NBFC's Pending Amalgamation Application Not Enough To Claim It Meets NOF Requirement: Calcutta High Court

The Calcutta High Court has recently held that a pending amalgamation proposal does not give a Non-Banking Financial Institution (NBFI) a legal right to claim that it meets the prescribed Net Owned Fund (NOF) requirement when the amalgamation has not actually gone through.

Justice Sabyasachi Bhattacharyya observed that even if the Reserve Bank of India (RBI) had approved Nadia Printing & Packaging Pvt Ltd's proposed amalgamation with five other companies, further steps would still have been required before the company could actually meet the ₹2-crore NOF requirement.

“The mere pendency of the amalgamation application at the juncture when the certificate of registration was directed to be cancelled does not automatically translate to denial to the petitioner no.1-company any legal right of meeting the NOF criterion then prevalent, since, even if the approval application was allowed, further acts would be required to be done before the petitioner no.1 could, if at all, actually meet the Rs.2 Crore criterion, including the amalgamation scheme being finally approved by the NCLT and, thereafter, the petitioner no.1 actually attaining such NOF on such amalgamation. Moreover, the application for approval of the amalgamation scheme always ran the risk of being rejected, even if decided prior to the cancellation of the registration (which it actually has been, though post facto). Hence, such pendency could not be a ground per se to invalidate the cancellation of the certificate of registration," the court ruled.

Nadia Printing & Packaging was granted its certificate of registration as an NBFI on January 25, 2001. On August 13, 2014, it submitted a proposed scheme to the RBI for amalgamating five companies with itself.

According to the company, the purpose was to utilise the funds of the transferor companies to increase its capital.

At the time the proposal was submitted, the applicable NOF requirement was ₹25 lakh. The RBI raised the threshold to ₹2 crore through a notification dated March 27, 2015, making it the minimum NOF required for an NBFI to commence or carry on NBFC business.

The RBI issued a second show-cause notice to the company on July 26, 2019, alleging that it had failed to maintain the required ₹2-crore NOF. In its reply, the company maintained that its NOF would exceed ₹2 crore once the pending amalgamation scheme was sanctioned.

The RBI cancelled the company's certificate of registration on November 21, 2019, on the ground that it had failed to maintain the ₹2-crore NOF requirement. The appellate authority upheld the cancellation on June 10, 2021.

The company challenged the cancellation before the high court and also sought approval for the proposed amalgamation. During the proceedings, the high court directed the RBI to decide the amalgamation application, which had been pending since 2014.

The RBI initially rejected the application in July 2022. The high court later quashed that order and directed the RBI to reconsider the application after hearing the company. The RBI subsequently rejected the amalgamation proposal again on June 21, 2023.

The court noted that the company had not met the ₹2-crore NOF requirement at any point during the relevant period. It also held that the proposed amalgamation could not be treated as an existing means of satisfying that requirement merely because the application had remained pending.

The court explained that approval of the amalgamation itself would not automatically result in compliance. The scheme would still have to be finally approved by the NCLT, followed by the company actually attaining the required NOF through the amalgamation. The possibility of that happening, the court observed, remained in the realm of “future possibilities and conjecture”.

The court also found no procedural flaw in the RBI's decision to cancel the registration. It noted that the company admittedly did not meet the ₹2-crore NOF requirement, which was a valid ground for cancellation.

The cancellation also involved an additional finding that the company had not consistently maintained the earlier ₹25-lakh NOF requirement between 2012 and 2015. The court held that, even if the company had a grievance concerning that aspect, the ₹2-crore NOF ground could not be faulted.

The court also rejected the company's apprehension that cancellation of its registration would operate as a “stigma” and adversely affect its future transactions.

It observed that if the company later meets the NOF requirement applicable at that time and complies with statutory requirements and RBI guidelines, it can make a fresh application for registration as an NBFC.

The court further noted that the applicable NOF requirement had been raised to ₹1,000 crore by an RBI notification dated April 29, 2026, which the company admittedly could not meet.

It held that setting aside the cancellation would therefore serve no practical purpose.

For Petitioner: Senior Advocate K. Thaker, Advocates Rishabh Karnani, Aditya Kanodia, Shreya Trivedi

For RBI: Advocates D. K. Kundu, Aditi Biswas