NBFC Must Meet NOF Before Licence Cancellation To Get Relief, Not After: Delhi High Court

The Delhi High Court has held that relief against cancellation of an NBFC licence is granted only where the Net Owned Fund requirement is fulfilled prior to the cancellation order, and not where compliance is achieved thereafter

A Division Bench of Justices Prathiba M. Singh and Madhu Jain was dealing with a petition filed by M K G Financial Services Pvt. Ltd., challenging the RBI's decision to cancel its NBFC registration for failing to meet the minimum NOF requirement of Rs 2 crore.

Petitioner contended that it had achieved the required NOF shortly after the cancellation order was passed and therefore sought setting aside of the RBI's decision and a remand for fresh consideration.

However, the Court noted that the cancellation order had been passed on September 12, 2018 and communicated on September 17, 2018, by which time the Petitioner had not met the prescribed NOF threshold.

The Court observed that as per the consistent approach adopted in similar matters, relief is granted only where the NOF requirement is fulfilled prior to the passing of the cancellation order.

“There are several petitions which have been filed by various NBFCs before this Court, wherein different orders have been passed from time to time, depending upon the facts of each case. The broad principle that has been adopted by this Court is that prior to the passing of the cancellation order, if the NOF has been achieved, the Court has set aside the impugned order and remanded the matter for fresh consideration.”

However, in this case, the Court noted, “Even on the date when the RBI had communicated the letter through speed post to the Petitioner, it had not achieved the requisite NOF.”

It also noted that mere bank statements were insufficient to conclusively establish compliance, in the absence of an auditor's certification accounting for liabilities.

In view of these findings, the Court refused to set aside or remand the cancellation order.

It, however, granted liberty to the Petitioner to file a fresh application for registration.

For Petitioner: Advocates Rahul Agrawal, Rajesh Agrawal and Sunil Dhamija

For Respondent: SPC T. P. Singh for UOI.Ramesh Babu, Manisha Singh, Tanya Chowdhary and Rohan Shrivastava for RBI.