Nedumpilli Finance Company Limited Vs State of Kerala & Ors. (Supreme Court of India)
The Supreme Court considered whether Non-Banking Financial Companies (NBFCs) regulated by the Reserve Bank of India under Chapter III-B of the Reserve Bank of India Act, 1934 could also be regulated by State money lending laws, specifically the Kerala Money Lenders Act, 1958 and the Gujarat Money Lenders Act, 2011. The Kerala High Court had upheld the applicability of the Kerala Act to NBFCs, while the Gujarat High Court had held the Gujarat Act unconstitutional to the extent that it sought to regulate RBI-registered NBFCs.
The Court examined the legislative competence of Parliament and the States under the Seventh Schedule. Entry 30 of List II covers money lending and money lenders, while Entries 38, 43 and 45 of List I concern the Reserve Bank of India, regulation of financial corporations and banking. The Court held that the competence of the State legislatures to enact laws regulating money lending could not itself be questioned. However, the question was whether such State laws could continue to regulate NBFCs after Parliament had enacted a comprehensive regulatory framework under Chapter III-B of the RBI Act.
The Kerala Act requires money lenders to obtain licences, regulates interest rates, prescribes accounting and record-keeping requirements, permits inspection and search, regulates pledges and empowers authorities to impose penalties. Its definition of “money lender” excludes specified entities, including banks, but does not exclude NBFCs. The Court rejected the argument that NBFCs fall within the exclusion for institutions “established by or under an Act of Parliament”, holding that incorporation or registration under an Act is different from being established by or under an Act.
