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      Question

      Under Section 3(6) of the SARFAESI Act, an asset

      reconstruction company must obtain prior approval of the Reserve Bank for substantial change in management. Which of the following constitutes 'substantial change in management' as per the Explanation to Section 3(6)?
      A Change of registered office from one city to another Correct Answer Incorrect Answer
      B Change of statutory auditors Correct Answer Incorrect Answer
      C Appointment of a company secretary Correct Answer Incorrect Answer
      D Voluntary reduction of share capital Correct Answer Incorrect Answer
      E Change in management by transfer of shares or change affecting sponsorship or amalgamation or transfer of business Correct Answer Incorrect Answer

      Solution

      The Explanation to Section 3(6) defines 'substantial change in management' as change in management by way of: (i) transfer of shares; (ii) change affecting the sponsorship in the company by way of transfer of shares (inserted by 2016 Amendment); or (iii) amalgamation; or (iv) transfer of the business of the company. Any of these changes requires prior approval from the Reserve Bank. The decision of the Reserve Bank as to whether a particular change constitutes a 'substantial change' is final. This provision is designed to ensure RBI oversight over the ownership and control of ARCs, which handle stressed assets of banks.

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