Delhi HC issues notice in plea challenging RBI framework on cancellation of Registration of NBFCs

The Delhi High Court has issued notice in a petition challenging Reserve Bank of India’s framework mandating all Non-Banking Financial Corporations (NBFCs) to maintain a Net Owned Fund of Rs 100 lakh by March 2016 and Rs 200 lakh by March 2017 in order to avoid cancellation of registration..The order was passed by a Division Bench of Chief Justice DN Patel and Justice C Hari Shankar in a petition by Juhie (India) Pvt Ltd, a Non-Banking Financial Corporation (petitioner)..In November 2014, the Reserve Bank of India (RBI) prescribed a timeline for all registered NBFCs to achieve a Net Owned Fund of Rs 100 lakh by March 2016 and Rs 200 lakh by March 2017. In March 2015, RBI came out with a notification requiring all NBFCs to maintain a Net Owned Fund of Rs 100 lakh by March 2016 and Rs 200 lakh by March 2017. The Notification was gazetted as per statutory mandate on March 11, 2016..Subsequently, in September 2016, RBI issued a Master Direction stating that none of the NBFCs shall be eligible to hold a Certificate of Registration if they do not have Net Owned Fund of less than Rs 200 lakh..In May 2018, RBI served a show-cause notice on the petitioner for failing to meet the notified framework and ultimately, in August 2018, RBI cancelled the petitioner’s licence/registration for not maintaining the Net Owned Fund..In appeal, the Appellate Authority i.e the Ministry of Finance under Section 45-IA (7) of the Reserve Bank of India Act remanded the matter to RBI for review of the cancellation order..Aggrieved by the cancellation and the order of the Appellate Authority, the petitioner challenged the regulatory framework on the ground that it was ultra vires Articles 14 and 19(1)(g) of the Constitution of India as well as the Companies Act 2013..It was the Petitioner’s grievance that its registration was cancelled without affording him any hearing, thus violating the principles of natural justice..The petitioner also contended that when Section 45-IA, under which the notification was Gazetted, was enacted, the NBFCs were given a time period of three years to increase their Net Owned Fund. It further added that for this purpose, the “date of knowledge” should be March 2016 i.e. when the 2015 Notification was gazetted..Moreover, the petitioner argued that the regulatory framework is contrary to Sections 42, 61 and 100 of the Companies Act which mandates that closely held private company, like the petitioner company, could not accept Public Deposits and also could not increase their Net Owned Fund without resorting to an Extraordinary General Meeting..With respect to its grievance against the order of the Appellate Authority, the petitioner iterated that the matter was remanded without any stay of the RBI order of cancellation and is thus against the settled principles of law..The Petitioner submitted that the matter should have been sent back after setting aside or staying the order, else the purpose of remand would get frustrated..After hearing the petitioner, the Court issued notice to the RBI as well as the Central Government and granted them time to file their response..The petition was filed through Advocates Swarnendu Chatterjee, Itisha Gulati and Anmol..The matter would be heard next on October 23..Read the Order: