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Depositor’s remedy in case of defaults in repayment by NBFC

non-banking financial company

A Non-Banking Financial Company(NBFC) is a company registered under the Companies Act of 1956 that engages in the business of loans and advances, the purchase of shares, stock, bonds, debentures, securities issued by local or state governments, or other securities of a similar marketable nature, leasing, hire-purchase, insurance, and the business of chits. However, it does not include agricultural activity, institutions whose primary business is the production of goods for sale or use in industry. 

A non-banking financial company (residuary non-banking company) is also a non-banking institution that is a firm whose primary business is taking deposits under any plan or arrangement or in any other way or lending in any way.

Depositor’s remedy in the event of default in repayment by a Non-Banking Financial Company

Suppose an NBFC fails to reimburse a deposit. In that case, the depositor may have some remedies available to them to recover redress if a Non-Banking Financial Company (NBFC) fails to meet its repayment duties on its deposit obligations.

The first option is to contact the NBFC to learn more about the default and seek a resolution, and depositors should contact the NBFC directly. They can express their concerns and ask for the return of their deposits.

Grievance Redressal Mechanism to handle depositors’ concerns and grievances, NBFCs must have a grievance redressal structure in place. To resolve the issues and seek a solution, depositors can go to the designated grievance redressal officer or the customer care division of the NBFC. Some of the remedies are available for depositors, which are discussed below.

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Remedy under NCLT

One can raise a complaint to National Company Law Tribunal for repayment of deposit under Section 73(4) of the 2013 Companies Act. According to Section 73(4) of the Companies Act 20131, the concerned depositor may apply to the NCLT for any other orders the NCLT may deem appropriate, as well as for an order ordering the business to pay the sum due or for any loss or damage he may have incurred as a result of such non-payment. 

A company is required to reimburse all deposits it has accepted with interest in accordance with the terms and conditions of the contract. The depositor may approach the NCLT for this reimbursement by submitting an application for a complaint.

Barring NBFCs from making loans and investments on payment default

As stated in Section 45QA(1) of the Reserve Bank of India Act, 1934 (2 of 1934), a non-banking financial company that has failed to repay any public deposit or part of it in accordance with the terms and conditions of such deposit shall not grant any loan or other credit facility by whatever name called, make any investment, or create any other asset while the default is ongoing.

Integrated Ombudsman Scheme

Under the Integrated Ombudsman Scheme, 2021, any person may file a grievance or complaint against any entity regulated by the RBI, including a bank, non-banking financial company (NBFC), or participant in a payment system. Not just banks can use the ombudsman process for complaint resolution. The RBI has ombudsman mechanisms for digital transactions and non-banking financial institutions. 

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Grounds of Complaint

Any customer who has experienced service deficiencies as a result of an omission or act by a Regulated Entity may make a complaint under the Scheme either directly or through an authorised representative as described by section 3(1)(c) of the Integrated Ombudsman Scheme, 2021.

Procedure for Filing a Complaint 

  • The complaint may be submitted online using the specialised site (https://cms.rbi.org.in).
  • The Centralised Receipt and Processing Centre, as advised by the Reserve Bank, may also accept physical or electronic complaints.
  • If the complaint is delivered in person, the complainant or their authorised representative must properly sign it.
  • The complaint must be submitted electronically or physically, in the format and with the details that the Reserve Bank may specify. 

Process – A complaint is examined after it is submitted on the portal. If it is determined to be legitimate, it is given to the Ombudsman’s office for additional investigation. The RBI-regulated firm is also sent a copy of the complaint along with instructions to respond. Any information or certified copies of documents pertaining to the complaint may be requested by the Ombudsman as needed. The Ombudsman utilises the service to resolve the issue.

Precautions to be taken by depositors, as per RBI booklet

The RBI advised clients to exercise caution when making investments in NBFCs. The RBI booklet lists the following points for your consideration:

  •  Public deposits are unsecured.
  • Insist on a proper receipt of each deposit you make with the bank, NBFC, or company.
  • The receipt must be dated, and contain the depositor’s name, the rate of interest due, the amount in words and figures, the maturity date, and the amount. An officer permitted by the company must also sign it.
  • The Reserve Bank of India disclaims all liability and responsibility for the company’s current financial standing, representations, the accuracy of any statements or opinions made by the company, as well as the timely repayment of deposits and discharge of liabilities.
  • Check to see if brokers, agents, etc., who collect public deposits on NBFCs’ behalf have been properly permitted for the task by the relevant NBFC.
  • Remember that depositors of NBFCs are not eligible for the Deposit Insurance facility.
  • Check to see if the name of the NBFC is on the list of deposit-taking NBFCs that are permitted to accept deposits, which is accessible at https://rbi.org.in, and to ensure that it is not on the company’s list that is not permitted to accept deposits.
  • On their website or in their office, NBFCs must prominently display the COR (Certificate of Registration) granted by the Reserve Bank. Additionally, this document must state that the NBFC has received particular permission from the RBI to accept deposits. Scrutinise the certificate to make sure the NBFC is permitted to accept deposits.
  • NBFCs are not permitted to accept deposits for terms of less than 12 months or greater than 60 months, and the highest interest rate an NBFC may provide to a depositor is 12.5%.
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RBI is taking several initiatives to protect the interest of the depositors and initiates prompt action, including taking legal action against companies and imposing penalties that violate RBI’s instructions and norms. Also, as a regulator, the RBI has issued certain precautions from time to time that investors have to take before investing in NBFCs. As a result, while making a deposit with an NBFC, investors and depositors should make informed choices.

Read our Article: Payment of interest on overdue public deposits by NBFC


  1. https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks.html

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