Examining the regulatory grey areas in the computation of shareholding thresholds under RBI’s Acquisition Directions, 2025
Introduction
The acquisition or transfer of shareholding in a Non-Banking Financial Company (“NBFC”) is subject to regulatory oversight by the Reserve Bank of India (“RBI”). The Reserve Bank of India (Non-Banking Financial Companies – Acquisition of Shareholding or Control) Directions, 2025 (“Acquisition Directions”), issued on November 28, 2025, prescribe the circumstances in which prior written approval of RBI is required.
While the Directions prescribe a threshold of 26% of the paid-up equity capital, their practical application raises an important question: Does every change involving 26% or more of an NBFC’s shareholding require prior RBI approval, even where the shares are acquired by several unrelated persons, none of whom individually acquires 26% or more?
The question becomes particularly relevant where existing shareholders propose to exit an NBFC by transferring their holdings to multiple investors, or where fresh equity shares are allotted to several persons.
The difficulty lies not in the prescribed percentage but in determining how the threshold is to be applied. Should the cumulative change in an NBFC’s shareholding be considered, or should the threshold be examined with reference to the shareholding acquired by an identifiable investor?
The Acquisition Directions do not expressly resolve this distinction, leaving room for competing interpretations with significant implications for shareholder exits, capital infusion and ownership restructuring.
What Do the RBI Directions Prescribe?
Paragraph 6 of the Acquisition Directions requires an NBFC to obtain prior written permission from RBI for:
Paragraph 6(1): Any takeover or acquisition of control of the NBFC, which may or may not result in a change of management.
Paragraph 6(2): Any change in the shareholding of the NBFC, including progressive increases over time, which would result in acquisition or transfer of shareholding of 26% or more of its paid-up equity capital.
The two provisions address distinct regulatory considerations. Paragraph 6(1) concerns acquisition of control, irrespective of the percentage of shareholding involved, whereas Paragraph 6(2) prescribes a quantitative threshold linked to the acquisition or transfer of shares.
Further, Paragraph 7, read with Annex I, requires an application for prior approval to be submitted through the PRAVAAH portal, accompanied by particulars of the proposed shareholders, their sources of funds, prescribed declarations and bankers’ reports.
The framework, therefore, clearly establishes the circumstances requiring regulatory scrutiny and the information to be furnished for obtaining approval.
However, Paragraph 6(2) does not expressly clarify whether the 26% threshold is to be computed individually, collectively or by aggregating acquisitions undertaken by different investors.
This silence becomes material when the change in an NBFC’s overall shareholding exceeds 26%, but the shares are distributed among several unrelated persons.
The Grey Area: Individual Acquisition or Aggregate Shareholding Change?
The ambiguity arises from the construction of Paragraph 6(2), particularly the relationship between its opening expression, “any change in the shareholding of the NBFC”, and the subsequent requirement concerning acquisition or transfer of 26% or more.
Interpretation I: Aggregate change in shareholding
A literal reading of the opening expression may suggest that the provision addresses the overall change in the ownership structure of the NBFC.
Under this interpretation, transfers undertaken by different shareholders may be aggregated, and prior RBI approval could become necessary whenever their cumulative effect reaches 26%, irrespective of whether the incoming shareholders are connected.
However, such an interpretation raises practical difficulties.
Consider a situation where several shareholders collectively transfer 25% of an NBFC’s paid-up equity capital to unrelated buyers. Subsequently, another shareholder holding 2% proposes to transfer 1.1%.
If all transfers are aggregated, the subsequent transfer would cause the cumulative change to exceed 26%, potentially triggering the approval requirement.
This raises an important question: Should a minority shareholder’s ability to transfer shares depend upon transactions undertaken by unrelated shareholders over whom such shareholder has no control?
Further, the Directions do not specify the period over which unrelated transfers must be aggregated, whether historical transfers continue to be counted indefinitely or whether the threshold resets after a particular period.
An aggregate interpretation, therefore, raises operational questions for which the Directions do not provide an express mechanism.
Interpretation II: Acquisition by an identifiable investor
An alternative interpretation emerges when Paragraph 6(2) is read in its entirety.
The opening words identify the relevant event, namely a change in the shareholding of the NBFC, while the subsequent words qualify that event by referring to acquisition or transfer of shareholding of 26% or more.
On this reading, the threshold may be examined with reference to the holding acquired by an identifiable investor, rather than the cumulative effect of unrelated transfers.
