{"id":15401,"date":"2020-08-27T11:48:27","date_gmt":"2020-08-27T06:18:27","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=15401"},"modified":"2024-12-10T18:04:56","modified_gmt":"2024-12-10T12:34:56","slug":"know-about-nbfc-license-cancellation","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/know-about-nbfc-license-cancellation\/","title":{"rendered":"Things you must know about NBFC License Cancellation"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The number of NBFC across India is reducing drastically, mainly due to the revised criteria for the net owned funds. The cancellation rate has been escalated significantly in the past few years making it harder for the existing entities to carry on their business. There is a provision for surrendering the <a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFC license<\/strong><\/a>. In this article, you will learn about the NBFC License Cancellation. <\/p>\n\n\n\n<p>RBI is on high alert ever since it has choked out dozen of NBFCs pan India for unethical business practice. Besides tightening the compliances, RBI is also focusing on setting up revised criteria through amendments to avert illegal practices.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" width=\"663\" height=\"542\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/08\/image-112.png\" alt=\"NBFC License Cancellation\" class=\"wp-image-15413\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/08\/image-112.png 663w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/08\/image-112-300x245.png 300w\" sizes=\"(max-width: 663px) 100vw, 663px\" \/><\/figure><\/div>\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\/know-about-nbfc-license-cancellation\/#What_is_Net_owned_fund\" >What is Net\nowned fund?<\/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\/know-about-nbfc-license-cancellation\/#Prominent_reasons_for_the_NBFC_License_Cancellation\" >Prominent reasons for the NBFC License Cancellation<\/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\/know-about-nbfc-license-cancellation\/#RBIs_takes_on_NBFC_license_cancellation\" >RBI\u2019s takes on NBFC license cancellation<\/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\/know-about-nbfc-license-cancellation\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Net_owned_fund\"><\/span>What is Net\nowned fund?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A company can appeal to the respective judiciary against the cancellation order communicated by the RBI. The concerned entity can exercise such authority under clause 7(I) of section 45-IA The <strong><em>Reserve Bank of India Act, 1934<\/em><\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Reserve_Bank_of_India_Act,_1934\"><strong><em>[1]<\/em><\/strong><\/a><\/sup>. The term \u201cnet owned fund\u201d under this clause is defined in the following way:-<\/p>\n\n\n\n<p><em><strong>Total paid-up equity capital + free reserves -(Accumulated balance of loss + Other intangible assets + Deferred revenue expenditure) <\/strong><\/em><\/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\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Prominent_reasons_for_the_NBFC_License_Cancellation\"><\/span>Prominent reasons for the NBFC License Cancellation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Following\nare the reasons for the NBFC License cancellation:-<\/em><\/strong><\/p>\n\n\n\n<ul>\n<li>In case\nthe NBFC terminates and ceases to continue its business operations in India.\nThe NBFCs are only permitted to conduct their financial activities as per the\nprincipal business. This means a firm\u2019s financial asset gets formed more than\n50% of its total assets, where cash inflow from the financial assets is greater\nthan 50% of its gross income. The firm that satisfied this condition can carry\non their business operation as an NBFC. <\/li>\n\n\n\n<li>In the case of NBFC toils to maintain conformity with norms of registration mentioned under the Act or additional conditions of the <strong><a href=\"https:\/\/corpbiz.io\/rbi\">RBI <\/a><\/strong>when the Certificate of Registration was granted. For example, if the firm cannot meet the requirement pertaining to paid-up capital, it could result in NBFC license cancellation. <\/li>\n\n\n\n<li>In case,\nNBFC struggles to keep up with the compliances regarding the capital of the\ncompany. <\/li>\n\n\n\n<li>If the\nNBFC ignore to meet the directions communicated by the Reserve Bank of India.\nUpon the release of guidelines, RBI\u2019s personals can make a surprise visit to\nthe business premises to determine whether the order has been followed or not. <\/li>\n\n\n\n<li>In case\nof the mismanagement of the account book or other records. <\/li>\n\n\n\n<li>In case\nif NBFC fails to surrender the account book or other vital record during the\ninspection conducted by the RBI\u2019s audit team. (non-furnishing of account book\nand the document can encourage the authority to revoke the license).