Supreme Court upholds RBI remit on NBFCs, says state law will not apply

Non-banking financial institutions (NBFCs) will be regulated by the Reserve Bank of India (RBI) and the state’s money-lending laws will not apply to them, the Supreme Court (SC) said on Tuesday.

The question before the SC was whether NBFCs regulated by the RBI could also be regulated by state laws like the provisions of Chapter IIIB of the Reserve Bank of India Act, 1934, Kerala Money Lenders Act, 1958 and Gujarat Money. Contradictory views of the Lenders Act, 2011, Kerala and Gujarat High Courts. Although the Gujarat High Court had said in 2011 that NBFCs would not fall under the Bombay Money Lender Act as applicable in the state, the Kerala High Court had given the opposite result as the state’s finance and credit law was applicable.

An apex court bench comprising Justices Hemant Gupta and V Ramasubramanian, in a case headed by Kerala v. Nedumpili Finance Company, clarified the reverse results of the case. Controlled by the RBI. Therefore, all appeals filed by the NBFC against the judgment of the Kerala High Court are allowed. Similarly, the State of Gujarat has dismissed the appeal filed against the judgment of its High Court. ” Although the SC has not examined the provisions of the Tamil Nadu Pan Brokers Act and the Tamil Nadu Money Lenders Act, it is clear that the statutory principles in the case of NBFC “shall be equally applicable to the laws of this State”.

Welcoming the verdict, Raman Agarwal, former chairman of the Finance Industry Development Council, said: He said, “Chapter 3B of the RBI Act itself is a complete code and there is a clear contradiction between the RBI Act and the Money Lender Act which cannot be reconciled. The 45Q of the Second RBI Act has an overriding effect on the State Money-Lender Act. The state does not have the power to regulate the NBFC’s money-lending business. “

The SC said that while state laws regulate the money-lending business and focus solely on protecting borrowers, the RBI law takes a holistic approach to the business of banking, lending and managing the monetary and credit system. Of India

The judges said that no NBFC can start or run a business without a certificate of registration under RBI law; Their continuity in business will depend on compliance with RBI Act and circulars / instructions issued by RBI.

“The RBI has the power to dismiss the board of directors of an NBFC and even to close an NBFC. Thus the supervision and control of the NBFC, by the RBI, from the time of birth to the time of death. If a statutory law that provides for such control and oversight is not a complete code in itself, then we do not know what a complete code could be, “the ruling said. The issue will hit the very core of the statutory control vested in the RBI.