Failure to achieve minimum Net Owned Fund within prescribed timelines justifies cancellation of NBFC registration.

The Petitioner, a Non-Banking Financial Company (NBFC) registered since 2003

challenged an order dated June 22, 2020, passed by the Appellate Authority, which confirmed the Reserve Bank of India’s (RBI) cancellation of its registration dated August 2, 2018

The cancellation arose from the Petitioner's failure to meet a revised regulatory requirement introduced on November 10, 2014, which mandated a minimum Net Owned Fund (NOF) of Rs. 2 crore by April 1, 2017

Although the Petitioner claimed to have achieved the requisite NOF by December 22, 2019, the RBI maintained that the deadline had passed and that the Petitioner’s bank statements were insufficient evidence of NOF without an auditor's certificate

1. Whether the cancellation of the Petitioner’s NBFC registration was legally sustainable given that the requisite NOF was not achieved within the prescribed deadline or prior to the cancellation order.

2. Whether an NBFC achieving the NOF requirement after the communication of a cancellation order is entitled to a remand of the matter for fresh consideration.

regulatory framework for NBFCs under the RBI Act and Circular No. 002/03/10.001/2014-15, which established the Rs. 2 crore NOF threshold

judicial principle that a cancellation order may be set aside and remanded for fresh consideration only if the NOF was achieved prior to the passing of the cancellation order

evidentiary requirement that NOF must be verified through an auditor’s certificate to account for liabilities, rather than through mere bank balances

The Court examined the timeline of compliance and found that the Petitioner failed to meet the NOF requirement by the April 1, 2017, deadline, despite being given sufficient time

Critically, the Court observed that even on the date the RBI communicated the cancellation order via speed post, the Petitioner had still not achieved the requisite NOF

The Court distinguished this case from others where remands were granted, noting that in those instances, compliance had occurred before the final administrative action

The Court agreed with the RBI's contention that achieving the NOF long after the cancellation order did not entitle the Petitioner to a reversal of the impugned order, especially as the Petitioner’s claim of compliance lacked the necessary auditor certification required to verify net assets against liabilities

the Court directed that if the Petitioner files a fresh application for registration, the Respondents must consider it in accordance with extant provisions and without being influenced by the previous cancellation order

The petition and all pending applications were disposed of accordingly