Ensuring healthy growth of the financial companies, NBFCs plays a critical role in the complete growth of a country. With RBI (Reserve Bank of India) playing the key role of a regulatory body and an authority to supervise and regulate NBFCs in India, it can exercise its powers under the Reserve Bank of India Act, 1934 to issue or cancel the certificate of NBFC License in the country. This newsletter intends to discuss how to appeal against cancellation of NBFC registration.

Certificate of Registration is Mandatory for every NBFC:

It is mandatory for every NBFC to obtain a certificate of registration from RBI before undertaking any business. Following conditions are required to be complied by each NBFC at the time of obtaining a certificate of registration:

  • Company shall be registered as per the provisions of Companies Act 2016 or earlier Companies Act 1956.
  • Company shall undertake the financial activities mentioned in the Act. A company shall get NBFC registration certificate, if at any time,there is an increase in the financial flow of the business such that it exceeds 50% of the total capital asset of the company.
  • A minimum Paid up capital fund of INR 2 Crore shall be held by the company.
  • In order to ensure that the company shall be in a position to pay its present or future depositor’s claims, has adequate capital structure and earning prospects and affairs of the company is not detrimental to the interest of its present or future depositors, the RBI may ask to inspect the books of account of the company.

NBFC

Cancellation of Certificate of Registration by RBI:

If at any time, the RBI finds that a NBFC is conducting the business in the manner NOT specified in the Act or not acting in favour of public interest then it can cancel the certificate of registration conferred to a NBFC.

Reasons for Cancellation of NBFC Certificate of registration:

  • NBFC ceases to carry on the business of a non-banking financial institution in India
  • Failing of NBFC to comply with the registration conditions specified under the Act and an additional RBI specified conditions at the time of issue of certificate of registration. For example, failing to maintain the minimum paid-up capital requirement i.e. going below the limit of INR 2 crore.
  • NBFC fails to fulfill the aforementioned specified conditions in respect of affairs and capital of the Company.
  • Non- compliance by NBFC of any direction issued by the Reserve Bank of India.
  • Failing to maintain the books of accounts by NBFC in accordance with the provisions of the Act or RBI directions.
  • NBFC has been accepting deposit that has been prohibited by an order made by the RBI and order has been in force.
  • NBFC fails to submit its books of accounts and any other relevant documents to the RBI for inspections.

Provision of the opportunity for being heard by RBI:

Unless it is in an opinion that the delay in canceling the certificate of registration will prejudicial to public interest or the non-banking financial company or the interest of the depositors, the RBI, before passing an order of cancellation, shall give an opportunity of being heard to the Company.

Appeal against order by the aggrieved party:

On cancellation of the certificate of registration, if any company is aggrieved by the order issued by RBI then it has the provision to file an appeal within the period of thirty (30) days from the date of the order of cancellation of the certificate of registration communicated to the company. An appeal can be filed with Central Government and the final decision shall be made by the Central Government where an appeal has been referred to it, or of the Bank where no appeal has been preferred. The appeal can also be filed in case of delay along with the Condonation of Delay Application within reasonable time along with proper justification.

“It is imperative to take stringent measures in order to cease fraudulent activities of the companies that were impersonating themselves as NBFCs and vanishing away with the money of needy people. However, the provision of an appeal to be heard in the case of cancellation of NBFC registration is equally important and just.”

– Shweta Gupta (Founder & CEO, MUDS Management Pvt Ltd.)

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5 Comments

  1. Chittranjan kumar says:

    How cancellation of NBFC by RBI be challenged ?After appeal has it happened or what is possibility of withdrawal of cancellation ?

  2. CS Rushabh Shah says:

    Dear Ma’am,

    What is the Procedure for filing appeal against RBI and in Which Department of central government the application is to be file?

    Whether it is online or offline procedure?

  3. mittal says:

    I want some guidance from you,

    As per RBI Circular RBI/DNBR/2016-17/44

    Master Direction DNBR.PD.007/03.10.119/2016-17 dated

    September 01, 2016, a company is not required to make provision for 14. Standard asset provisioning and 13. Provisioning requirements if the company does not have Public Fund, so it is exempt from these (iii) Applicable NBFCs having customer interface but not accessing public funds are exempt from the applicability of Chapter IV of the directions.

    Please guide and confirm my understanding if I am correct, If wrong, please correct.

    Thanks with Regards,

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