Facts
The Petitioner, a Non-Banking Financial Company (NBFC) registered since 1999
Source reference: p. 2challenged an order dated February 11, 2020, passed by the Appellate Authority. This order confirmed the Reserve Bank of India’s (RBI) decision dated September 12, 2018, to cancel the Petitioner’s registration for failing to meet the revised Net Owned Fund (NOF) requirement
Source reference: p. 1-2Under RBI Circular No. 002/03/10.001/2014-15, all NBFCs were required to achieve a minimum NOF of Rs. 2 crore by April 1, 2017
Source reference: p. 2Following a Show Cause Notice on May 2, 2018, the RBI cancelled the registration on September 12, 2018, which was communicated to the Petitioner on September 17, 2018
Source reference: p. 2The Petitioner contended it achieved the requisite NOF on September 21, 2018—after the order was passed but allegedly before it was received on September 22, 2018
Source reference: p. 2Issues
1. Whether the cancellation of the Petitioner's NBFC registration should be set aside and remanded for fresh consideration if the requisite NOF was achieved after the cancellation order was passed and communicated
Source reference: p. 32. Whether bank statements alone are sufficient evidence to establish the achievement of NOF requirements
Source reference: p. 3Law Applied
The Court exercised its jurisdiction under Articles 226 and 227 of the Constitution of India
Source reference: p. 1The regulatory framework was governed by RBI Circular No. 002/03/10.001/2014-15 and NOF Notification No. 132/CGM(VSNM)-99
Source reference: p. 2The Court applied the established principle that a cancellation order may be set aside and remanded only if the NOF was achieved prior to the passing of said order
Source reference: p. 3the Court recognized the requirement that NOF must be verified through auditor certificates—considering both fund infusion and liabilities—rather than simple bank statements
Source reference: p. 3Reasoning
The Court observed that the Petitioner failed to meet the NOF deadline of April 1, 2017, despite being granted significant time
Source reference: p. 3It noted that on the date the cancellation order was passed (September 12, 2018) and even on the date it was dispatched via speed post (September 17, 2018), the Petitioner had not achieved the required NOF
Source reference: p. 3The Court rejected the Petitioner's argument for remand based on achieving the NOF on September 21, 2018, as the achievement occurred post-cancellation and post-communication
Source reference: p. 3the Court agreed with the RBI’s contention that bank statements submitted by the Petitioner (CM APPL. 21862/2026) were insufficient to prove NOF status, as an auditor’s certificate is essential to evaluate the company’s liabilities alongside its assets
Source reference: p. 3Holding
The Court held that since the NOF was not achieved before the cancellation order was passed and communicated, the order dated September 12, 2018, could not be set aside or remanded
The Court dismissed the petition but directed that if the Petitioner files a fresh application for registration, the Respondents must consider it in accordance with extant provisions without being influenced by the previous cancellation order
Source reference: p. 4All pending applications were disposed of accordingly
Source reference: p. 4Original Court PDF
M K G Financil Services Private LimitedvsUnion Of India Ministryof Finance Appellate Authority Department Of Financial Services & Anr.
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