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Appeal Against Cancellation Of NBFC Registration

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Introduction

The Non-banking Financial Company generally known as the NBFC plays an important role in the Indian economy for having a viable source for funding. The Reserve Bank of India is accountable for the regulation and supervision of the Non Banking Financial Company for having an effective financial system. The Reserve Bank of India is authorized for issuing and canceling the certificates of NBFC Licenses under the RBI Act, 1934.

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

NBFC License Cancellation

There are certain compliances that are required to be fulfilled by the companies carrying on the NBFC activities. The RBI is in power to cancel the NBFC License if the companies don’t meet the public interest at large. The RBI is also in the capacity to cancel the license if the requirements are not fulfilled by the company like the minimum net owned fund is of Rs. 2 Crore is not fulfilled.

Conditions for Obtaining a Certificate of Registration

A Non Banking Financial Company before undertaking business has to acquire a COR from the Reserve Bank of India. The below listed conditions have to be fulfilled for acquiring an NBFC License-

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

Cancellation of Certificate Of Registration By The RBI

In case the RBI comes to know that the NBFC is not functioning or conducting business activities according to the rules and regulations laid down by the government or opposed to the public policy, then it holds the right to cancel the registration.

Reasons for NBFC License Cancellation

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

  • The NBFC has ceased to carry the business.
  • The NBFC has failed to comply with the conditional requirement specified under the Act.
  • The NBFC has failed to fulfill the conditions specified with respect to the affairs and capital of the company.
  • The NBFC has failed to comply with the directions laid down by the RBI.
  • There has been a failure to maintain the books of accounts.
  • There has been a failure to repay deposits.
  • The NBFC has failed to meet the minimum net owned fund of R. 2 Cr.
  • The NBFC has failed to comply with annual/quarterly returns to RBI.
  • The NBFC is 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 authority. It is to be filed within thirty 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

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

The Opportunity of Being Heard

Before passing an order of cancellation, the authorities give a fair 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 the NBFC.

What Is The Remedy Available If Aggrieved By The Order?

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

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

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Author
Vipan Singh
Vipan is known for his passion for diversity and his work with corpseed. In his spare time, he is involved with numerous charitable activities and considers his greatest achievement to be the fact that he helps Startups and Entrepreneurs to scale up