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Procedure for Appeal Against NBFC License Cancellation

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In the financial year 2023, the Reserve Bank of India (RBI) canceled the Certification of Registration (CoR) of 17 Non-Banking Financial Companies (NBFCs) under Section 45-IA of the RBI Act, 1934. This trend of decreasing NBFCs has been observed over the years, largely due to stringent regulations like the increase in Net Owned Funds (NOF). For instance, in the financial year 2019 alone, the RBI canceled the licenses of 1701 NBFCs.

Reasons for Cancellation

The RBI holds the authority to cancel an NBFC's license if its activities do not comply with the RBI Act, 1934, or if it is not operating in the public interest. Reasons for cancellation include:

  • Non-compliance with RBI regulations.
  • Activities detrimental to public interest.
  • Failure to maintain the required Net Owned Fund (NOF).

Cancellation Procedure

The RBI follows a structured process before canceling an NBFC license:

  1. Communication of Grounds: The RBI must communicate the reasons for cancellation to the NBFC.
  2. Opportunity to Comply: The NBFC is given an opportunity to meet the prescribed requirements.
  3. Show-Cause Notice: A notice is sent to the NBFC, stating the grounds for action and providing an opportunity for the NBFC to respond.
  4. Hearing: The NBFC is given a chance to be heard before the final cancellation decision is made.
  5. Penalty: The RBI may impose monetary penalties for non-compliance.

Filing an Appeal

An NBFC can file an appeal against the cancellation in the High Court under the following circumstances:

  • If the NBFC fulfills the NOF requirement by March 31, 2027.
  • If the opportunity to be heard was not provided.
  • If a reply to the show-cause notice was submitted within the given time frame.

Steps to File an Appeal

NBFCs can appeal the cancellation under sub-section (7) of Section 45-IA of the RBI Act, 1934. The appeal must be filed within 30 days from the date of cancellation. The steps include:

  1. Compliance Check: Ensure compliance with the Registrar of Companies (ROC).
  2. Review RBI Returns: Verify RBI returns (NBS-9).
  3. Tax Audit Reports: Check tax audit reports.
  4. Asset and Liability Quality Test: Conduct a quality test of assets and liabilities.
  5. Minimum NOF: Ensure a minimum Net Owned Fund of Rs. 10 crores.
  6. Right Reasons: Clearly state the reasons for filing the appeal.

Conclusion

The RBI's stringent regulations underscore the importance of NBFCs adhering to the set guidelines. Any deviation can lead to the cancellation of the CoR and license. At NBFC Advisor , we assist NBFCs in maintaining compliance with RBI requirements and provide end-to-end support for obtaining and maintaining an NBFC license.

Contact Us

For expert assistance in managing your NBFC's compliance and licensing needs, reach out to NBFC Advisor. We offer comprehensive support to ensure your NBFC operates smoothly within the regulatory framework

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