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      Question

      Section 2(1)(zh) of the SARFAESI Act defines 'sponsor'

      in relation to an asset reconstruction company. What is the minimum percentage of paid-up equity capital that a person must hold to be considered a 'sponsor' of an ARC?
      A Five per cent Correct Answer Incorrect Answer
      B Twenty-six per cent Correct Answer Incorrect Answer
      C Twenty per cent Correct Answer Incorrect Answer
      D Ten per cent Correct Answer Incorrect Answer
      E Fifty-one per cent Correct Answer Incorrect Answer

      Solution

      Section 2(1)(zh) defines 'sponsor' as 'any person holding not less than ten per cent of the paid-up equity capital of an asset reconstruction company.' The concept of 'sponsor' is significant under SARFAESI because Section 3(3)(f) requires that a sponsor of an ARC must be a 'fit and proper person' as per RBI guidelines. This is a key eligibility condition for ARC registration. The 10% threshold is a bright-line rule - any entity holding 10% or more equity is treated as a sponsor and must satisfy the fit-and-proper criteria. This provision ensures that significant shareholders of ARCs are subject to regulatory scrutiny by the RBI.

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