NBFC

Appeal against the cancellation of NBFC Registration

Appeal against the cancellation of NBFC Registration

There are always certain conditions mandatorily fulfilled by the companies liable for carrying out the NBFC activities. At any point in time, if the RBI notices any NBFC that does not perform public functions in the manner specified by the Reserve Bank of India (RBI), The Reserve Bank of India is a regulatory body to ensure the compliance guidelines followed by the Non-banking Financial Companies issued by it. The RBI, as the supreme authority, has the power to revoke the NBFC license if the companies do not match up with public demands at large in the financial arena. We can take the example of those companies that are not able to maintain the new worth net owned funds of 2 Crores INR. The RBI has the power to cancel the licenses of those companies to abide by the provisions of the RBI Act of 1934.   

Table of Contents

Impact of NBFC license revocation process

RBI can exercise its powers under the Reserve Bank of India Act of 1934 to curtail the functioning of NBFCs wholly by cancelling or revoking their certificate of registration whenever there is any procedural irregularity in the functions of the NBFCs. The NBFC license revocation process has an opportunity to surrender its certificate of registration due to the non-holding of public funds, etc.

Challenges in the cancellation of the certificate of NBFC registration cancellation appeal

The RBI has had difficulty finding the NBFC registration cancellation appeal, which has not been performing with RBI’s rules and regulations. It has been the responsibility of an apex bank, RBI, to cancel the registration of non-banking financial institutions for the lapses in regulations in lending practices followed by the NBFCs. By cancelling the certificate of registration of NBFC, the business of the BFC should not transact or act by their function and is not in the position to perform the role of NBFC anymore. Also, it can be said that the certificate of registration can also be cancelled on the violation of the RBI guidelines on the outsourcing and fair practice code in their digital lending or transactions through any third-party application, which can be considered injurious to the public interest. It can be seen through various complaints that the NBFC sometimes does not comply with RBI regulations regarding excessive rates of interest, which results in undue harassment of the customer during loan recovery purposes.

Benefits and privileges behind the NBFC registration cancellation appeal

NBFC has become a vital element for backing up the country’s economic growth. These companies are registered under the section 45 1A. Compared with traditional banking, NBFC is more profitable because of its lower maintenance cost. They will add to provide cheaper loans to the customers. The foremost benefit is that it is easier to get loan approval from the NBFC in comparison to traditional banking as they have strict compliance with the paperwork and eligibility criteria. NBFC registration cancellation appeal only focuses on small borrowing from the customer while the bank covers the larger part of the financial services. As such, the NBFC registration cancellation appeal has no penalty clauses for the repayment of the loans, which is easy as compared to traditional banks.

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Listing out the benefits of NBFC registration:

  • Facilitating loans and credits,
  • Captivating the trading instruments in the financial market,
  • Legible for performing wealth management by managing the stocks along with other obligations,
  • NBFC is kind to help those whose help cannot be sufficed by the traditional banks,
  • NBFCs are the most significant factor for healthy competition in the financial market,
  • NBFCc have also an amicable connection with the new upcoming technologies of recent times,
  • NBFCs are also capable of mitigating financial risks.
  • NBFC uses the blend of the combination of the partnership and database to rapidly increase the financial inclusion of the liquids.
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Mandatory compliance of Certificate of Registration for every NBFC registration cancellation appeal

For every NBFC registration cancellation appeal to acquire the certification of registration, the license for the certificate of registration has been made mandatorily before taking up the call for any of the NBFC businesses. If any NBFC license revocation process, the Company engaging in their financial venture is mentioned as per the Companies Act, 2016. For the time being, if any time shows the financial flow of any such business will increase more than 50% of the total assets of the Company, then only those companies will get the certification of registration. The RBI has a role in scrutinizing the book of accounts of every NBFC to make sure to check the Company’s ability to pay their present or future claims of the depositors. The NBFC must have the proper capital or assets and earn prospects.

These conditions have to be fulfilled by each NBFC at the time of acquiring the certificate of registration:

  • The Company should first have to register itself according to the provision of the Company Act of 1960
  • A company will get the certificate of registration on the condition that the business exceeds the rate of 50% of its total assets for the flow of finances in the structure of the Company.
  • The Company must have a minimum paid-up capital of up to 2 Crores INR that has been owned by the Company.
  • The NBFC institutions must have aligned their services and finances in such a way that the Company should have an adequate amount of capital to pay the borrower’s claim on the present and future dates. RBI, as a regulatory body, can keep an eye on the book of accounts of the NBFC

Revocation of Certificate of Registration of NBFC by RBI

Recently, it was in the news that the RBI had revoked the license of the certificate of Registration of Non-banking Financial Companies (NBFCs) in the exercise of its power conferred under Section-46 1A sub-clause 6 of the Reserve Bank of India Act, 1934. It is very transparent that there are certain guidelines mandated by the RBI to be followed by the NBFCs during their functioning as a Company facilitating public interest at large. So, certain criteria have to be followed by the NBFC license revocation process as given under the provisions of the RBI Act, 1934.