This interpretation finds contextual support in Paragraph 7 and Annex I, which primarily require information relating to proposed shareholders, including their credentials, antecedents and sources of funds.
The approval mechanism thus appears substantially directed towards examining persons acquiring a significant interest in an NBFC.
However, the shareholder-focused approval mechanism does not, by itself, conclusively establish that the threshold must always be applied individually.
The Directions neither expressly prescribe an individual-acquirer test nor provide a general rule requiring aggregation of unrelated acquisitions.
Consequently, both interpretations require examination within the language and regulatory scheme prescribed by RBI.
Does a Transfer of 26% or More Independently Trigger Approval?
A related ambiguity arises from the use of the expressions “acquisition” and “transfer” in Paragraph 6(2).
While the requirement for prior approval is relatively clear where an investor proposes to acquire a holding of 26% or more, the position becomes less certain where an existing shareholder sells 26% or more to several unrelated purchasers, each acquiring less than the prescribed threshold.
A literal reading of “transfer” may suggest that the quantum of shares disposed of is itself sufficient to attract prior approval.
Conversely, the framework under Paragraph 7 and Annex I may support the view that the principal regulatory objective is to examine incoming significant shareholders.
The proviso to Paragraph 6(2) provides further interpretational context. It dispenses with prior approval where shareholding exceeds 26% due to a buyback or court-approved reduction of capital, subject to reporting to RBI within one month.
The proviso specifically addresses an increase in the percentage holding beyond the threshold. It does not similarly address the reduction of an existing shareholder’s holding.
This may support the proposition that the regulatory concern is primarily an increase resulting in significant ownership.
Nevertheless, the expression “transfer” forms an express part of Paragraph 6(2), and its significance cannot be disregarded merely by reference to the approval procedure or the proviso.
Accordingly, whether a shareholder transferring 26% or more to multiple unrelated investors requires prior approval solely because of the quantum transferred remains an interpretational question.
Progressive Increases Over Time: What Is Intended to Be Aggregated?
Paragraph 6(2) expressly includes “progressive increases over time”.
This expression addresses the possibility of acquiring a substantial shareholding through successive transactions.
For example, where an investor initially acquires 15% and subsequently proposes to acquire another 12%, the resulting holding would reach 27%. The progressive increase would therefore bring the acquisition within the prescribed threshold.
However, a different question arises where three unrelated investors separately acquire 10%, 9% and 8%, respectively.
Although the aggregate acquisition represents 27%, the Directions do not expressly clarify whether such acquisitions must be combined for the purpose of Paragraph 6(2).
Notably, the expression “persons acting in concert” is not independently used in Paragraph 6(2). While this concept forms part of the definition of control adopted under Paragraph 4(1), the Directions do not expressly extend that formulation to the quantitative shareholding threshold.
The distinction is important. The inclusion of an aggregation concept for determining control does not automatically establish its application to a separate provision prescribing a numerical shareholding threshold.
Equally, the absence of that expression does not necessarily prohibit RBI from examining connected acquisitions in light of their substantive effect.
The scope of “progressive increases over time” must therefore be examined without assuming an aggregation mechanism that Paragraph 6(2) has not expressly prescribed.
Interpreting the Directions Within the Regulatory Framework
The competing interpretations highlight the need to distinguish between interpreting a regulatory provision and introducing requirements that its language does not expressly contemplate.
An interpretation of Paragraph 6(2) should remain within the boundaries established by RBI and be guided by the following principles.
First, the provision must be read as a whole. The opening expression concerning a change in shareholding cannot be considered independently of the qualifying words relating to acquisition or transfer of 26% or more.
Second, the interpretation should be consistent with the regulatory mechanism. Paragraph 7 and Annex I provide relevant context regarding the purpose of obtaining information about proposed shareholders. However, these procedural requirements cannot independently determine the substantive scope of Paragraph 6(2).
Third, express regulatory language must be given effect. The references to both acquisition and transfer, as well as progressive increases over time, should be considered without rendering any expression redundant.
Fourth, regulatory silence should not automatically be treated as either permission or prohibition. The absence of an express aggregation mechanism does not conclusively establish that unrelated acquisitions must be excluded from consideration. Equally, it does not justify assuming that every unrelated transaction must necessarily be aggregated.
