{"id":14273,"date":"2020-08-03T12:05:02","date_gmt":"2020-08-03T06:35:02","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=14273"},"modified":"2024-12-09T17:46:07","modified_gmt":"2024-12-09T12:16:07","slug":"surrender-nbfc-registration-and-its-effects","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/surrender-nbfc-registration-and-its-effects\/","title":{"rendered":"When to Surrender NBFC Registration and its effects"},"content":{"rendered":"\n<p class=\"has-drop-cap\">At end-March 2017, there were 11,522 NBFCs registered with the Reserve Bank, of which 178 were NBFCs-D, and 220 were NBFCs-ND-SI. The number of NBFCs has been declining over time with cancellations of registrations exceeding new registrations on account of voluntary surrender <strong><a href=\"https:\/\/corpbiz.io\/nbfc-registration\">NBFC Registration<\/a><\/strong><em> due to non-compliance with the revised criteria of the net-owned fund.<\/em><\/p>\n\n\n\n<p>Despite this, there has been a double-digit growth in credit extended by NBFCs, which is depicted by the Consolidated Balance Sheet of NBFCs at the end of March each year. An NBFCs requires a Certificate of Registration in accordance with the rules and regulations specified under <strong><em>Section 45-1A, RBI Act, 1934<\/em><\/strong>.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/surrender-nbfc-registration-and-its-effects\/#What_is_a_Net_owned_fund_for_NBFC\" >What is a Net owned fund for NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/surrender-nbfc-registration-and-its-effects\/#When_to_Surrender_NBFC_registration\" >When to Surrender NBFC registration<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/surrender-nbfc-registration-and-its-effects\/#NBFCs_registered_under_other_Regulators\" >NBFCs registered under other Regulators<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/surrender-nbfc-registration-and-its-effects\/#Effects_of_surrender_NBFC_Registration\" >Effects of surrender NBFC Registration<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/surrender-nbfc-registration-and-its-effects\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_a_Net_owned_fund_for_NBFC\"><\/span>What is a Net owned fund for NBFC <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>It is\nimportant that the purpose of the term <strong><em>\u201cnet owned fund\u201d as per clause 7(I) of the\nsection 45-IA, means\u2013<\/em><\/strong><\/p>\n\n\n\n<ul>\n<li>The aggregate of a paid-up equity capital and free reserves as disclosed in the company&#8217;s latest balance-sheet after deducting therefrom-<\/li>\n<\/ul>\n\n\n\n<ol>\n<li>Accumulated balance of loss<\/li>\n\n\n\n<li>Deferred revenue expenditure<\/li>\n\n\n\n<li>Other intangible assets<\/li>\n<\/ol>\n\n\n\n<ul>\n<li>Further reduced by the amounts representing<\/li>\n<\/ul>\n\n\n\n<ol>\n<li>Investments of such company in shares of-<\/li>\n<\/ol>\n\n\n\n<ul>\n<li> Its subsidiaries<\/li>\n\n\n\n<li>Companies in the same group <\/li>\n\n\n\n<li>All other non-banking financial companies<\/li>\n<\/ul>\n\n\n\n<p>2. The book value of the debentures, bonds, outstanding loans and advances (including hire purchase &amp; lease finance) made to, and deposits with-<\/p>\n\n\n\n<ul>\n<li>Subsidiaries of such company<\/li>\n\n\n\n<li>Companies in a same group, to the extent such amount exceeds 10%<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"When_to_Surrender_NBFC_registration\"><\/span>When to Surrender NBFC registration <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The company can surrender NBFC registration in case of the following factors taken place. As per the section 45-IA (6), the RBI may cancel the registration issued to an NBFC once surrender if:<\/p>\n\n\n\n<ul>\n<li>NBFC <strong><em>ceases to carry on a business<\/em><\/strong> of NBFI (Non-Banking Financial Institution) in India<\/li>\n\n\n\n<li>NBFC has <strong><em>failed to comply with any condition of Certificate of Registration<\/em><\/strong> specified under the Act and additional conditions specified by the <strong><a href=\"https:\/\/corpbiz.io\/rbi\">RBI <\/a><\/strong>at the time of issue of Certificate of registration<\/li>\n\n\n\n<li>NBFC fails to fulfill the conditions mentioned with respect to the <strong><em>affairs and capital of the Company.<\/em><\/strong><\/li>\n\n\n\n<li>NBFC fails to comply with any <strong><em>of the direction issued by the Reserve Bank of India<\/em><\/strong><\/li>\n\n\n\n<li>NBFC <strong><em>fails to maintain the book of accounts<\/em><\/strong> in accordance with the requirements of any law or provisions of the Act or RBI directions<\/li>\n\n\n\n<li>NBFC <strong><em>fails to submit or offer for inspection its books<\/em><\/strong> of account and other relevant documents<\/li>\n\n\n\n<li>NBFC has been <strong><em>prohibited from accepting the deposit<\/em>s<\/strong> by the order made by the Bank under the provisions of this Chapter, and such order has been in force for a period of not less than <strong>3 months<\/strong>.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"NBFCs_registered_under_other_Regulators\"><\/span>NBFCs registered under other Regulators<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" width=\"562\" height=\"340\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/08\/image-5.png\" alt=\"NBFCs registered under other Regulators\" class=\"wp-image-14274\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/08\/image-5.png 562w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/08\/image-5-300x181.png 300w\" sizes=\"(max-width: 562px) 100vw, 562px\" \/><\/figure><\/div>\n\n\n<p>There is a certain class of NBFCs primarily regulated by other regulators that <strong><em>are\nexempted<\/em><\/strong> from the requirement of NBFC registration <strong><em>under Section 45-IA of the RBI\nAct, 1934<\/em><\/strong>. The regulator and kind of NBFIs they deal with are as\nfollows:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Securities and Exchange Board of India<\/h3>\n\n\n\n<ul>\n<li>Venture Capital Fund regulated by <strong><a