Grounds laid down in provisions of the RBI Act, 1934 for the NBFC license revocation process:

The RBI takes certain measures to regulate and supervise the functioning of the NBFC license revocation process to increase its efficiency in the country’s economic growth.

The following conditions are laid down under Section 46 1A (6) of the RBI Act, 1934 as it says that the RBI can cancel a certificate granted to the NBFC and also for the NBFC license revocation process under this provision if:

  • The NBFC ceases to carry on the business of Non-banking Financial Institutions in India
  • The NBFC could not comply with any circumstances laid down under the certificate of registration of the Company, which had been issued at the time of registration of that Company
  • The NBFC, during any time at the time of its operation, fails to fulfil any of the criteria mentioned under clause (d) to (g) of Section-45 1A (4), that is:
  • The NBFC has an adequate amount of capital and earning capacity
  • The NBFC has to contribute to the public interest of the country, which is the reason why the RBI grants a certificate of registration to non-banking financial companies to carry on trade and commerce through their services.
  • The NBFC has been granted a certificate of registration by the RBI and shall not be detrimental to the operation and consolidation of the financial sector for achieving monetary stability and economic growth and also considering other relevant factors which the RBI may by notification in the official gazette specify.
  • The NBFC’s day-to-day functions are not in alignment with the manner detrimental to the interest of the present and future depositors.
  • The NBFC fails to comply with directions or guidelines issued by the Apex Bank under this provision or to maintain accounts by the requirements of any law or any direction issued for the time being in force by the RBI or to submit or scrutinize the book of accounts and other relevant documents when so demanded by the scrutinizing authority of the apex bank.
  • The NBFC has been forbidden from accepting deposits by an order made by the Apex Bank under this provision of this particular RBI Act, 1934 chapter.
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There is also another way that has recently been followed by the NBFCs: NBFC has the option to surrender their certificate of registration. There is so no specific format given by the RBI to surrender the certificate of the NBFC registration, but the NBFC can submit an application on their letterhead stating all the facts and enclosures of the statutory auditor certificate declaring that the Company is not operating for such years along with the audited financial stamen, board resolution approving for the surrendering the certificate of registration of the NBFC.

Certain conditions be allowed to NBFC during the cancellation procedure under the RBI Act of 1934

As has already been mentioned under the provision of the RBI Act of 1934, the opportunity is given to every NBFC before cancelling its license to be heard about its stand. It can be clearly stated that before cancelling the certificate of registration on the ground that the Non-banking financial institution has failed to comply with provisions mentioned under Section-46 1A (6) of clause (ii) or also has failed to comply with the provision of clause (iii) the RBI except the RBI is of the view that the delay in cancelling the certificate of registration shall be detrimental to the public interest at large or the interest of the depositors or the non-banking financial companies will have allowed the Apex Bank to take necessary steps.

As it has been mentioned so far before revoking the certificate of registration of the NBFC registration cancellation appeal, the NBFC should be given a reasonable and authentic opportunity to be heard.

NBFC Registration cancellation appeal by the RBI

If any Non-banking Financial Companies are aggrieved by the order of RBI, cancel the certificate of registration of the following Company. The provision is there to file an appeal within 30 days from the date of the order of rejection or cancellation when it was passed by the RBI is communicated properly to the central government where this appeal has been preferred to go or of the RBI where there is no appeal lies then the decision taken by the RBI can be final but before which the RBI should give enough opportunity to hear the aggrieved NBFC at its level in the stipulated period for 30 days. There is also a provision for the delay caused by the applicant in filing the NBFC registration cancellation appeal. Then, he can proceed with his appeal along with the application for the condonation of the delay, specifying the reasonable cause and justification for the delay in the proper time.

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Documents required for filing the NBFC registration cancellation appeal

Certain criteria have to be followed before the filing of the NBFC registration cancellation appeal. There are statute complaints laid down by the RBI for the fulfilment of certain documents before the central government.

