What is NBFC Registration Cancellation?

NBFC Registration Cancellation refers to the process through which the Reserve Bank of India may revoke the Certificate of Registration granted to an NBFC if the company fails to comply with RBI regulations, statutory requirements, or public interest norms. RBI has the authority to cancel an NBFC license in cases of non-compliance, weak financial position, inactive operations, or failure to maintain the prescribed Net Owned Fund. In the past, RBI cancelled thousands of NBFC licenses for not meeting the minimum Net Owned Fund requirement of Rs. 2 crore.

What are the circumstances under which NBFC Registration can be cancelled?

• Shortfall in the required Net Owned Fund
• Failure to repay deposits or meet financial obligations
• Non-compliance with the minimum Net Owned Fund requirement of Rs. 2 crore
• Business operations being against public interest
• Wilful violation of the RBI Act, rules, directions, or applicable regulations
• Failure to file mandatory annual, quarterly, or periodic returns with RBI
• Failure to obtain C-KYC registration or membership with Credit Information Companies
• Non-compliance with prohibitory orders or directions issued by RBI
• Non-operation of NBFC activities or existence only on paper without actual lending or borrower activity

Can a company voluntarily surrender or cancel its NBFC license?

Yes, an NBFC can voluntarily apply for surrender or cancellation of its license before the Reserve Bank of India if it no longer intends to carry out NBFC activities or is unable to continue operations due to financial or business reasons.

• Voluntary surrender of NBFC license by the company
• Liquidity-related challenges or inability to continue financial operations
• Business stress arising due to high non-performing assets or financial instability

When should a Writ Petition be filed before the High Court in NBFC cancellation matters?

• When the required Net Owned Fund of Rs. 2 crore was fulfilled after 31-03-2017 but before 31-03-2018
• When the company was not given a proper opportunity of being heard before cancellation
• When RBI issued a show cause notice and the company submitted a timely reply or request for extension, but the same was not duly considered

Provisions for Filing an Appeal Against NBFC Registration Cancellation

• An appeal against the cancellation of NBFC registration may be filed under Section 45-IA(7) of the Reserve Bank of India Act, 1934 before the appellate authority, Department of Financial Services. The appeal must generally be filed within 30 days from the date of receipt of the cancellation order.
• In appropriate cases, a writ petition under Article 226 of the Constitution of India may also be filed before the High Court, especially where principles of natural justice or procedural fairness have not been followed.

6 Important Steps Before Preparing an Appeal Against NBFC Registration Cancellation

• Recheck all ROC filings and statutory compliance records
• Review RBI return filings, including NBS-9 and other applicable returns
• Examine tax audit reports and financial statements carefully
• Assess the quality and accuracy of recorded assets and liabilities
• Verify whether the minimum Net Owned Fund requirement of Rs. 2 crore has been fulfilled
• Maintain a complete file of tax audit reports, financial records, RBI correspondence, and supporting documents

Appeal Against the Order of Cancellation

Before passing an order for cancellation of NBFC registration, RBI generally provides the concerned company an opportunity of being heard. However, this opportunity may not be granted where any delay in cancellation is likely to affect the interests of depositors, public interest, or the stability of non-banking financial activity. If the company is aggrieved by the cancellation order, it may file an appeal before the Central Government within 30 days from the date of the order or receipt of the order, as applicable.

Impact of Cancellation of NBFC Licence

Once an NBFC licence is cancelled by RBI, the company must immediately stop carrying out NBFC-related activities. It cannot continue lending, financing, accepting eligible financial business, or representing itself as an NBFC. The company is also restricted from undertaking new NBFC business activities and must comply with all directions issued by RBI after cancellation.