At present, the Asset Reconstruction companies viz. the Securitization Companies / Reconstruction Companies (SC/RCs) are permitted to convert a portion of debt into shares of the borrower company as a measure of asset reconstruction subject to a condition that their shareholding does not exceed 26% of the post converted equity of the company under reconstruction.
RBI has exempted ARCs meeting the above criteria of 26% cap (vide RBI/2017-18/101
DNBR.PD (ARC) CC. No.04/26.03.001/2017-18 dated November 23, 2017) subject to compliance with the provisions of the SARFAESI Act, 2002, Guidelines/ Instructions issued by Reserve Bank of India from time to time as applicable to ARCs as well as Foreign Exchange Management Act, 1999, Reserve Bank of India Act, 1934, Companies Act, 2013, SEBI Regulations and other relevant Statutes. The extent of shareholding post conversion of debt into equity shall be in accordance with permissible Foreign Direct Investment (FDI) limit for that specific sector.
Further, ARCs are required to meet the following criteria for exemption from 26% cap.
The Apex Bank advised ARCs that shall explore the possibility of preparing a panel of sector-specific management firms/ individuals having expertise in running firms/ companies which could be considered for managing the companies.
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