that before cancelling a certificate of registration on the ground that the 2
[asset
reconstruction company] has failed to comply with the provisions of clause (c) or has failed to fulfil any
of the conditions referred to in clause (d) or sub-clause (iv) of clause (e), the Reserve Bank, unless it is of
the opinion that the delay in cancelling the certificate of registration granted under
sub-section (4) of section 3 shall be prejudicial to the public interest or the interests of the investors or the
3
[asset reconstruction company], shall give an opportunity to such company on such terms as the Reserve
Bank may specify for taking necessary steps to comply with such provisions or fulfilment of such
conditions.
(2) A 2
[asset reconstruction company] aggrieved by the order of 4*** cancellation of certificate of
registration may prefer an appeal, within a period of thirty days from the date on which 5
[such order of
cancellation] is communicated to it, to the Central Government:
Provided that before rejecting an appeal such company shall be given a reasonable opportunity of
being heard.
(3) A 2
[asset reconstruction company], which is holding investments of 6
[qualified buyers] and whose
application for grant of certificate of registration has been rejected or certificate of registration has been
cancelled shall, notwithstanding such rejection or cancellation be deemed to be a 2
[asset reconstruction
company] until it repays the entire investments held by it (together with interest, if any) within such
period as the Reserve Bank may direct.
5. Acquisition of rights or interest in financial assets.—(1) Notwithstanding anything contained in
any agreement or any other law for the time being in force, any 2
[asset reconstruction company] may
acquire financial assets of any bank or financial institution—
(a) by issuing a debenture or bond or any other security in the nature of debenture, for
consideration agreed upon between such company and the bank or financial institution, incorporating
therein such terms and conditions as may be agreed upon between them; or
1. Subs. by Act 44 of 2016, s. 3, for “qualified institutional buyer” (w.e.f. 1-9-2016).
2. Subs. by s. 3, ibid., for “securitisation company or reconstruction company” (w.e.f. 1-9-2016).
3. Subs. by s. 3, ibid., for “securitisation company or the reconstruction company” (w.e.f. 1-9-2016).
4. The words “rejection of application for registration or” omitted by Act 30 of 2004, s. 4 (w.e.f. 11-11-2004).
5. Subs. bys. 4, ibid., for “such order of rejection or cancellation” (w.e.f. 11-11-2004).
6. Subs. by Act 44 of 2016, s. 3, for “qualified institutional buyers” (w.e.f. 1-9-2016).
12
(b) by entering into an agreement with such bank or financial institution for the transfer of such
financial assets to such company on such terms and conditions as may be agreed upon between them.
1
[(1A) Any document executed by any bank or financial institution under sub-section (1) in favour of
the asset reconstruction company acquiring financial assets for the purposes of asset reconstruction or
securitisation shall be exempted from stamp duty in accordance with the provisions of section 8F of the
Indian Stamp Act, 1899 (2 of 1899):
Provided that the provisions of this sub-section shall not apply where the acquisition of the financial
assets by the asset reconstruction company is for the purposes other than asset reconstruction or
securitisation.]
(2) If the bank or financial institution is a lender in relation to any financial assets acquired under
sub-section (1) by the 2
[asset reconstruction company], such 3
[asset reconstruction company] shall, on
such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall
vest in such company in relation to such financial assets.
1
[(2A) If the bank or financial institution is holding any right, title or interest upon any tangible asset
or intangible asset to secure payment of any unpaid portion of the purchase price of such asset or an
obligation incurred or credit otherwise provided to enable the borrower to acquire the tangible asset or
assignment or licence of intangible asset, such right, title or interest shall vest in the asset reconstruction
company on acquisition of such assets under sub-section (1).]
(3) Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powersof-attorney, grants of legal representation, permissions, approvals, consents or no-objections under any
law or otherwise and other instruments of whatever nature which relate to the said financial asset and
which are subsisting or having effect immediately before the acquisition of financial asset under
sub-section (1) and to which the concerned bank or financial institution is a party or which are in favour
of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force
and effect against or in favour of the 3
[asset reconstruction company], as the case may be, and may be
enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution,
3
[asset reconstruction company], as the case may be, had been a party thereto or as if they had been issued
in favour of 3
[asset reconstruction company], as the case may be.
(4) If, on the date of acquisition of financial asset under sub-section (1), any suit, appeal or other
proceeding of whatever nature relating to the said financial asset is pending by or against the bank or
financial institution, save as provided in the third proviso to sub-section (1) of section 15 of the Sick
Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) the same shall not abate, or be
discontinued or be, in any way, prejudicially affected by reason of the acquisition of financial asset by the
3
[asset reconstruction company], as the case may be, but the suit, appeal or other proceeding may be
continued, prosecuted and enforced by or against the 3
[asset reconstruction company], as the case may be.
