Whether RBI has the power to deregister NBFCs which has not owned net worth of Rs 2 Crores?

Whether RBI has the power to deregister NBFCs which has not owned net worth of Rs 2 Crores?

Nahar Finance and Leasing Limited and others  Vs RBI , Chennai

WRIT OF CERTIORARI

Writ petition filed under Article 226 of the Constitution of India praying for a Writ of Certiorari calling for the records on the file of the first respondent of the order passed in the matter of Nahar Finance & Leasing Limited issued by RBI, Chennai and to quash the same as illegal, contrary to the provisions of the RBI Act and against the principles of natural justice and fair play.

THE OBJECT OF WRIT PETITIONS

The challenge in these writ petitions is to the cancellation of the Certificate of Registration issued by the Reserve Bank of India in favour of the petitioners.

WHAT NBFC's SHOULD NOT DO?

PETITIONERS PRAYER

The writ petitioners are all Non-Banking Financial Companies (in short, "NBFC") and it is their claim that they have been complying with all the statutory regulations and regularly filing various returns and furnishing the required information before the Registrar of Companies.

The petitioner companies claim that they are assessed to income tax. These companies claimed that they have also obtained Certificate of Registration (in short, "CoR"), after the amendment of the Reserve Bank of India Act, 1934 (in short, "RBI Act"), which was brought into force with effect from 09.01.1997.

PROHIBITION BY NBFC TO CARRY ON BUSINESS

There was a prohibition for an NBFC to commence or carry on the business, unless it has a Net Owned Fund (in short, "NOF") of twenty-five lakh rupees or such other amount, not exceeding two hundred lakh rupees, as the Reserve Bank of India (in short, "RBI") may, by notification in the Official Gazette, specify.

The RBI, by http://www.judis.nic.in 5 notification No.DNBR.007/CGM(CDS)-2015, dated 27.03.2015, specified two hundred lakhs rupees as the NOF required for an NBFC to commence or carry on the business. It further provided that an NBFC holding a CoR and having NOF of less than two hundred lakhs of rupees may continue to carry on the business, if such company achieves the NOF of one hundred lakhs or rupees before 01.04.2016 and two hundred lakhs of rupees before 01.04.2017.

SHOW CAUSE NOTICE BY RBI FOR CANCELLING THE CoR

The second respondent issued separate Show Cause Notices (in short, "SCN") dated 23.04.2018 to the petitioners proposing to cancel the CoR issued under Section 45-IA(6) of the RBI Act and also to initiate penal action under Section 58 B of the said Act for noncompliance of the revised regulatory framework for NBFCs issued on 27.03.2015.

PRAYER BY PETITIONERS TO EXTEND THE DEADLINE

Petitioners submitted that due to significant change in the economy and also the policy of the Government of India during the Financial Years 2016-17 and 2017-18 like de-monetization, implementation of Goods and Services Tax Act, 2017 (GST Act), etc., the entire working of the industry was affected throughout the country, in particular, the finance sector and hence, sought for extension of time till 31.03.2019 to comply with the requirement of enhanced NOF, as per the revised guidelines issued by the RBI.

ORDER BY CHENNAI HIGH COURT

The respondents (RBI) have not considered the request of the petitioners' companies and had blindly issued the impugned orders cancelling the CoR without application of mind.

For the afore-stated reasons, the impugned orders need interference. Accordingly, these writ petitions are allowed and the impugned orders are set aside. Resultantly, the respondents are directed to restore CoR to the petitioners and also extend time to the petitioners to comply with the requirement under Section 45-IA of the RBI Act till 31.03.2019.

 If the petitioners fail to comply with the said requirement within the period extended above, it is open to the respondents to take action in accordance with law. There shall be no order as to costs. Consequently, connected miscellaneous petitions are closed.