2022 (12) TMI 766 - HC - Indian Laws

Cancellation of its Certificate of Registration CoR to carry on its business as a Non-Banking Financial Institution - Section 45-IA of the Reserve Bank of India Act, 1934 - HELD THAT - The facts in the instant case are similar to the one which this Court has recently had an occasion to consider in M/S. B.H.C. FINANCE AND LEASING PVT. LTD. VERSUS UNION OF INDIA ORS. 2022 (8) TMI 1318 - DELHI HIGH COURT wherein, under similar circumstances, the Court remanded the matter back to RBI for fresh consideration. Since the facts of the present petition are similar to the decision of this court in B. H. C. Finance and Leasing, in the opinion of the court, the same course of action would be appropriate - the matter shall now be considered afresh by RBI in light of the current position of law and judgments of this Court. Petition disposed off.

Summary

Issues:
Challenge to cancellation of Certificate of Registration by RBI based on Net Owned Fund (NOF) requirement.

Analysis:
The petitioner, a Non-Banking Financial Company (NBFC), approached the High Court seeking directions against the cancellation of its Certificate of Registration (CoR) by the Reserve Bank of India (RBI) under Section 45-IA of the RBI Act. The petitioner also challenged the order passed by the Appellate Authority rejecting the appeal against the cancellation order. The main contention was the petitioner's compliance with the prescribed Net Owned Fund (NOF) requirement as per RBI notifications. The petitioner's NOF was initially below the required amount due to investments and loans made to group companies, resulting in a temporary negative NOF. However, upon repayment of the loan, the petitioner's NOF exceeded the prescribed limit.

The RBI issued a show-cause notice for cancellation of the CoR despite the petitioner's compliance with the NOF requirements by March 31, 2018. The subsequent proceedings led to the Impugned Orders, prompting the petitioner to challenge the decision. The petitioner relied on a previous Division Bench decision where a similar situation was considered, and the court emphasized the need for due consideration before canceling the CoR for a minor shortfall that was rectified subsequently.

The counsel for RBI acknowledged similarities between the present case and a previous judgment, where the matter was remanded back to RBI for fresh consideration. The High Court, in line with the previous judgment, set aside the Impugned Orders and directed RBI to reconsider the matter. The petitioner agreed to the re-examination by RBI, leading to the setting aside of the previous orders for a fresh review.

As the matter will be reconsidered, the petitioner was permitted to file additional representations and documents within a specified timeframe. The Court clarified that it had not expressed any opinion on the case's merits, leaving all rights and contentions of the parties open for future recourse in accordance with the law. The petition was disposed of with the mentioned directions, allowing the petitioner to take further action if required based on the fresh consideration by RBI.