4
[(5) On acquisition of financial assets under sub-section (1), the 3
[asset reconstruction company],
may with the consent of the originator, file an application before the Debts Recovery Tribunal or the
Appellate Tribunal or any court or other Authority for the purpose of substitution of its name in any
pending suit, appeal or other proceedings and on receipt of such application, such Debts Recovery
Tribunal or the Appellate Tribunal or court or Authority shall pass orders for the substitution of the 3
[asset
reconstruction company] in such pending suit, appeal or other proceedings.]
1. Ins. by Act 44 of 2016, s. 6 (w.e.f. 1-9-2016).
2. Subs. by s. 3, ibid., for “securitisation company or the reconstruction company” (w.e.f. 1-9-2016).
3. Subs. by s. 3, ibid., for “securitisation company or reconstruction company” (w.e.f. 1-9-2016).
4. Ins. by Act 1 of 2013, s. 3 (w.e.f. 15-1-2013).
13
1
[5A.Transfer of pending applications to any one of Debts Recovery Tribunals in certain
cases.—(1) If any financial asset, of a borrower acquired by a 2
[asset reconstruction company], comprise
of secured debts of more than one bank or financial institution for recovery of which such banks or
financial institutions has filed applications before two or more Debts Recovery Tribunals the 2
[asset
reconstruction company] may file an application to the Appellate Tribunal having jurisdiction over any of
such Tribunals in which such applications are pending for transfer of all pending applications to any one
of the Debts Recovery Tribunals as it deems fit.
(2) On receipt of such application for transfer of all pending applications under sub-section (1), the
Appellate Tribunal may, after giving the parties to the application an opportunity of being heard, pass an
order for transfer of the pending applications to any one of the Debts Recovery Tribunals.
(3) Notwithstanding anything contained in the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (51 of 1993), any order passed by the Appellate Tribunal under sub-section (2)
shall be binding on all the Debts Recovery Tribunals referred to in sub-section (1) as if such order had
been passed by the Appellate Tribunal having jurisdiction on each such Debts Recovery Tribunal.
(4) Any recovery certificate, issued by the Debts Recovery Tribunal to which all the pending
applications are transferred under sub-section (2), shall be executed in accordance with the provisions
contained in sub-section (23) of section 19 and other provisions of the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 (51 of 1993) shall, accordingly, apply to such execution.]
6. Notice to obligor and discharge of obligation of such obligor.—(1) The bank or financial
institution may, if it considers appropriate, give a notice of acquisition of financial assets by any 2
[asset
reconstruction company], to the concerned obligor and any other concerned person and to the concerned
registering authority (including Registrar of Companies) in whose jurisdiction the mortgage, charge,
hypothecation, assignment or other interest created on the financial assets had been registered.
(2) Where a notice of acquisition of financial asset under sub-section (1) is given by a bank or
financial institution, the obligor, on receipt of such notice, shall make payment to the concerned 2
[asset
reconstruction company], as the case may be, and payment made to such company in discharge of any of
the obligations in relation to the financial asset specified in the notice shall be a full discharge to the
obligor making the payment from all liability in respect of such payment.
(3) Where no notice of acquisition of financial asset under sub-section (1) is given by any bank or
financial institution, any money or other properties subsequently received by the bank or financial
institution, shall constitute monies or properties held in trust for the benefit of and on behalf of the 2
[asset
reconstruction company], as the case may be, and such bank or financial institution shall hold such
payment or property which shall forthwith be made over or delivered to 2
[asset reconstruction company],
as the case may be, or its agent duly authorised in this behalf.
7. Issue of security by raising of receipts or funds by 2
[asset reconstruction company].—(1)
Without prejudice to the provisions contained in the Companies Act, 1956 (1 of 1956), the Securities
Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992
(15 of 1992), any 2
[asset reconstruction company], may, after acquisition of any financial asset under
sub-section (1) of section 5, offer security receipts to qualified institute buyers 3
[or such other category of
investors including non-institutional investors as may be specified by the Reserve Bank in consultation
with the Board, from time to time,] for subscription in accordance with the provisions of those Acts.
