Legal Amendments Overview 2021-2016

Questions and Answers

What action can the Reserve Bank take if it finds an asset reconstruction company's operations detrimental to the public interest?

Restrict the company from issuing new security receipts

Remove the Chairman or appoint additional directors (correct)

Increase the capital requirements of the company

Order a full liquidation of the company

What must occur before the removal of a Chairman or director from an asset reconstruction company?

An opportunity to be heard must be given (correct)

The Reserve Bank must conduct a public meeting

A written report must be submitted to the Ministry

A majority vote from existing directors is needed

Who is responsible for providing information during an audit of the asset reconstruction company?

External auditors only

Only the Chairman

Investors in security receipts

Any director or employee of the company (correct)

What is a possible role assigned by the Reserve Bank to ensure compliance in an asset reconstruction company?

Appointment of an observer to the board Signup and view all the answers

Which of the following documents must be produced during an audit of an asset reconstruction company?

Books, accounts, and other relevant documents Signup and view all the answers

What is the primary objective of the Reserve Bank's interventions in asset reconstruction companies?

To ensure proper management and protect public interest Signup and view all the answers

What consequence does an asset reconstruction company face if found non-compliant during inspections by the Reserve Bank?

Improper management may lead to direct interventions Signup and view all the answers

What authority does the Reserve Bank have regarding the composition of the board of directors in an asset reconstruction company?

It can remove or appoint directors as needed Signup and view all the answers

What action can the Debts Recovery Tribunal take if the secured creditor's measures are found invalid?

Declare the measures invalid Signup and view all the answers

What happens if the actions of the secured creditor are deemed in accordance with the law?

The secured creditor can legally proceed with recovery Signup and view all the answers

What is one of the possible directions the Tribunal can pass regarding secured assets?

Restore management of secured assets to the borrower Signup and view all the answers

Under what condition can a secured creditor take recourse under sub-section (4) of section 13?

If the Tribunal does not declare the measures invalid Signup and view all the answers

What must a borrower do to request restoration of possession or management of secured assets?

Make an application under subsection (1) Signup and view all the answers

Which of the following statements is true regarding the Tribunal's findings?

The Tribunal must consider evidence from both parties. Signup and view all the answers

What does sub-section (4) of section 13 primarily relate to?

Measures available to secured creditors Signup and view all the answers

What is required from the borrower to prove they are aggrieved according to the provisions?

Submission of an application under subsection (1) Signup and view all the answers

What is the role of the Chief Metropolitan Magistrate or District Magistrate in the context of secured assets?

To assist the secured creditor in taking possession of secured assets when requested. Signup and view all the answers

What must the secured creditor provide when making a request to take possession of secured assets?

An affidavit affirming details about the financial assistance and security interest. Signup and view all the answers

What documentation must be forwarded to the secured creditor after possession is taken?

The secured asset and related documents. Signup and view all the answers

Which of the following is NOT a requirement included in the affidavit mentioned in the process of taking possession of secured assets?

Confirmation of the borrower's ability to repay the financial assistance. Signup and view all the answers

What must be included regarding the borrower's default in the affidavit?

Affirmation that notice demanding payment was served on the borrower. Signup and view all the answers

To establish a claim for possession of secured assets, what must the secured creditor declare about the security interest?

That it is valid and subsisting within the limitation period. Signup and view all the answers

What is the implication of classifying the borrower's account as a non-performing asset?

The borrower has committed a default in repayment. Signup and view all the answers

What is the purpose of the written request made by the secured creditor to the magistrate?

To seek possession or control of secured assets. Signup and view all the answers

What legal authority is not under scrutiny in any court as per the provided information?

Chief Metropolitan Magistrate Signup and view all the answers

What is required from a secured creditor when taking over the management of a borrower's business?

Publication of a notice in local newspapers Signup and view all the answers

In the context of management takeover, who can be appointed as directors of a company?

Persons deemed fit by the secured creditor Signup and view all the answers

What happens to the office holders of a company upon the publication of the notice by a secured creditor?

They are removed from their positions immediately Signup and view all the answers

When can a secured creditor take over the management of a borrower's business according to the section?

When the borrower defaults on repayment Signup and view all the answers

What is the status of the asset reconstruction company when it takes over a borrower's management?

It acts as a temporary manager Signup and view all the answers

Which legislative framework defines a company in the context of management takeovers?

Companies Act, 1956 Signup and view all the answers

What must a secured creditor do if the borrower is not a company according to the given section?

Appoint an administrator for the borrower’s business Signup and view all the answers

What does the term 'security receipt' refer to in the context of asset reconstruction companies?

A receipt evidencing the purchase of an interest in a financial asset Signup and view all the answers

According to the definition provided, what percentage of paid-up equity capital must a person hold to be considered a 'sponsor'?

Ten percent Signup and view all the answers

What type of asset is referenced regarding the obligations incurred or the credit provided?

Intangible assets Signup and view all the answers

Which Act defines the term 'subsidiary bank'?

State Bank of India (Subsidiary Banks) Act, 1959 Signup and view all the answers

What happened to the definitions omitted by Act 44 of 2016?

They were permanently removed Signup and view all the answers

Which Act is referenced for definitions not found in the specified amendments?

All of the above Signup and view all the answers

What is the effective date of the changes made by Act 44 of 2016?

September 1, 2016 Signup and view all the answers

What is the definition of 'State Bank of India' based on the provided content?

A commercial bank governed by the State Bank of India Act, 1955 Signup and view all the answers

Study Notes

Legislative Changes

Act 44 of 2016 amended several clauses effective from September 1, 2016, including the replacement of terms related to various financial entities such as "securitisation company."
Significant amendments under Act 13 of 2021 and explicit definitions were introduced, affecting stakeholders like asset reconstruction companies and qualified buyers.

Security Definitions

Security receipt: A document issued by an asset reconstruction company indicating the holder's rights in the financial asset acquired through securitisation.
Sponsor: A person owning at least 10% of the paid-up capital in an asset reconstruction company.
State Bank of India: Defined by the State Bank of India Act, 1955, establishing its foundational role in the Indian banking sector.

Regulatory Oversight

The Reserve Bank of India can intervene if an asset reconstruction company’s operations are found detrimental to public or investor interests.
Powers include removal or appointment of directors and assigning observers to oversee management practices.

Compliance Obligations

Directors and employees of asset reconstruction companies must provide required documents and information during audits or inspections promptly.
Compliance includes submitting an affidavit detailing outstanding financial claims, security interests created, defaults, and notices served.

Asset Management

Secured creditors can request district magistrates for assistance in taking possession of secured assets.
Procedures require an affidavit confirming financial claims, security validity, and borrower defaults to proceed effectively.

Management Takeover

Upon takeover by an asset reconstruction company, creditors can appoint new directors or administrators based on published notices in local newspapers.
Existing directors lose their positions upon the formal announcement of management changes.

Legal Recourse and Tribunal Authority

The Debts Recovery Tribunal has the authority to assess actions taken by secured creditors and can declare them invalid if not compliant with existing laws.
The Tribunal can restore possession or management rights to borrowers if creditor actions are deemed improper.

Recovery Measures

If the Tribunal validates creditor actions, secured creditors are entitled to pursue measures outlined in the law for debt recovery.
Emphasis on adjudicatory processes underscores the balance between creditor rights and borrower protection in financial disputes.

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Description

This quiz focuses on the legal amendments made by Act 44 of 2016 and Act 13 of 2021, highlighting the changes in definitions and clauses relevant to companies and securities. Test your understanding of these reforms and their implications, effective from various dates. Gain insights into the evolving legal landscape impacting institutional buyers and company boards.