Chennai: The Madras HC has upheld the notification of the RBI specifying the requirement of Non Banking Financial Companies (NBFC) to have Rs 100 lakh in Net Owned Fund (NOF) as on April 1, 2016 and Rs 200 lakh as on April 1, 2017.
Allowing the appeals filed by RBI against the single judge order directing RBI to extend the time up to March 31, 2019 to comply with the notification to NBFCs, the division bench comprising Justices T. S. Sivagnanam and V. Bhavani Subbaroyanm, said: “The writ court cannot substitute the decision of the financial experts on such issues especially when the purpose of fixing higher NOF has been explained by the RBI. Thus it is expected that the RBI exercise their powers in a judicious manner and take a decision in accordance with law.”
The RBI, in a notification dated April 20, 1999, specified Rs 200 lakh as NOF requirement of an NBFC to commence or carry on its business. It also stipulated that an NBFC holding Certificate of Registration (COR) issued by RBI may continue to carry on the business if the company has Rs 100 lakh before April 1, 2016 and Rs 200 lakh before April 1, 2017.
Various NBFCs, including Nahar Finance and Valluvar Development Finance Private Ltd, challenged the orders passed by the Regional Director, RBI, Department of Non-Banking Supervision cancelling the CORs for not complying with the above notification.Allowing the petitions, a single judge directed the RBI to restore the COR of the NBFCs and also directed the RBI to extend the time NBFCs have to comply with the requirements under section 45-1A of the RBI Act till March 31, 2019.
Challenging the order, the RBI filed the appeal. The division bench allowed the appeals and concurred with the submissions of RBI’s counsel for Chevanan Mohan that the remedy of an appeal was available to the NBFCs that filed the present petitions, and without availing such remedy they have approached the court, which ought not to have been entertained by the single judge.
