RBI’s cancellation of NBFC registration restored as Delhi High Court lifts interim stay, citing public interest and financial-system risks

Respondent No. 1, a non-deposit-taking NBFC, held a Certificate of Registration (“CoR”) issued by the Reserve Bank of India (“RBI”) under the RBI Act, 1934.

Following an inspection under Section 45-N of the RBI Act, RBI identified various statutory and regulatory violations, communicated its concerns, and afforded the company opportunities to submit compliance reports and respond to a show-cause notice proposing cancellation of its CoR under Section 45-IA(6).

After a personal hearing, the Executive Director of RBI cancelled the CoR on 11 September 2025. The statutory appeal filed by Respondent No. 1 under Section 45-IA(7) was dismissed on 8 June 2026.

Respondent No. 1 thereafter filed a writ petition challenging the cancellation and appellate orders. The learned Single Judge granted ad-interim protection by staying those orders insofar as they restrained Respondent No. 1 from carrying on NBFI business.

RBI challenged that interlocutory order through the present Letters Patent Appeal. Respondent No. 1 was permitted to continue day-to-day banking transactions and recover existing loans, but sought to resume fresh NBFI lending. During the appeal, it declined to furnish an undertaking that it would refrain from disbursing fresh loans pending determination of its interim-relief application.

1. Whether the ad-interim order staying the cancellation of Respondent No. 1’s CoR and permitting it to resume NBFI business was appealable under Clause 10 of the Letters Patent.

2. Whether the learned Single Judge correctly applied the principles governing interim relief, including strong prima facie case, balance of convenience, and irreparable injury.

3. Whether the larger public interest and RBI’s regulatory findings justified maintaining the restraint on Respondent No. 1’s fresh NBFI business pending adjudication of the writ petition.

The Court applied Sections 45-N, 45-IA(6) and 45-IA(7) of the RBI Act, 1934, under which RBI may inspect an NBFC, cancel its CoR for statutory or regulatory violations, and provide a statutory appellate remedy.

Interim relief is an equitable and discretionary remedy requiring consideration of a strong prima facie case, balance of convenience, and likely irreparable injury, together with the competing interests and broader consequences of granting or refusing relief.

Courts should accord due deference to specialised sectoral regulators such as RBI, whose determinations should not be displaced absent manifest arbitrariness, perversity, ultra vires action, procedural impropriety, or violation of natural justice.

Under Clause 10 of the Letters Patent, an interlocutory order possessing the “trappings of finality,” particularly one granting substantially the final relief sought in the writ petition, is appealable; the Court relied on Union of India v. Delhi Race Club (1940) Ltd. & Ors., 2026 SCC OnLine Del 4127.

The Court held that the learned Single Judge had granted protection without adequately examining RBI’s findings that Respondent No. 1’s management was prejudicial to public interest and that permitting it to continue NBFI business would serve no public interest.

The alleged rectification of violations constituted disputed factual matters that could not properly be determined before RBI filed its counter-affidavit.

Respondent No. 1 had also acknowledged the existence of the defaults by asserting that they had subsequently been rectified.

Since Respondent No. 1 remained permitted to conduct day-to-day banking transactions and recover existing loans, refusal to permit fresh lending did not result in irreparable injury or bring its entire business to a standstill.

In contrast, allowing fresh NBFI operations despite RBI’s cancellation and the appellate affirmation could prejudice customers and the financial system.

The ad-interim order therefore failed to satisfy the requirements of a strong prima facie case, balance of convenience, and irreparable injury.

The Court further found the appeal maintainable because the order effectively granted the final relief sought in the writ petition by permitting Respondent No. 1 to resume NBFI business.

The ad-interim order was set aside insofar as it stayed the operation and effect of the Cancellation Order and Appellate Order restraining Respondent No. 1 from carrying on NBFI business.

Respondent No. 1 consequently remained restrained from disbursing fresh loans or otherwise carrying on fresh NBFI business, while continuing to undertake day-to-day banking transactions and recover existing loans.

The Court expressed no final opinion on the merits, including alleged rectification, proportionality, natural justice, or territorial jurisdiction, and left all issues open for determination by the learned Single Judge.

The learned Single Judge was requested to decide the pending interim-relief application at the earliest.