CAIIB | Paper 4 | BRBL | Module C | Unit 5 | Regulation of Securitisation and Reconstruction

Registration Of Asset Reconstruction Company
The Asset Reconstruction company can commence or carry business, only after complying with the following two conditions:
• It obtains certification of registration from the Reserve Bank of India by applying in prescribed format
• It has the owned funds at the time of registration not less than Rupees two crore or such other higher amount as Reserve Bank may, by notification, specify.
• Such registered companies can raise money for their acquisition activities by issue of security receipts for formulating schemes. This Act has provided the legal framework for this activity.
• Depending on the nature of security asset, the Reserve Bank of India has the
powers to specify different amounts of owned funds for different class or classes of securitization companies or reconstruction companies.
• If any Asset Reconstruction Company wants to make any substantial change in its management or a change in the registered address or change in the name, then that needs prior approval of the Reserve Bank of India.
Following conditions are required to be fulfilled by ARCs as per Section 3(3) of the act:-
• That the ARC has not incurred losses in any of the three preceding financial years
• That such ARC has made adequate arrangements for realization of the financial assets acquired for the purpose of securitization 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 qualified buyers
• That the directors of ARC have adequate professional experience in matters related to finance, securitization and reconstruction
• That any of its directors has not been convicted of any offence involving moral turpitude.

• 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.
• That asset reconstruction company has complied with or is in a position to comply with prudential norms specified by the Reserve Bank
• That asset reconstruction company has complied with one or more conditions specified in the guidelines issued by the Reserve Bank for the said purpose.
Cancellation Of Certificate Of Registration
As per Section 4 of the SARFAESI Act 2002, the registration granted to the Asset
Reconstruction Company by the Reserve Bank of India is cancellable on following grounds:
• The company ceases to carry on the business of securitization or asset reconstruction, or
• The company ceases to receive or hold any investment from a qualified institutional buyer, or
• The company fails to comply with any of the conditions subject to which the certificate of registration was granted, or
The company fails to-
 Comply with any of the directions issued by RBI.
 Maintain accounts in accordance with the requirements of any law or any direction or order issued by the RBI, or
 Submit or offer for inspection its books of accounts or other relevant documents when so demanded by RBI or
 Obtain prior approval of the Reserve Bank of India for change in management or change in registered office or change of name.
The securitization or reconstruction company whose registration is cancelled can prefer an appeal within thirty days from the date of communication of order, to the Central
Government.
Even if the application for registration is rejected or the already existing registration is cancelled, the company shall be deemed as Securitisation Company or Asset
Reconstruction Company, until the company pays the dues of the investors along with interest within the period as the RBI may specify.
Acquisition Of Rights Of Interest In Financial Assets
The Asset Reconstruction Company can acquire the financial asset of any bank or financial institution by any of the following ways:
• By issuing a debenture or bond or any other security in the nature of debenture for the agreed consideration and agreed terms and conditions between the bank/financial institution and the ARCs.
• By entering into an agreement with such bank or financial institution for the transfer of financial asset to such company on terms and conditions as may be agreed between them.
Any document executed by any bank or financial institution under sub-section (1) in favor of the asset reconstruction company acquiring financial assets for the purposes of asset reconstruction or securitization shall be exempted from stamp duty in accordance with the provisions of section 8F of the Indian Stamp Act, 1899.
Notices To Obligor And Discharge Of Obligation Of Such Obligor
• When the bank or financial institution decides, that the financial asset be now acquired by the ARC, a notice may be given about such an acquisition to the
obligor. Giving of such notice is optional and not compulsory under the Act.
• In case, the obligor is a company and creation of charge has been registered, then also the giving of notice to the respective registra