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Appeal Against NBFC License Cancellation

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Appeal Against NBFC License Cancellation

Non-banking Financial Company (NBFC) plays a vital role in the Indian economy for having a sound source for funding. Reserve Bank of India is responsible for the regulation and supervision of the NBFC for having a healthy financial system. RBI is empowered for issuing and canceling the certificates of NBFC Licenses under the RBI Act, 1934.

In 2016 a lot of NBFC were canceled. This was done because a lot of NBFCs were promising loans at lucrative rates and running away with their money.

What is NBFC License Cancellation?

There is some compliance necessary for companies carrying NBFC activity. RBI is empowered to cancel the NBFC License if the companies don’t meet the public interest at large. RBI can also cancel the license if the requirements are not fulfilled by the company like the minimum net owned fund is of R.s 2 Crore is not fulfilled.

Conditions for obtaining a certificate of registration

An NBFC before undertaking business has to obtain a certificate of registration from the RBI. Following conditions need to be fulfilled for obtaining an NBFC License-

  • Company shall be registered as per the Companies Act, 2016 or Companies Act, 1954.
  • Company should engage in financial activities.  If the net financial flow is more than 50%, then that company shall get the NBFC Registration Certificate.
  • Company which holds a minimum paid up capital of Rs. 2 crores.  Foreign Company and foreign investors who want to start an NBFC should have a paid-up capital of Rs. 5 crores.
  • The RBI has the authority to inspect the books of account of the company for making sure that the company is in position to pay the depositors to claim and the affairs of the company shall not be detrimental to the interest of its depositors and have adequate capital structure.

Cancellation of Certificate of Registration by RBI

If the RBI finds out that the NBFC is not function or conducting business according to the rules and regulations laid down by the government or opposed to the public policy, then it can cancel the registration.

Reasons for NBFC License Cancellation

Following are the situations which will result in the cancellation of certificate of registration granted-

  • The NBFC has ceased to carry the business.
  • Failed to comply with the conditional requirement specified under the Act.
  • Failed to fulfill the conditions specified with respect to the affairs and capital of the company.
  • Failure to comply with the directions laid down by RBI.
  • Failure to maintain the books of accounts.
  • Failure to repay deposits.
  • Have failed to meet the minimum net owned fund of R. 2 Cr.
  • Failed to comply with annual/quarterly returns to RBI.
  • Not Carrying NBFC Activity or working on papers with No Actual borrowers.

Where to file an appeal in case of cancellation of NBFC License?

An appeal can be filed under sub-section (7) of Section 45-IA of the RBI Act, 1934 before the Department of Financial Services, which is the Appellate authorities. It is to be filed within 30 days from the receipt of the order. A Writ Petition can be filed under Article 226 before the High Court.

Steps to be followed before filing an appeal against the NBFC License Cancellation

  • Double check the ROC compliances
  • Check the RBI Returns
  • Keep track of the tax audit reports
  • Quality tests of assets and liabilities
  • Minimum NOF of Rs. 2 Cr.

The opportunity of being heard

Before passing an order of cancellation, the authorities will give the opportunity of being heard to the company unless it is of the opinion that the delay in cancellation will be prejudicial to the public interest or against the interest of the depositors or NBFC.

What is the recourse available if aggrieved by the order?

Any company aggrieved by order of the cancellation has the right to file an appeal within 30 days from the order of cancellation of certificate of registration. If no appeal is filed, then the decision of the central government is final. In case your NBFC license is canceled, please feel free to post a query at our here. Our experts will get back to you.

What is the procedure for appeal in case of NBFC License cancellation with LawyerINC?

  • Connect with our team of experts
  • Get a callback
  • Expert Consultation
  • Submission of documents
  • Drafting and Filing of Appeal
  • Our team will track the case
  • Case Representation before the authorities
  • End to end service

*Any fee, stamp duty, and miscellaneous charges shall be payable extra.

LawyerINC does not take any charges/tax on government fees. Do contact us in case of any query related to GST Registration and much more. To avail any of our services, kindly establish contact by posting a query at our site, LawyerINC.

Frequently Asked Questions

  • 1. What are circumstances under which the Writ Petition should be referred to a High Court?

    In the following cases, the writ petition will be referred to the High Court- When the net worth is of Rs. 2 Cr.has been complied with after 31/3/2017 and before 31/3/2018. When the opportunity of being heard is not given to the company. When the show cause notice is issued by the RBI and the reply for extension of time is submitted.

  • 2. NBFCs function similar to the Banks. What is the major difference between banks & NBFCs in India?

    NBFCs can do lending and investments, and hence, they have similar activities to that of the banks. However, following are the differences as given as below- NBFC don’t deal with demand deposits. They don’t form part of the payment and settlement system and cannot issue cheque drawn on itself. Deposit insurance facility and credit guarantee corporation is not available to the NBFCs depositors.

  • 3. Is it necessary to have the NBFC registered with RBI?

    No NBFC can commence business without obtaining a registration certificate or having a net owned fund of Rs. two crores under Section 45- IA of the RBI Act, 19834. However, certain NBFCs are exempted from registration with RBI like the Venture Capital Fund, Merchant banking, stock broking, insurance companies, Nidhi companies, chit companies, housing finance companies, etc.

  • 4. If the NBFC defaults in the repayment of deposits, what actions can be taken by the depositors?

    If the NBFC defaults in repayment, then the depositor can approach the Company Law Board or the Consumer Forum or file a suit in Court. Further, the State government can take action in case complaint is received from the depositors.

  • 5. Does the Reserve Bank have the power to regulate all financial companies?

    No, NBFC doesn't have the power to regulate all financial companies. Housing Finance companies, merchant banking companies, companies engaged in the stock business, Nidhi companies, venture capital fund companies, insurance, and chit fund companies are all NBFCs but still exempted from getting registration under Section 45-IA of the RBI Act, 1934 subject to certain conditions.

  • 6. What are the benefits of taking services from LawyerINC?

    At LawyerINC, we have an excellent blend of experts to help you get your appeal filed against the cancellation of NBFC registration hassle free. We are committed to offer our services to various entities at a reasonable price. Our focus is to provide quality services to our clients.

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