HC Invalidates RBI Rejection of NBFC Exit Application | Biz Flow Kit
HC Invalidates RBI Rejection of NBFC Exit Application
J. Thomas Finance Pvt. Ltd., an NBFC, decided to call it quits in early 2025. Citing a lack of commercial viability and the heavy weight of regulatory compliance, they applied to voluntarily surrender their Certificate of Registration (CoR) to the RBI. However, the RBI rejected the application on July 4, 2025. The regulator’s logic was simple: since the company’s financial assets and income still exceeded the 50% “Principal Business Criteria” (PBC) threshold, they were technically still an NBFC and couldn’t just walk away. The company hit back, moving the High Court on two grounds: first, they weren’t given a hearing before the rejection, and second, they were effectively being held “hostage” to a license they no longer wanted.
Issue Raised: Can the RBI reject a voluntary surrender application solely because a company still meets the PBC threshold, without giving them a chance to explain their exit plan? Furthermore, is an NBFC allowed to intentionally restructure its finances to fall below the PBC limit just to facilitate a surrender?
HC Held: The Calcutta High Court ruled in favour of the company, setting aside the RBI’s rejection. The Court held that the RBI’s “silent” rejection via email was a clear violation of Section 45-IA(6) of the RBI Act and the principles of natural justice. A company has a right to be heard before a regulator makes a decision that fundamentally affects its business operations.
More importantly, the Court addressed the PBC dilemma. During the case, the petitioner had already restructured its balance sheet to bring its financial assets below the 50% mark. The RBI eventually admitted in court that such a “legitimate restructuring” is not a violation of regulatory conditions. Since the company no longer met the PBC, the very reason for the RBI’s initial rejection had vanished. The Court directed the RBI to take a fresh look at the application, consider the new financial status, and pass a reasoned order after giving the company a proper hearing within four weeks.
To Read Full Judgment, Download PDF Given Below
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