2011 (4) TMI 1462 - HC - Companies Law

Summary

Issues Involved:

1. Applicability of the Bombay Money-Lenders Act, 1946, to Non-Banking Financial Companies (NBFCs).
2. Repugnancy between the Bombay Money-Lenders Act, 1946, and the Reserve Bank of India Act, 1934, concerning NBFCs.

Issue-wise Detailed Analysis:

1. Applicability of the Bombay Money-Lenders Act, 1946, to NBFCs:

The primary issue is whether the Bombay Money-Lenders Act, 1946, applies to NBFCs. The appellants argued that the Money-Lenders Act was enacted to regulate money-lending transactions and protect weaker sections of society from exploitation by money-lenders. The State contended that the Act has exclusive power under Article 246(3) of the Constitution, with Entry 30 of List-II of the 7th Schedule empowering States to enact laws regarding money-lending and money-lenders.

The Act defines "money-lender" to include individuals, undivided Hindu families, companies (as defined under the Indian Companies Act, 1913), and other banking financial institutions notified by the State Government. However, the Act does not include companies incorporated under the Indian Companies Act, 1956, unless notified by the State Government.

The respondents, NBFCs registered under the Reserve Bank of India (RBI) Act, argued that they are governed by Chapter IIIB of the RBI Act, which is a self-contained code regulating their business and activities. The RBI Act defines "company" to include those registered under the Indian Companies Act, 1956, and grants the RBI regulatory and supervisory powers over NBFCs.

The court concluded that companies incorporated under the Indian Companies Act, 1956, are not covered by the Money-Lenders Act unless notified by the State Government. Therefore, the Money-Lenders Act does not apply to NBFCs.

2. Repugnancy between the Bombay Money-Lenders Act, 1946, and the Reserve Bank of India Act, 1934:

The second issue is whether the Money-Lenders Act is repugnant to the RBI Act concerning NBFCs. The State argued that there is no repugnancy as both Acts operate in different fields. However, the respondents contended that Chapter IIIB of the RBI Act, which regulates NBFCs, overrides the Money-Lenders Act.

Article 254 of the Constitution addresses inconsistencies between State and Central laws, stating that the Central law prevails in case of repugnancy. Section 45Q of the RBI Act specifies that the provisions of Chapter IIIB have an overriding effect on any inconsistent State law, including the Money-Lenders Act.

The court referred to various Supreme Court and Federal Court decisions on repugnancy, emphasizing that repugnancy must be clear, direct, and irreconcilable. The court found that Chapter IIIB of the RBI Act occupies the field concerning the regulation and penal action against NBFCs, thereby precluding the State from taking regulatory or penal measures under the Money-Lenders Act.

In conclusion, the court held that the Money-Lenders Act does not apply to NBFCs, and Chapter IIIB of the RBI Act has an overriding effect, rendering any inconsistent provisions of the Money-Lenders Act void. The appeals challenging the applicability of the Money-Lenders Act to NBFCs were dismissed, and the judgment directing the Registrar to decide the representation was set aside.