The subject is dealt with under Chapter II of the Ordinance titled "Regulation of Securitisation and Reconstruction of Financial Assets of Banks and Financial Institutions"

The Ordinance under this Chapters covers

• Settingup of a new ARC/RC complying with the provisions of the Ordinance and getting the same registered with RBI, before commencing operations.

• Permitting existing ARC/SC to continue operations provisionally subject to registration with RBI within a period of 6 months from the date of the Ordinance

As per definition of these Companies given under Section 2(1) studied in the previous WebPages, they have to be set up under the Companies Act, 1956 either as 'Private Limited" or "Public" Companies. There is no bar under the ordinance for such companies to be formed as subsidiary company of a bank or financial institution, subject to the condition that the ARC/SC so formed complies with the provisions of the Ordinance.

After incorporation under the Companies Act, a newly promoted ARC/SC can commence business only after complying with the two provisions, namely-

1. Possessing owned funds of not less than Rs.2 Crores

2. Duly registering with RBI as an ARC/SC set-up under the Ordinance and meeting the eligibility criteria prescribed.

The securitisation and reconstruction companies existing on the commencement of the ordinance should also apply for registration with RBI within a period of six months from the date of the Ordinance and they are permitted to continue transacting business of securitisation or asset reconstruction until a certificate of registration is granted to it or, as the case may be, rejection of application for registration is communicated to it.

As per Section.3(1)(b) of the Ordinance- No securitisation company or reconstruction company shall commence or carry on the business of securitisation or asset reconstruction withouthaving the owned fund of not less than two crore rupees or such other amount not exceeding fifteen per cent of total financial assets acquired or to be acquired by the securitisation company or reconstruction company, as the Reserve Bank may, by notification, specify. The Reserve Bank may, by notification, can also specify different amounts of owned fund for different class or classes of securitisation companies or reconstruction companies.

1. that the securitisation company or reconstruction company has not incurred losses in any of the three preceding financial years;

2. that such securitisation company or reconstruction company has made adequate arrangements for realisation of the financial assets acquired for the purpose of securitisation 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 institutional buyers or other persons;

3. that the directors of securitisation company or reconstruction company have adequate professional experience in matters related to finance, securitisation and reconstruction;

4. that the board of directors of such securitisation company or reconstruction company does not consist of more than half of its total number of directors who are either nominees of any sponsor or associated in any manner with the sponsor or any of its subsidiaries;

5. that any of its directors has not been convicted of any offence involving moral turpitude;

6. that a sponsor, is not a holding company of the securitisation company or reconstruction company, as the case may be, or, does not otherwise hold any controlling interest in such securitisation company or reconstruction company;

7. that securitisation company or reconstruction company has complied with or is in a position to comply with prudential norms specified by the Reserve Bank.

Every securitisation company or reconstruction company is required to make an application for registration to the Reserve Bank in such form and manner as it may specify. The Reserve Bank may, for the purpose of considering the application for registration of a securitisation company or reconstruction company to carry on the business of securitisation or asset reconstruction, as the case may be, require to be satisfied, by an inspection of records or books of such securitisation company or reconstruction company, or otherwise, that the conditions of eligibility criteria as specified above are fulfilled. The Reserve Bank may, after being satisfied that the conditions specified are fulfilled, grant a certificate of registration to the securitisation company or the reconstruction company to carry on or commence business of securitisation or asset reconstruction, subject to such conditions, which it may consider, fit to impose.

The Reserve Bank may reject the application made if it is satisfied that the conditions specified in the Ordinance are not fulfilled, but subject to the condition that before rejecting the application, the applicant shall be given a reasonable opportunity of being heard.

Every securitisation company or reconstruction company, shall obtain prior approval of the Reserve Bank for any substantial change in its management or change of location of its registered office or change in its name. The decision of the Reserve Bank, whether the change in management of a securitisation company or a reconstruction company is a substantial change in its management or not, shall be final. For the purposes of this section, the expression "substantial change in management" means the change in the management by way of transfer of shares or amalgamation or transfer of the business of the company.

