Non-Banking Financial Companies (NBFCs) are financial institutions which form an important and integral part of the Indian economy. NBFCs offer various services such as credit or loan, retirement plans, acquisition of shares/stocks, leasing, merger activities, etc. For any NBFC to function, it’s mandatory to seek Certificate of Registration that shall be issued by the RBI.
#CERTIFICATE OF REGISTRATION:
An NBFC shall seek Certificate of Registration in accordance with the rules and regulations provided in Section 45-1A, RBI Act, 1934. In addition, it shall be duly registered under the Companies Act, 2013.
The RBI shall grant and/or cancel the Certificate of Registration of an NBFC.
#TECHNICAL REASONS FOR CANCELLATION OF NBFC REGISTRATION:
- RBI is empowered to cancel the Certificate of Registration of an NBFC under the provisions of Section 45-1A (6) of the RBI Act, 1934. It shall be done if the NBFC is found violating any rules and regulations prescribed under the Act. Few reasons that shall lead to the cancellation of Registration of an NBFC-
- If it stops functioning as a non-banking financial institution.
- If it shall not comply the laid down rules of the Act.
- If it fails to maintain the required minimum paid-up capital of two crores.
- If it shall defy any directive issued by the RBI.
- If it shall ignore the prohibitory orders of RBI regarding accepting deposits.
- If it fails in maintaining the Book of Accounts as mandated.
- If it refuses or fails to submit Book of Accounts or other documents.
#IMMEDIATE REASONS FOR CANCELLATION OF NBFC REGISTRATION:
In recent times, many NBFCs have seen the cancellation of Registration and the reasons are for this stringent action by the RBI is –
- Modi govt. and its policies.
- Cleaning of the financial sphere.
- Taming the black money economy.
- Weeding out of fraudulent, rogue companies.
- Ringing in the need to be transparent and clean.
- Regaining the investors’ confidence.
#PROCESS OF CANCELLATION OF REGISTRATION:
RBI shall provide an opportunity to the concerned NBFC for its clarification, before the Cancellation of its Registration. Only on occasions, when RBI feels a delay shall result against public interest or depositors, is the Registration cancelled instantaneously.
#IMPACT OF CANCELLATION OF REGISTRATION:
The NBFC institution whose registration is cancelled by the RBI shall stop functioning as one, from the date of issuance of the cancellation. It shall be prohibited from all regular activities with immediate effect and shall not transact as a NBFC.
#APPEAL AGAINST CANCELLATION OF REGISTRATION:
- STEP #1. An aggrieved NBFC, which has been impacted by the adverse action of the RBI, can seek justice under sub-section (7) of Section 45-1A of the Reserve Bank of India Act, 1934.
- STEP #2. An appeal shall be filed with the Central Govt.
- STEP #3. This appeal shall be filed within thirty (30) days from the date of communication of cancellation of Certificate of Registration to the institution.
- STEP #4. The decision of the Central Govt. shall be final.