Non-banking monetary corporations (NBFCs) might be regulated by the Reserve Bank of India (RBI), and state money-lending legal guidelines can have no applicability on them, the Supreme Court (SC) stated on Tuesday.
The query earlier than the SC was whether or not NBFCs regulated by the RBI, by way of the provisions of Chapter IIIB of the Reserve Bank of India Act, 1934, may be regulated by state enactments just like the Kerala Money Lenders Act, 1958 and the Gujarat Money Lenders Act, 2011, with the Kerala and Gujarat High Courts taking reverse views. While the Gujarat HC had in 2011 held NBFCs wouldn’t fall below the purview of the Bombay Money Lenders Act, as relevant within the state, the Kerala High Court had given opposite findings, holding that the money-lending legal guidelines of the state have been relevant.
Clarifying the opposite findings in a batch of instances led by Nedumpilli Finance Company vs Kerala, an apex bench comprising Justices Hemant Gupta and V Ramasubramanian held that “we are of the considered opinion that the Kerala Act and the Gujarat Act will have no application to NBFCs registered under the RBI Act and regulated by RBI. Therefore, all the appeals filed by NBFCs against the judgment of the Kerala High Court are allowed. Likewise, the appeals filed by the State of Gujarat against its high court judgment are dismissed.” Though the SC didn’t study the provisions of the Tamil Nadu Pawn Brokers Act and the Tamil Nadu Money Lenders Act, it clarified that the rules of regulation laid down within the NBFCs’ case “would apply equally to these state enactments also”.
Welcoming the judgment, former Finance Industry Development Council chairman, Raman Aggarwal, stated “this settles a long-lasting issue being faced by NBFCs that were faced with dual regulation by the RBI and the state governments, which was totally imprudent”. He stated, “Chapter III B of RBI Act is a complete code in itself and there is a clear conflict between RBI Act and Money Lenders Act which cannot be reconciled. Sec. 45Q of RBI Act has an overriding effect over the state money-lenders laws. The state has no power to regulate the money-lending business of NBFCs.”
The SC stated that whereas the state enactments regulating the enterprise of money-lending has a one-eyed focus solely to guard debtors, the RBI Act takes a holistic method to the enterprise of banking, money-lending and operation of the forex & credit score system of India.
The judges stated no NBFC can begin or keep on enterprise with out acquiring a certificates of registration below the RBI Act; their continuation in enterprise would rely on compliance with the RBI Act and circulars/instructions issued by the RBI.
“The RBI has the power to supersede the Board of Directors of a NBFC and has power even to wind up a NBFC. Thus the supervision and regulation of NBFCs, by the RBI, is from the time of birth till the time of death. If a statutory enactment which provides for such a type of control and supervision is not a complete code in itself, we do not know what else could be a complete code,” the judgment said, including that to say that the RBI has no say in such a matter of important curiosity will strike on the very root of the statutory management vested in RBI.
Source: www.financialexpress.com”