These principles permit examination of the regulatory purpose without expanding or restricting the provision beyond what its language can reasonably support.
Importantly, Paragraph 17 of the Acquisition Directions expressly empowers RBI to issue clarifications for removing difficulties in their application or interpretation and provides that RBI’s interpretation shall be final and binding.
The authority to conclusively resolve the ambiguity, therefore, rests with RBI.
Acquisition of Control: A Separate and Independent Test
The uncertainty surrounding the computation of the 26% threshold must not be confused with the requirement relating to acquisition of control.
Paragraph 6(1) independently requires prior RBI approval for any takeover or acquisition of control, irrespective of the shareholding percentage involved.
Paragraph 4(1) adopts the definition of “control” under Regulation 2(1)(e) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Control includes the right to appoint a majority of directors or influence management or policy decisions, whether exercised individually or in concert, directly or indirectly, through shareholding, contractual rights or other arrangements.
Consequently, even where no investor individually acquires 26%, prior approval may be necessary if the transaction results in acquisition of control.
Conversely, merely becoming the single largest shareholder in an NBFC with dispersed ownership does not automatically establish control. The substantive rights and arrangements governing management and policy decisions must be examined.
Thus, the numerical shareholding threshold under Paragraph 6(2) and the acquisition-of-control test under Paragraph 6(1) must be assessed independently, while recognising that both may apply to the same transaction.
Implications for Allotments, Shareholder Exits and Restructuring
The interpretational uncertainty has practical consequences beyond secondary transfers.
Where an NBFC issues fresh equity shares representing more than 26% of its enlarged capital to several unrelated investors, the question arises whether approval depends on the overall size of the allotment or the holding acquired by each investor.
Similarly, where RBI has approved allotment of a specified number of shares to an identified investor, subsequently implementing the transaction through a rights issue may raise questions regarding the scope of the original approval.
An argument may be advanced that an approval permitting an identified investor to acquire a specified maximum shareholding should accommodate a smaller acquisition by that investor, provided the approval does not restrict the mode of issuance.
However, such reasoning cannot automatically establish that the approval extends to additional investors or a materially different transaction structure.
A full allotment in accordance with an existing approval, followed by a partial transfer to other investors, may reduce uncertainty regarding implementation of the original approval. Nevertheless, the subsequent transfer must be examined independently under Paragraph 6.
In each case, the actual transaction structure, the conditions of any existing RBI approval, the possibility of acquisition of control and the applicable provisions of the Companies Act, 2013 require separate consideration.
Accordingly, the absence of an approval requirement under one provision should not be treated as dispensing with other applicable regulatory obligations.
The Need for Regulatory Clarity
The ambiguity under Paragraph 6(2) directly affects share transfers, shareholder exits, fresh allotments and changes in the ownership structure of NBFCs.
A clarification from RBI would be particularly useful regarding whether the 26% threshold is to be computed individually or in aggregate; whether and when acquisitions by different persons must be combined; the period relevant for computing progressive increases; and whether the disposal of 26% or more by an existing shareholder independently attracts prior approval where the purchasers remain below the threshold.
Until such clarification is issued, NBFCs should undertake a transaction-specific assessment and, where competing interpretations materially affect the approval requirement, consider seeking RBI’s clarification before implementing the proposed transaction.
Conclusion
The Acquisition Directions establish a clear regulatory framework for acquisition of significant shareholding and control in NBFCs. However, the manner in which the 26% threshold is to be computed where shares are transferred or allotted to multiple unrelated investors remains an area of interpretational uncertainty.
While the opening words of Paragraph 6(2) may support an aggregate approach, its qualifying language, the reference to progressive increases and the shareholder-focused approval mechanism provide grounds for an alternative interpretation.
Neither approach can be conclusively adopted without addressing the language of the provision as a whole and the absence of an express aggregation methodology.
The appropriate approach is therefore not to presume that every aggregate change exceeding 26% requires approval, nor to conclude that every acquisition below 26% is automatically outside regulatory scrutiny.
Rather, the provision must be interpreted within the framework prescribed by RBI, giving due effect to its express wording, purpose and the separate requirement concerning acquisition of control.
Regulatory silence creates a question of interpretation; it does not, by itself, create an exemption or an additional approval requirement.
A clarification from RBI would help remove this uncertainty and provide a more predictable framework for legitimate capital infusion, ownership restructuring and shareholder exits in the NBFC sector.