<\/li>\n\n\n\n<li>In case\nif the NBFC alters the rate of interest for the loan to avail of personal\nbenefits. This is a severe felony as it could sabotage the future of business\nand its operation forever. <\/li>\n\n\n\n<li>In case\nif the NBFC is accepting the deposit that has been tagged unauthorized by RBI.<\/li>\n\n\n\n<li>In case\nif the NBFC tagged as a defaulter by a depositor on account of repayment of the\ndeposit. In such cases, the depositors can approach to Company Law Board or\nconsumer to file a complaint against the defaulter to retrieve their deposit. <\/li>\n\n\n\n<li>The RBI\nis less likely to take immediate action on defaulter upon receiving the\ncomplaint. Its because they are bound to offer equal opportunity to either of\nthe parties to clarify their stance over the disputes. While processing the compliant, RBI takes various factors into account\nsuch as the financial status of the NBFC before reaching any decision<em>. <\/em><\/li>\n\n\n\n<li>Every\nNBFC in India is liable to conduct its business activities in the public\ninterest. Under no circumstances, NBFC can deviate from existing RBI policies,\nwhether it&#8217;s a question of implementing an amendment or following an urgent\norder.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"RBIs_takes_on_NBFC_license_cancellation\"><\/span>RBI\u2019s takes on NBFC license cancellation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul>\n<li>If any of\nthe business entities found in the state of misconduct pertaining to financial\nservices that defy RBI\u2019s provisions, then RBI can issue a revocation order for\na license.<\/li>\n\n\n\n<li>Before\nceasing the business activities, RBI communicates the matter with the\ndefaulters through a notification illustrating the grounds on which revocation\noccurred. Being a legitimate legal body, RBI ensures the juridical framework&#8217;s\nfair manifestation through the accurate interpretation of the dispute. To\nadhere to the transparency, RBI often intimates the defaulters via a show-cause\nnotice regarding the issuance of a revocation notice and seeks their feedback. <\/li>\n\n\n\n<li>It allows\nthe concerned entities to put their matters in front of the judicial system. As\nsoon as the RBI interprets the case and conclude that revocation is in favor of\nthe public interest, it will issue an order of revocation. <\/li>\n\n\n\n<li>It should\nbe kept in mind that there is penalty provision as per the provisions of\nSection 58 B (6) of the RBI Act for the infringement of the RBI\u2019s policies. Hence,\nunder no circumstance, RBI can bypass any of its laws regarding license\nrevocation. <\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Key takeaway<\/h3>\n\n\n\n<ul>\n<li>NBFC can opt judicial\nassistance under sub-section (7) of secrion-45-1A of RBI Act, 1934.<\/li>\n\n\n\n<li>NBFC can file the appeal with\nthe central government. <\/li>\n\n\n\n<li>The appeal ought to be filed\nwithin one month from the date on the NBFC was notified by the RBI\u2019s license\nrevocation. <\/li>\n\n\n\n<li>The decision-making regarding\nsuch a matter is in the hand of central government. <\/li>\n<\/ul>\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>The NBFCs have a\nconsiderable impact on the financial setup in the Indian economy. It has\ngarnered the scope of easy credit accessible to the underprivileged section of\nthe society. It has also eased out the processing of a typical loan\ndisbursement that previously available to wealthy entities. All in all, NBFC is\ncrucial for the country\u2019s development. <\/p>\n\n\n\n<p>However, that doesn\u2019t mean that these financial houses got the liberty of bypassing the law. Henceforth, keeping contravention of the law in mind, RBI is now taking some proactive measures to deter unethical business practices. <\/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\/procedure-for-appeal-against-cancellation-of-nbfc-registration-by-rbi\/\">Procedure for Appeal against Cancellation of NBFC Registration by RBI<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The number of NBFC across India is reducing drastically, mainly due to the revised criteria for the net owned funds. The cancellation rate has been escalated significantly in the past few years making it harder for the existing entities to carry on their business. There is a provision for surrendering the NBFC license. In this [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":15412,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[925],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":10680,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/15401"}],"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\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=15401"}],"version-history":[{"count":9,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/15401\/revisions"}],"predecessor-version":[{"id":67711,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/15401\/revisions\/67711"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/15412"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=15401"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=15401"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=15401"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}