Non-Banking Financial Company (NBFC) plays an important role in Indian economy to have sound sources of funding. Hence, the Reserve Bank of India has held responsible to regulate and supervise the NBFC to ensure healthy growth of the financial companies. The RBI has empowered to issue and cancel the certificate of NBFC License in the exercise of the powers under the Reserve Bank of India Act, 1934. Here we will discuss how to appeal against NBFC license cancellation?
Certificate of Registration is Essential for every Non-Banking Financial Company:
Every Non-Banking Financial Company before undertaking any business shall obtain a certificate of registration from Reserve Bank of India. Each NBFC at the time of obtaining a certificate of registration shall comply with the following conditions:
Company shall be registered as per the provisions of Companies Act 2016 or earlier Companies Act 1956.
Company shall be engaged in the financial activities mentioned in the Act. If at any time financial flow of such business increase more than 50% the total capital asset of the Company that such company shall get NBFC Registration certificate.
Company shall hold minimum Paid up a capital fund of INR 2 Crore. Whereas the Foreign Company and foreign investor who wants to set NBFC shall hold paid-up equity capital of INR 5 Crore.
The RBI may ask to inspect the books of account of the company to ensure that the company shall be in a position to pay its present or future depositor’s claims, affairs of the company is not detrimental to the interest of its present or future depositors and has adequate capital structure and earning prospects.
Cancellation of Certificate of Registration by RBI:
The RBI if at any time find NBFC is not conducting business in the manner specified in the Act or acting against the public interest than he can cancel the certificate of registration granted to an NBFC.
Reasons for NBFC License Cancellation:
At any time if the Non-Banking Financial Company found the following situation can result in cancellation of Certificate of registration granted:
- NBFC ceases to carry on the business of a non-banking financial institution in India
- NBFC failed to comply with the conditions of registration specified under the Act and any additional conditions specified by the RBI at the time of issue of Certificate of registration. Like an example fails to maintain the minimum paid-up capital requirement i.e. went to below 2 crore
- NBFC fails to fulfill the conditions specified above in respect of affairs and capital of the Company.
- NBFC fails to comply with any direction issued by the Reserve Bank of India.
- NBFC fails to maintain the books of accounts in accordance with the provisions of the Act or RBI directions.
- NBFC fails to submit its books of accounts and any other relevant documents to the RBI for inspections.
- NBFC has been prohibited from accepting deposit by an order made by the RBI and order has been in force.
Shall provide the opportunity for being heard:
The RBI, before passing an order of cancellation, shall give an opportunity of being heard to the Company unless it is in an opinion that the delay in canceling the certificate of registration will prejudicial to public interest or the interest of the depositors or the non-banking financial company.
Aggrieved party to appeal against order:
Any Company aggrieved by the order issued by RBI on cancellation of the certificate of registration can file an appeal within the period of thirty (30) days from the date of the order of cancellation of the certificate of registration communicated to the company. An appeal shall be filed with Central Government and the decision of the Central Government where an appeal has been referred to it, or of the Bank where no appeal has been preferred, shall be final.
RBI has canceled a large number of NBFC License in 2016 in India:
RBI has canceled many NBFC’s certificates of registration which were fraudulently impersonating as NBFC. Many entities were promising loans to the needy people at attractive rates and collecting money from them as processing charges for the loans/advances and vanish with the money so collected. In 2016, RBI had canceled the certificate of registration nearly 26 non-banking financial companies found in fraudulent activity.
Conclusion:
Since non-banking financial companies have become an important part of financial inclusion in the Indian economy, Reserve Bank of India has become rigorous towards non-banking financial company’s operations. Also, trying to streamline the process of the NBFC by liberalizing the regulations and rules.
