Brief Overview:

Certain path breaking amendments in the ARCs regulatory structure have been introduced by the RBI, in addition to the recently issued Master Circular on ARCs.

RBI had constituted a committee to review the functioning of ARCs and recommend measures for enabling them to operate transparently and efficiently. Basis the comments received from the committee and various stakeholders, the RBI recently amended the existing regulatory framework governing ARCs, effective immediately or as indicated otherwise in the circular.

We are happy to share that Juris Corp was one of the selected market participants invited by the RBI to have a discussion with the committee in this regard. Some of our suggestions taken on board include permission to ARCs to submit a resolution plan, evaluation criteria for top management of ARCs, and relaxation of restriction on acquisition of fraudulent loans by ARCs.

Technical Details:

The key changes brought about are as follows:

1)   ARCs permitted to act as resolution applicants – ARCs can now submit a resolution plan under the Insolvency and Bankruptcy Code, 2016 subject to satisfaction of conditions set out in the circular such as having a minimum net owned fund (“NOF”) of INR 1,000 crore and ARCs cannot retain any significant influence or control over the corporate debtor after 5 years from the approval date of the resolution plan.

2)   Minimum NOF – The minimum NOF requirement has been increased to INR 300 crore from the existing INR 100 crore. A glide path to meet the minimum NOF till 31^st March 2026 has been provided in the circular.

3)   Investment in security receipts (“SRs”) issued by the ARCs – ARCs shall now be required to invest in the SRs at a minimum of either 15% of the transferors’ investment in the SRs or 2.5% of the total SRs issued, whichever is higher, of each class of SRs issued by them under each scheme on an ongoing basis till the redemption of all the SRs issued under such scheme.

4)  One-time settlement with borrowers – Certain conditions have been introduced for one-time settlement with borrowers including examination of proposal by an Independent Advisory Committee and requirement to take all possible steps for recovery of dues prior to such settlement.

5)   Corporate governance standards – Certain measures have been introduced to improve corporate governance standards in ARCs such as requirement to constitute an audit committee and nomination and remuneration committee of the board of ARCs within 6 months in the manner provided in the circular.

For further details, please see:

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12399&Mode=0

For any queries / clarifications, please feel free to ping us and we will be happy to chat:

●  Mr. Saurabh Sharma (saurabh.sharma@jclex.com)

●  Mr. Sumitava Basu (sumitava.basu@jclex.com)