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All You Need To Know About NBFC Registration Cancellation

NBFC Registration Cancellation
Karan Singh
| Updated: Jun 10, 2021 | Category: NBFC

In India, the number of Non-Banking Financial Companies is decreasing radically, mainly due to the amended criteria for the net owned funds. The rate of cancellation has been escalated appreciably in the last few years, making it harder for the present companies to operate their business. There is a provision for surrendering the NBFC License. In this write-up, you will learn about the NBFC Registration Cancellation.

The Reserve Bank of India is on high alert ever since it has choked out a bunch of Non-Banking Financial Companies plan India for dishonest business practice. Besides tightening the compliances, the Reserve Bank of India is also concentrating on setting up revised criteria through amendments to avoid unlawful practices.

Net Owned Fund – Meaning

An entity can appeal to the proposed judiciary against the cancellation order passed by the Reserve Bank of India. The concerned company can exercise such authority under Clause 7(I) of Section 45-IA of the RBI Act, 1934. The word “Net Owned Fund” under this clause is defined in the following way:

Total Paid-up Equity Capital + Free Reserves – (Accumulated Balance of Loss + Other Intangible Assets + Deferred Revenue Expenditure)

Major Reasons for the NBFC Registration Cancellation

Following are some significant reasons for the NBFC Registration Cancellation:

  • In the case of Non-Banking Financial Company works to maintain conventionality with norms of NBFC Registration described under the Act or additions circumstances of the Reserve Bank of India when the Registration Certificate was granted.  For instance, if the company or entity cannot fulfil the requirement of obtaining paid-up capital, it could be the outcome in NBFC Registration Cancellation.
  • In the case of the misconduct of the account box or other records.
  • In case if the Non-Banking Financial Company fails to surrender the account book or other essential record at the time of examination conducted by the auditing team of the Reserve Bank of India.
  • If the Non-Banking Financial Company accepts the deposit that has been tagged illegal by the Reserve Bank of India.
  • The Reserve Bank of India is less likely to take instant action on defaulter upon receiving the grievance. It is because they are bound to provide equal opportunity to either of the parties to signify their standpoint over the disputes. While processing the grievance, the Reserve Bank of India takes different aspects into account, as the financial status of the Non-Banking Financial Company, before reaching any decision.
  • Every Non-Banking Financial Company in India is legally responsible for performing its business activities in the public interest. Under no scenarios, Non-Banking Financial Company can diverge from the present RBI policies, whether it’s a query of implementing an alteration of the following an urgent order.
  • In case the Non-Banking Financial Company struggles to keep up with the compliances concerning the company’s capital.
  • If the Non-Banking Financial Company ignores to meet the directions issued by the RBI. Upon the release of guidelines, the personals of the Reserve Bank of India can make a surprise visit to the business premises to find out whether the order has been followed or not.
  • In case if the Non-Banking Financial Company changes the interest rate for the loan, avail of personal advantages. This is a strict crime as it could damage the business future and its operation forever.
  • In the case of the Non-Banking Financial Company tagged as a defaulter by a depositor on account of deposit repayment. In such cases, the depositors can approach the Company Law Board or client to file a complaint against the defaulter to recover their deposit.
  • In case the Non-Banking Financial Company ends and ceases to continue its business operations in India. The Non-Banking Financial Companies are only allowed to conduct their financial activities as per the business principle. This means a company’s financial asset gets formed more than 50% of its total assets, where cash inflow from the financial assets is greater than 50% of its total income. The company that fulfils this situation can operate its business operation as a Non-Banking Financial Company.

RBI’s Takes on NBFC Registration Cancellation

Following are some RBI’s takes on NBFC Registration Cancellation:

  • Suppose any of the business companies found in the state of misconduct obtaining financial services that defy the provisions of the RBI. In that case, RBI can issue a revocation order for a license.
  • Before ceasing the activities of a business, the Reserve Bank of India communicates the matter with the defaulters through a notification showing the grounds on which revocation occurred. Being a legitimate legal body, the RBI ensures the judicial framework’s manifestation via the correct interpretation of the dispute. To stick to transparency, the Reserve Bank of India[1] often associates the defaulters through a show-cause notice concerning the issuance of a revocation notice & seeks their feedbacks.
  • It permits the concerned companies to put their matters in front of the judicial system. As soon as the Reserve Bank of India interprets the case and concludes that revocation favours the public interest, it will issue a revocation order.
  • It must be remembered that there is a penalty provision as per Section of Section 58 B (6) of the RBI Act for the violation of the policies of the Reserve Bank of India. Therefore, under no condition, the Reserve Bank of India can bypass any of its law concerning license revocation.

Key Takeaway

  1. Non-Banking Financial Company can choose judicial assistance under the sub-section (7) of the Reserve Bank of India Act, 1934;
  2. Non-Banking Financial Company can file the appeal with the Central Government of India;
  3. The appeal ought to be filed within one month from the NBFC Registration date was notified by the Reserve Bank of India license revocation;
  4. The decision making concerning such a matter is in the Central Government’s hand.

Conclusion

Non-Banking Financial Companies have a significant impact on the financial establishment in the Indian economy. It has collected the scope of easy credit accessible to the disadvantaged section of society. It has also separated the processing of a typical loan disbursement of those formerly available to wealthy companies. All in all, a Non-Banking Financial Company is vital for the development of the nation.

But, that does not mean that such financial houses take the liberty of bypassing the law. Therefore, keeping contravention of the law, the Reserve Bank of India is now taking practical measures to discourage dishonest business practices.

Read our article:Buying and Selling of NBFCs in India – An Overview

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Karan Singh

A legal writing enthusiast, a wanderer, and a zealous reader. After gaining a lot of knowledge about the diverse legal topics and developing research skills, Karan joined the league of legal content writers to deliver quality-rich blogs.

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