Before the Insolvency and Bankruptcy Code, 2016 (IBC) came into effect; there was no special...
The term NBFC stands for Non-Banking Financial Company which has great significance in India. It fulfills the role of providing sound financial funding in the economy. Hence, the Reserve Bank of India (RBI) is the only body that is responsible for supervising and regulating the NBFC to assure the growth of financial institutions. The number of NBFCs has declined over the period of time due to the cancellation of the NBFC license by the RBI on account of voluntary surrender of NBFC registration. Apart from this, another reason for cancellation is non-compliance with the requirements of the Net Owned Funds (NOF) Criteria.
It is mandatory for every NBFC (Non Banking Financial Company) to acquire a license/ certification of registration from the RBI before initiating any business activities.
The following conditions are required to be fulfilled by every NBFC at the time of registration
The company is empowered to surrender the NBFC registration in the following cases:
When the company surrenders all of its certificates, the company will not be able to deal with other businesses of a non banking financial institution. The Reserve Bank of India allows the Certificate of registration. These NBFCs who have surrendered their NBFC Registration approved to them by the Reserve Bank of India will limit themselves to carry on further business. The non banking financial company will decide to surrender NBFC registration as ‘non- banking finance company’ cannot accept any form of public deposits.
The powers related surrender of the NBFC registration is been provided under Section 45-IA (6) of the Reserve Bank of India Act, 1934, the reserve bank will further cancel their Certificate of Registration of companies who surrender their registration for the non-banking financial companies to the Reserve Bank of India.
The companies shall not transact the business of a non-banking financial institution, as mentioned under clause (a) of section 45-of the Reserve Bank of India Act, 1934. Now NBFCs cannot take part in the business activities as mentioned under the non banking financial institutions.
Any form of business body can enter into the business of money lending, but it is important to get registered under the relevant legislation. The Apex courts in the matter of Kaloji Talusappa Gangavathi vs. Khyanagouda and Ors (AIR 1970 SC 1420), observed that in order to restrain malpractices of the money lender and protect gullible creditors, the administration must compel such strict limitations by requiring such person to get hold of a license, preserve and furnish accounts and carry out other responsibilities. From time to time, the courts have dismissed the recovery suit filed by unregistered money lenders holding money lending contracts and dealings void in the deficiency of a money lending license.
Read our article:NBFC Registration Procedure with Reserve Bank of India