The ordinance also provides detailed guidelines for cancellation of registration of a SC/ARC company in specific contingencies for violation/non-compliance with the provisions of the ordinance. The order of cancellation should specify clearly the grounds for cancellation (the details of violations by the ARC/SC) and normally the ARC/SC should be given a hearing before cancellation. However the aggrieved ARC/SC may appeal to the Central Government against such cancellation or rejection of registration within 60 days of the date of the order of the RBI. In case of rejecting an appeal such company shall be given a reasonable opportunity of being heard.

A securitisation company or reconstruction company, which is holding investments of qualified institutional buyers and whose application for grant of certificate of registration has been rejected or certificate of registration has been cancelled shall, notwithstanding such rejection or cancellation of certificate of registration, be deemed to be a securitisation company or reconstruction company until it repays the entire investments held by it (together with interest, if any) within such period as the Reserve Bank may direct.

A registry would be set up by Central Government known as the Central Registry for the purpose of registration of transactions of securitisation and reconstruction of financial asset and creation of security interest under the Ordinance. The Central Government may, by notification, appoint a person for the purpose of registration of transactions relating to securitisation, reconstruction of financial assets and security interest created over properties, to be known as the Central Registrar.

For the purposes of this Ordinance, a record called the Central Register shall be kept at the head office of the Central Registry for entering the particulars of the transactions relating to-- (a)securitisation of financial assets; (b)reconstruction of financial assets; and (c)creation of security interest.

The particulars of every transaction of securitisation, asset reconstruction or creation of security interest shall be filed, with the Central Registrar in the manner and on payment of such fee as may be prescribed, within thirty days after the date of such transaction or creation of security, by the securitisation company or reconstruction company or the secured creditor, as the case may be.

The particulars of every transaction would be filed at the registry. Whenever the terms and conditions or the extent of operation of the security interest registered are modified it should be the duty of the Securitisation Company or the secured creditor to send to the central registry the particulars of such modifications.

Whenever the terms or conditions, or the extent or operation of any security interest registered under this Chapter are or is modified, it shall be the duty of the securitisation company or the reconstruction company or the secured creditors, as the case may be, to send to the Central Registrar, the particulars of such modification, and the provisions of this Chapter as to registration of a security interest shall apply to such modification of such security interest.

The securitisation company or reconstruction company or the secured creditors as the case may be, shall give intimation to the Central Registrar of the payment or satisfaction in full, of any security interest relating to the securitisation company or the reconstruction company or the secured creditors and requiring registration under this Chapter, within thirty days from the date of such payment or satisfaction. The Central Registrar shall, on receipt of such intimation, cause a notice to be sent to the securitisation company or reconstruction company or the secured creditors calling upon it to show cause within a time not exceeding fourteen days specified in such notice, as to why payment or satisfaction should not be recorded as intimated to the Central Registrar. If no cause is shown, the Central Registrar shall order that a memorandum of satisfaction shall be entered in the Central Register. If cause is shown, the Central Registrar shall record a note to that effect in the Central Register, and shall inform the borrower that he has done so.

The particulars of securitisation or reconstruction or security interest entered in the Central Register of such transactions kept shall be open during the business hours for inspection by any person on payment of such fees as may be prescribed.

The ordinance also lists specific offences for non-compliance with regards to obligation of registration of particulars with Central Registrar and/or non-compliance of guidelines of RBI and also specifies the penalties for each such offence.

The provisions of this Ordinance pertaining to the Central Registry shall be in addition to and not in derogation of any of the provisions contained in the Registration Act, 1908, the Companies Act, 1956, the Merchant Shipping Act, 1958, the Patents Act, 1970, the Motor Vehicles Act, 1988, and the Designs Act, 2000 or any other law requiring registration of charges and shall not affect the priority of charges or validity thereof under those Acts or laws.