href=\"https:\/\/corpbiz.io\/sebi\">SEBI <\/a><\/strong>(Venture Capital Funds) Regulations,1996<\/li>\n\n\n\n<li>Merchant Banking regulated by\nSEBI (Merchant Banking) Regulations, 1992<\/li>\n\n\n\n<li>Stock Brokers and Stock\nExchanges regulated under the Securities and Exchange Board of India. (Stock\nBrokers and Sub-brokers) Regulations, 1992 and Securities Contracts\n(Regulations) (Stock Exchanges and Clearing Corporations) Regulations, 2012<strong><em><\/em><\/strong><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Ministry of Corporate Affairs<\/h3>\n\n\n\n<ul>\n<li>Nidhi Companies: Section 406 of <strong><em>Companies Act, 2013<\/em><\/strong><sup><a href=\"https:\/\/www.mca.gov.in\/Ministry\/pdf\/CompaniesAct2013.pdf\"><strong><em>[1]<\/em><\/strong><\/a><\/sup> and Companies (Nidhi Companies) Rules, 2014<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">National Housing Bank<\/h3>\n\n\n\n<ul>\n<li><strong><a href=\"https:\/\/corpbiz.io\/housing-finance-company-registration\">Housing Finance Companies<\/a><\/strong> registered under The National Housing Bank Act, 1987<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Insurance Regulatory and Development Authority of India<\/h3>\n\n\n\n<ul>\n<li><strong><a href=\"https:\/\/corpbiz.io\/insurance-company-license\">Insurance Companies<\/a><\/strong> are registered under Insurance Act, 1938<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">State Government<\/h3>\n\n\n\n<ul>\n<li>Chit Fund Companies, Money Lenders, C-operative societies acting as financial intermediaries, MFIs formed as Trusts or Society<\/li>\n<\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/procedure-for-appeal-against-cancellation-of-nbfc-registration-by-rbi\/\">Procedure for Appeal against Cancellation of NBFC Registration by RBI<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Effects_of_surrender_NBFC_Registration\"><\/span>Effects of surrender NBFC Registration<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Effects on NBFCs\nthat surrender NBFC Registration to RBI is briefly explained as below:<\/em><\/strong><\/p>\n\n\n\n<p>With\nsurrendering the certificates, the companies cannot be able to transact the\nbusiness of a non-banking financial institution. The RBI grants the Certificate\nof registration. These NBFCs have surrender NBFC Registration granted to them\nby the RBI will cease to carry on further business. The NBFC decided to surrender\nNBFC registration as &#8216;non- banking finance company&#8217; cannot accepts public\ndeposits to the RBI.<\/p>\n\n\n\n<p>In the exercise of powers conferred to it under <strong><em>Section 45-IA (6) of the Reserve Bank of India Act, 1934,<\/em><\/strong> the RBI will cancel their Certificate of Registration of those who surrender its registration for a non-banking finance company to banking regulator RBI. The companies must not transact the business of a Non-Banking Financial Institution, as defined in clause (a) of Section 45-I of the RBI Act, 1934. Now, the NBFCs can&#8217;t take part in the business activities specified for non-banking financial institutions.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Case Law Illustration<\/h3>\n\n\n\n<p>Any form of entity can enter into the business of money lending, but it is essential to get registered under the respective legislation. The Apex courts have in <strong><em>KalojiTalusappaGangavathi vs. Khyanagouda and Ors (AIR1970SC1420),<\/em><\/strong> observed that in order to curb malpractices of the moneylender and protect unwary debtors, the Legislature must impose such stringent restrictions by requiring such person to obtain a license, maintain and furnish accounts and carry out other obligations. Time and again, the courts have dismissed the recovery suit filed by unregistered money lenders holding money lending contracts and transactions void in the absence of a money <strong><a href=\"https:\/\/corpbiz.io\/peer-to-peer-lending-license\">lending license<\/a><\/strong>. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>India&#8217;s banking sector has been grappling with an unprecedented liquidity crisis after the major scam was unearthed last year. The contagion effect later spread to the other established, forcing the Union government and Reserve Bank of India to announce special measures to support the NBFCs and Housing Finance Companies.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/step-by-step-nbfc-registration-procedure\/\">NBFC Registration: Step by Step Procedure<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>At end-March 2017, there were 11,522 NBFCs registered with the Reserve Bank, of which 178 were NBFCs-D, and 220 were NBFCs-ND-SI. The number of NBFCs has been declining over time with cancellations of registrations exceeding new registrations on account of voluntary surrender NBFC Registration due to non-compliance with the revised criteria of the net-owned fund. [&hellip;]<\/p>\n","protected":false},"author":10,"featured_media":14275,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[835],"acf":{"service_id":"8"},"authorName":"Soumya Bajpai","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/01\/0.jpg","authorDescription":"Soumya has done LLB (Hons) and has a 2+years experience in writing. Her main interest is in reading judgments, new enactments and amendments taking around in law. She always strives to bring the best to work that she does.","postViews":13146,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/14273"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=14273"}],"version-history":[{"count":13,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/14273\/revisions"}],"predecessor-version":[{"id":67658,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/14273\/revisions\/67658"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/14275"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=14273"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=14273"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=14273"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}