1. Ins. by Act 30 of 2004, s. 5 (w.e.f. 11-11-2004).
2. Subs. by Act 44 of 2016, s. 3, for “securitisation company or reconstruction company” (w.e.f. 1-9-2016).
3. Subs. by s. 7, ibid., for “(other than by offer to public)” (w.e.f. 1-9-2016).
14
(2) A 1
[asset reconstruction company] may raise funds from the 2
[qualified buyers] by formulating
schemes for acquiring financial assets and shall keep and maintain separate and distinct accounts in
respect of each such scheme for every financial asset acquired out of investments made by a 3
[qualified
buyer] and ensure that realisations of such financial asset is held and applied towards redemption of
investments and payment of returns assured on such investments under the relevant scheme.
4
[(2A) (a) The scheme for the purpose of offering security receipts under sub-section (1) or raising
funds under sub-section (2), may be in the nature of a trust to be managed by the 1
[asset reconstruction
company], and the 1
[asset reconstruction company] shall hold the assets so acquired or the funds so raised
for acquiring the assets, in trust for the benefit of the 2
[qualified buyers] holding the security receipts or
from whom the funds are raised.
(b) The provisions of the Indian Trusts Act, 1882 (2 of 1882) shall, except in so far as they are
inconsistent with the provisions of this Act, apply with respect to the trust referred to in clause (a) above.]
(3) In the event of non-realisation under sub-section (2) of financial assets, the 2
[qualified buyers] of a
1
[asset reconstruction company], holding security receipts of not less than seventy-five per cent. of the
total value of the 5
[security receipts issued under a scheme by such company], shall be entitled to call a
meeting of all the 2
[qualified buyers] and every resolution passed in such meeting shall be binding on the
company.
(4) The 2
[qualified buyers] shall, at a meeting called under sub-section (3), follow the same
procedure, as nearly as possible as is followed at meetings of the board of directors of the 1
[asset
reconstruction company], as the case may be.
8. Exemption from registration of security receipt.—Notwithstanding anything contained in
sub-section (1) of section 17 of the Registration Act, 1908 (16 of 1908),—
(a) any security receipt issued by the 1
[asset reconstruction company], as the case may be, under
sub-section (1) of section 7, and not creating, declaring, assigning, limiting or extinguishing any right,
title or interest, to or in immovable property except in so far as it entitles the holder of the security
receipt to an undivided interest afforded by a registered instrument; or
(b) any transfer of security receipts, shall not require compulsory registration.
6
[9. Measures for assets reconstruction.—(1)Without prejudice to the provisions contained in any
other law for the time being in force, an asset reconstruction company may, for the purposes of asset
reconstruction, provide for any one or more of the following measures, namely:—
(a) the proper management of the business of the borrower, by change in, or take over of, the
management of the business of the borrower;
(b) the sale or lease of a part or whole of the business of the borrower;
(c) rescheduling of payment of debts payable by the borrower;
(d) enforcement of security interest in accordance with the provisions of this Act;
(e) settlement of dues payable by the borrower;
(f) taking possession of secured assets in accordance with the provisions of this Act;
(g) conversion of any portion of debt into shares of a borrower company:
1. Subs. by Act 44 of 2016, s. 3, for “securitisation company or reconstruction company” (w.e.f. 1-9-2016).
2. Subs. by s. 3, ibid., for “qualified institutional buyers” (w.e.f. 1-9-2016).
3. Subs. by s. 3, ibid., for “qualified institutional buyer” (w.e.f. 1-9-2016).
4. Ins. by Act 30 of 2004, s. 6 (w.e.f. 11-11-2004).
5. Subs. by s. 6, ibid., for “security receipts issued by such company” (w.e.f. 11-11-2004).
6. Subs. by Act 44 of 2016, s. 8, for section 9 (w.e.f. 1-9-2016).
15
Provided that conversion of any part of debt into shares of a borrower company shall be deemed
always to have been valid, as if the provisions of this clause were in force at all material times.
(2) The Reserve Bank shall, for the purposes of sub-section (1), determine the policy and issue
necessary directions including the direction for regulation of management of the business of the borrower
and fees to be charged.
(3) The asset reconstruction company shall take measures under sub-section (1) in accordance with
policies and directions of the Reserve Bank determined under sub-section (2).]
10. Other functions of 1
[asset reconstruction company].—(1) Any 1
[asset reconstruction company]
registered under section 3 may—
(a) act as an agent for any bank or financial institution for the purpose of recovering their dues
from the borrower on payment of such fee or charges as may be mutually agreed upon between the
parties;
(b) act as a manager referred to in clause (c) of sub-section (4) of section 13 on such fee as may
be mutually agreed upon between the parties;
(c) act as receiver if appointed by any court or tribunal:
Provided that no 1
[asset reconstruction company] shall act as a manager if acting as such gives rise to
any pecuniary liability.
