In the first case, the Bangalore-based Kirloskar Finance, promoted by the Kirloskar group, was acquired by an obscure Ahmedabad-based company, Mark Leasing & Finance, promoted by one Harisingh Champawat. This, despite the fact that Kirloskar Finance is a sick company with outstandings amounting to Rs 116 crore. According to informed sources, the RBI has recently turned down the application filed by Mark Leasing for registration of the newly-acquired Kirloskar Finance on the grounds that the company is not repaying depositors.

In another similar case, Piramal Finance, originally promoted by Mohanlal Piramal, was taken over by a real estate agent of Ahmedabad, Ashish Patel in April this year notwithstanding the fact that the deposit base of the NBFC was less than Rs 1 crore. Thereafter in August this year, Patel sold off the NBFC to the Mumbai-based Valor Finstock. However, a victimised depositor of Piramal Finance, Metro Chem Industries of Ahmedabad which had invested Rs 2.5 crore the form of intercorporate deposits, recently filed an FIR against it for non-repayment of its deposit.

Simultaneously, the RBI has issued a show cause notice to Piramal Finance on why it's registration should not be cancelled. Furthermore, in the case of Piramal Finance, inquiries conducted by RBI regarding the address of the new owner of the NBFC, Valor Finance has drawn a blank and it has been found that the address furbished to the apex bank is non-existent.

Sources in the banking sector said the developments had raised serious doubts about the efficacy of the system of acquisition of NBFCs. "It is evident that unscrupulous businessmen with muscle power are misusing an inherent weakness in the system pertaining to the induction of directors for acquisition of sick NBFCs," said a source. As per the prescribed form number 29 or 32, a company merely has to inform the Registrar of Companies about any change in directorship.

It is felt that this loophole has made it easy for anyone to acquire sick NBFCs for the purpose of stripping them of their assets. In view of this, it is being felt that there should be some system whereby the Registrar of Companies can verify the antecedents and credentials of directors taking over the management of companies. Furthermore, prior to approving the changes in directorship, the RoC should take clearance from the RBI which is the regulatory authority for NBFCs. Alternatively, sources said, the NBFCs should first be required to obtain No Objection certificates from the RBI before approaching the RoC for clearance of changes in directorship.