There are the following necessary compliances produced before the Department of Financial Affairs:

  • Safer to check with the ROC (registrar of companies)
  • Tax audit reports of the turnover of the NBFC’s business
  • The quantum of the minimum net owned fund should be up to 2 Crores INR.
  • Qualitative review of the assets and liability of the NBFC
  • Proper reason to go for filing an appeal against the cancellation of NBFC registration

The list of NBFC registration cancellation appeals by the RBI-

  • Dhanbad Properties Private Ltd,
  • Soorya Vanijya & Investment Ltd.
  • Jainex India Ltd.
  • Jayam Vyapaar Pvt Ltd.
  • J.M. Holdings Pvt Ltd.
  • Wide Range Sales Pvt. Ltd.
  • Syn Pack Finance Pvt Ltd.
  • B D Vanijya Udyog Pvt Ltd.
  • Quency Consultancy Pvt Ltd.
  • S G Projects Private Limited (formerly S.G. Credit Ltd), etc.

Conclusion

NBFC, as a part of the financial service industry, is playing a significant role in the Indian economy to reach greater heights. NBFCs facilitate various services such as credit or loans, retirement plans, leasing, mergers, activities, etc. For any NBFC to function, it is a mandatory requirement to get a certificate of registration from the RBI. It can be determined from the article that the NBFC has two faces, just like a coin; one is positive, and the other is negative, before reaching out to any commitment. RBI has also played a significant role in maintaining fair competition in the market through checks and balances as a regulatory body to the NBFCs.  

FAQs

  1. What is the CoR of the NBFC registration cancellation appeal?

    It stands for Certificate of Registration. This certificate has to be issued by the Rbi office as it provides NBFC power to start their operation as a company registered under the Companies Act of 1934. NBFC cannot continue to do its commercial activities without the issuance of the certificate of registration.

  2. Which provision of the RBI Act talks about the appeal against the NBFC license revocation process?

    The RBI has made a separate clause for dealing with the appeal against the NBFC under the RBI Act,1934. The NBFC can file an appeal under Sub-section (7) of Section 45-1A and can also submit it to the Department of Financial Affairs.

  3. What penalty was imposed on the NBFC for not registering it?

    The provision of penalty is given under Section-45 1A sub-section (4A), which provides for imprisonment for a term that is not less than 1 year but which may be extended to 5 years and with a fine of up to 1 Lakh rupees.

  4. Would it be possible to continue the operation of the NBFC registration cancellation appeal process?

    In some cases, it might be allowed to continue the functioning and operations of the NBFC registration cancellation appeal process. However, it is to be conformed through the regulatory body and has to comply with the orders of the regulatory authority.

  5. Can the NBFC registration cancellation appeal be eligible to take action under the SARFAESI Act?

    According to the new notification, a registered non-banking financial company with a net asset worth 100 crores INR or more qualifies as a financial institution.

  6. What is the limitation of the NBFC registration cancellation appeal?

    The NBFC is lacking in the accountability part to the regulators and their eligibility to operate outside the customary practices of banking rules and regulations.

  7. Which authority regulates the NBFC registration cancellation appeal?

    The Reserve Bank of India, as an apex bank, has the power to regulate the functions performed by the NBFC during its business. The RBI Act of 1934 laid down various processes of inspection, regulation, and supervision over the NBFCs to meet the 50 criteria set by the RBI belonging to the principal business of NBFC registration cancellation appeal.  

  8. Which ministry under which the NBFC license registration process governs?

    The functioning of the NBFC license registration process is governed by both the Reserve Bank of India and the Ministry of Corporate Affairs.

  9. Is there any possibility of the NBFC registration cancellation appeal getting notified by the central government?

    Usually, the issue of the notification by the central government is connected to the SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The notification clarifies certain NBFCs as financial institutions as already provided under the SARFAESI Act.

  10. How long is the NPA period for the NBFC registration cancellation appeal process?

    The Non-performing Asset (NPA) period for any NBFC is 90 days if the principal amount is due for three months.

  11. Can the NBFC registration cancellation appeal application be transferable?

    The NBFC Management Committee has to obtain prior written permission from the RBI.

  12. How many layers are there in the NBFC registration cancellation appeal?

    According to the SBR master direction, the NBFCs have been divided into four layers that are to be said to be the base layer, the middle layer, the top layer, and also the upper layer.

  13. Is it necessary for legal representation necessary for the NBFC registration cancellation appeal?

    It can be deciphered from the RBI Act of 1934 that legal representation is not mandatory, but it is greatly recommended. An experienced legal professional will always help handle the matter and guide you through all the necessary legal documentation and its structuring, which is very helpful in NBFC registration cancellation appeals.

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