(2) Save as otherwise provided in sub-section (1), no 1
[asset reconstruction company] which has been
granted a certificate of registration under sub-section (4) of section 3, shall commence or carry on,
without prior approval of the Reserve Bank, any business other than that of securitisation or asset
reconstruction:
Provided that a 1
[asset reconstruction company] which is carrying on, on or before the
commencement of this Act, any business other than the business of securitisation or asset reconstruction
or business referred to in sub-section (1), shall cease to carry on any such business within one year from
the date of commencement of this Act.
Explanation.—For the purposes of this section, “
2
[asset reconstruction company]” or “
3
[asset
reconstruction company]” does not include its subsidiary.
11. Resolution of disputes.—Where any dispute relating to securitisation or reconstruction or
non-payment of any amount due including interest arises amongst any of the parties, namely, the bank or
financial institution or 1
[asset reconstruction company] or 4
[qualified buyer], such dispute shall be settled
by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996 (26 of 1996), as if
the parties to the dispute have consented in writing for determination of such dispute by conciliation or
arbitration and the provisions of that Act shall apply accordingly.
12. Power of Reserve Bank to determine policy and issue directions.—(1) If the Reserve Bank is
satisfied that in the public interest or to regulate financial system of the country to its advantage or to
prevent the affairs of any 1
[asset reconstruction company] from being conducted in a manner detrimental
to the interest of investors or in any manner prejudicial to the interest of such 1
[asset reconstruction
company], it is necessary or expedient so to do, it may determine the policy and give directions to all or
any 1
[asset reconstruction company] in matters relating to income recognition, accounting standards,
making provisions for bad and doubtful debts, capital adequacy based on risk weights for assets and also
1. Subs. by Act 44 of 2016, s. 3, for “securitisation company or reconstruction company” (w.e.f. 1-9-2016).
2. Subs. by s. 3, ibid., for “securitisation company” (w.e.f. 1-9-2016).
3. Subs. by s. 3, ibid., for “reconstruction company” (w.e.f. 1-9-2016).
4. Subs. by s. 3, ibid., for “qualified institutional buyer” (w.e.f. 1-9-2016).
16
relating to deployment of funds by the 1
[asset reconstruction company], as the case may be, and such
company shall be bound to follow the policy so determined and the directions so issued.
(2) Without prejudice to the generality of the power vested under sub-section (1), the Reserve Bank
may give directions to any 1
[asset reconstruction company] generally or to a class of 2
[asset reconstruction
companies] or to any 1
[asset reconstruction company] in particular as to—
(a) the type of financial asset of a bank or financial institution which can be acquired and
procedure for acquisition of such assets and valuation thereof;
(b) the aggregate value of financial assets which may be acquired by any 1
[asset reconstruction
company];
3
[(c) the fee and other charges which may be charged or incurred for management of financial
assets acquired by any asset reconstruction company;
(d) transfer of security receipts issued to qualified buyers.]
4[12A. Power of Reserve Bank to call for statements and information.—The Reserve Bank may
at any time direct a 1
[asset reconstruction company] to furnish it within such time as may be specified by
the Reserve Bank, with such statements and information relating to the business or affairs of such 1
[asset
reconstruction company] (including any business or affairs with which such company is concerned) as the
Reserve Bank may consider necessary or expedient to obtain for the purposes of this Act.]
5
[12B. Power of Reserve Bank to carry out audit and inspection.—(1) The Reserve Bank may, for
the purposes of this Act, carry out or caused to be carried out audit and inspection of an asset
reconstruction company from time to time.
(2) It shall be the duty of an asset reconstruction company and its officers to provide assistance and
cooperation to the Reserve Bank to carry out audit or inspection under sub-section (1).
(3) Where on audit or inspection or otherwise, the Reserve Bank is satisfied that business of an asset
reconstruction company is being conducted in a manner detrimental to public interest or to the interests of
investors in security receipts issued by such asset reconstruction company, the Reserve Bank may, for
securing proper management of an asset reconstruction company, by an order—
(a) remove the Chairman or any director or appoint additional directors on the board of directors
of the asset reconstruction company; or
(b) appoint any of its officers as an observer to observe the working of the board of directors of
such asset reconstruction company:
Provided that no order for removal of Chairman or director under clause (a) shall be made except
after giving him an opportunity of being heard.
(4) It shall be the duty of every director or other officer or employee of the asset reconstruction
company to produce before the person, conducting an audit or inspection under sub-section (1), all such
books, accounts and other documents in his custody or control and to provide him such statements and
information relating to the affairs of the asset reconstruction company as may be required by such person
within the stipulated time specified by him.]