Advisory Services
Audit
Consulting
ESG Advisory
RBI Registration
SEBI Registration
IRDA Registration
FEMA Advisory
Compliances
IBC Services
VCFO Services
Growing
Developing
ME-1
ME-2
EU-1
EU-2
SE
Others
Select Your Location
The Kerala High Court made a ruling that even if an entity’s NBFC license has been stripped, it shall continue to operate as a company and a legal person as long as the certificate of registration of the company has not been cancelled under Companies Act. The court ruled that if an entity is stripped of its NBFC license, it is still entitled to purchase, own and hold properties and continue its legal existence. In this article, we shall look at the ruling of the Kerala HC on- “Company can acquire properties despite cancellation of its NBFC Registration”.
Table of Contents
In this case, the petitioner was a Non-Banking Financial Company which was engaged in the business of advancing loans and advances. Therefore they had provided a loan towards two persons over immovable property. On default in payment, it became an NPA account, and proceedings under SARFAESI against the said account were initiated.
In the meanwhile, the Reserve Bank cancelled the registration of the petitioner’s NBFC as it failed to achieve the required net owned fund within the prescribed time.
The petitioner bought the NPA property in the public auction as there was no buyer. Thereafter a sale certificate was issued. When the petitioner went for mutation, the village authorities didn’t allow to effect mutation as they said that the petitioner’s registration under Section 45-IA (6) of the RBI Act was cancelled. Further, they said that the sale deed executed afterwards was without authority. Therefore the petitioner company decided to move to the court.
The court perused the relevant sections under the RBI Act, which states about cancellation of certificate of registration. As per the regulations, when the certificate of registration is cancelled under Section 45-IA (6) of the Act, the NBFC can no more operate as an NBFC, thereby disabling it from accepting deposits from the public or carry out any other function in the nature of banking activities.
The Hon’ble Court observed that there is difference in the certificate of registration as an NBFC and certificate of registration as a company. Further registration as a company and registration as an NBFC fall under different and distinct statutes and a company that is registered under the Companies Act is a legal entity in itself. One of the pre-requisites of being an NBFC is it being a company at first. When an entity becomes a company, if it has objects contemplated under the Companies Act, then it can apply for NBFC registration. The company’s existence is determined by the registration under the Companies Act, whereas the registration as an NBFC provides for the different type of activities that such a company can indulge in.
The Court observed that the petitioner’s registration under the Companies Act has not been cancelled under any provisions of law therefore, when the existence of the petitioner as a company is not disputed, then it is allowed to acquire properties and can continue its legal existence. The court further held that just because the certificate of registration to function as an NBFC is cancelled, it will not deprive the petitioner of its legal existence as a company.
Therefore, it was held that the petitioner’s existence as a legal company capable of holding properties still remains intact despite it losing its registration as an NBFC. In the view of this, it was held that the petitioner can hold, buy and own properties despite its registration certificate as an NBFC cancelled and accordingly, the petition was allowed.
The Court also held that NBFC registration cancellation during the securitization proceedings will not hamper the proceedings under SARFAESI Act[1] to recover amounts due. The court further ruled that due to the cancellation of the certificate of registration of NBFC, the petitioner is refrained only from acting as an NBFC.
Read our article:RBI announces Revised Regulatory Framework for NBFCs
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
Black money has been the subject of heated political debate in India for a long time. Successiv...
The Apex Court pronounced a judgement in the case titled Tata Motors Vs The Brihan Mumbai Elect...
Since economies are moving towards digitalisation and making it feasible to conduct transaction...
The Alternative Investment Funds (AIFs) Pro-rata and Pari-Passu Rights Proposal Consultation Pa...
The Financial Action Task Force, i.e. FATF (the Force), is the global money laundering and terr...
Advance tax refers to the payment of the tax liability before the end of the relevant financia...
On 11.12.15, the Hon’ble Delhi High Court (HC) pronounced a landmark judgement in the case ti...
Money laundering can be defined as the process of illegal concealment of the origin of money ob...
Every assessee in India is obligated to file an income tax return and make the timely payment o...
In the recent past, India has seen burgeoning demand for internet and smartphones. The rapid ri...
Are you human?: 8 + 1 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
Non-Banking Financial Companies (NBFCs) are the financial institutions regulated by the Reserve Bank of India to pr...
29 Jan, 2020
New generations of young & technology peoples face a highly complex & uncertain economic environment with a...
21 Nov, 2017
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!
Chat on Whatsapp
Hey I'm Suman. Let's Talk!