A Company shall fulfil the following conditions to be eligible to apply for registration as an Asset Reconstruction Company with the RBI:

• ➲ No losses should be incurred in any of the three preceding financial years
• ➲ For the realisation of the financial assets acquired there should be an adequate arrangement, for the purpose of securitisation or asset reconstruction.
• ➲ ARC shall be able to pay periodical returns and redeem on respective due dates on the investments made in the company by the qualified buyers or other persons;
• ➲ Directors of such company must have adequate experience in matters related to finance, financial management, securitisation and reconstruction management;
• ➲ No directors of such a company should be convicted of any offence involving moral turpitude;
• ➲ Sponsor of such company should be a fit and proper person in accordance with the criteria as may be specified in the guidelines issued by the Reserve Bank for such persons;
• ➲ Company has complied with or is prepared and capable to comply with prudential norms specified by the Reserve Bank;
• ➲ The Reserve Bank of India has issued specified guidelines and conditions which a company has to comply with in order to get registered as an ARC.

• STEP 1: Prepare the application for registration of ARC in such form and manner as may be specified under the applicable provisions.
• STEP 2: Preparation of the requisite drafts and attachments to be filed along with the application for registration of ARC/li>
• STEP 3: In order to grant the certificate of registration to an Asset Reconstruction Company the Reserve Bank India may conduct an inspection of the records, asset’s and book of reconstruction company to ensure that the CONDITIONS FOR Regsitration are fulfilled
• STEP 4: After being satisfied that the conditions specified are fulfilled, The Reserve Bank of India may grant the certificate of registration to the asset reconstruction company to commence or carry on the business of asset reconstruction or securitisation and may impose such conditions as it deems fit.

NOTE: The Reserve Bank may reject the application made under if it is satisfied that the conditions specified in are not fulfilled

• ➲ Certified copy of latest MOA & AOA of the company.
• ➲ Certified copy of the certificate of incorporation.
• ➲ Board resolution stating that the company has not accepted any deposit.
• ➲ None of the directors shall be disqualified as per the Companies Act.
• ➲ Detailed information about the sponsor, their profiles, holdings etc.
• ➲ Detailed information about the management, their profiles, their duties, holdings etc.
• ➲ Audited Balance Sheet of the last 3 years along with director and auditor report.
• ➲ A certified copy of auditor certificate.
• ➲ Statement of owned funds.
• ➲ Information about related party transactions

• a. The ARC may issue bonds and debentures in regard to funds to meet its funding requirements. But the issue of security receipts is the chief, and perhaps the unique source of funds for the ARCs.
• b. In accordance with the SARFAESI Act, Security Receipts is a receipt or other security issued by a reconstruction company (or, in that case, a securitization company) to any qualified institutional buyer (QIB) for a particular scheme. The Security Receipt gives a right, title, or interest to the holder (QIB) in the financial asset purchased by the ARC. These SRs issued by ARCs have impaired assets to back them up.
• c. "Qualified buyer" means a financial institution, insurance firm, bank, state-owned financial corporation, state-owned industrial development corporation, trustee, or other asset reconstruction firm that has been certified under the SARFAESI Act, 2002.
• d. An ARC cannot raise funds from investors who are not qualified buyers (QB). A manufacturing company, for example, looking to invest surplus capital by investing in the ARC.

Acquisition and Valuation rule by ARC

The SARFAESI Act allows ARCs to acquire financial assets (NPAs) by way of a bank agreement. In exchange for NPAs transferred to ARCs, banks and FIs may receive bonds/debentures. A portion of the value may be paid as Security Receipts (SRs). The ARCs shall acquire NPAs at a 'fair price' in accordance with an arm length principle

The SARFAESI Act stipulates various measures for the reconstruction of assets that can be taken by ARCs. Including:

• a. To take over or change the management of the borrower's business;
• b. Sale or lease of borrower 's company
• c. To join settlements and
• d. Restructuring or debt rescheduling.
• e. Strengthening security interests
• f. The last step of 'security interest enforcement' means ARCs will take possession/sell/lease the sponsored asset such as ground, building etc.

ARCs and secured creditors cannot enforce the SRFAESI security interest unless the secured creditors agree to the value of at least 75 percent agree to exercise the right