Recently, the Reserve Bank of India (RBI) has cancelled the Certificate of Registration of few Non- Banking Financial Companies (NBFC) for violating the regulatory norms stipulated in the Reserve Bank of India Act, 1934. In the wake of the recent incidents, the RBI received requests from NBFCs seeking for a voluntary process to surrender the Certificate of Registration on account of ceasing to carry out the NBFC Activities by NBFC Companies.
On 1st December 2022, the RBI has issued a press release on the process of voluntary cancellation of Certificate of Registration (CoR) for NBFCs. The RBI has uploaded the application form for voluntary surrender of Certificate of Registration (CoR) to be submitted by the NBFC, on the RBI website to streamline the process. The link for the form is attached below for reference. Prior to this, there was no certain process for voluntarily surrendering the Certificate of Registration as NBFC.
https://rbidocs.rbi.org.in/rdocs/Forms/PDFs/APPLICATIONFORM0112202204F8B4032B78 43C9BC4650651F235022.PDF
The applicant NBFCs may furnish the application enclosing the documents mentioned therein, to the Regional Office of the RBI under whose jurisdiction the NBFC is registered.
Here are some grounds on which an NBFC can surrender it’s CoR:
- In cases where an NBFC ceases to carry on a business of NBFI (Non-Banking Financial Institution) in India (such as the Company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income) or fail to meet the capital criteria i.e., minimum Net Owned Funds of Rs. 2 Crores.
- NBFC has failed to comply with any condition of Certificate of Registration specified under the Act and additional conditions specified by the RBI at the time of issue of Certificate of registration.
- NBFC fails to comply with any of the direction issued by the Reserve Bank of India.
- NBFC fails to maintain the book of accounts in accordance with the requirements of any law or provisions of the Act or RBI directions.
- NBFC fails to submit or offer for inspection its books of account and other relevant documents.
- NBFC has been prohibited from accepting the deposits by the order made by the Bank and such order has been in force for a period of not less than 3 months.
An application has to be submitted in the form mentioned above containing the following annexures:
- A letter of application;
- A fact sheet containing the details of the Company and the reasons for surrendering CoR. Such fact sheet has to be signed by any of the following officials authorized by the Board of Directors, in this behalf (viz., Chairman, Managing Director, Chief Executive Officer, Company Secretary, a whole-time Director or any other official) and it should bear the common seal of the Company and certified by statutory auditors.
- The latest audited financial statements of the Company.
- Board Resolutions passed by the Board of Directors of the Company indicating that:
- The Board has approved the surrender of CoR. The NBFC will surrender the original CoR to the Reserve Bank, as and when the same is sought by the Reserve Bank.
- The company has repaid all the existing public deposits, stopped accepting fresh public deposits and will not accept the same in future (applicable only for deposit taking NBFCs/ HFCs).
- The company has stopped NBFI activity w.e.f. ____ (indicate date) and will not carry out the same in future. As on ______ (indicate date of latest financials), the Financial Assets/ Total Assets and Financial Income/Gross Income is at __ % and __ % respectively.
- The company will approach the Reserve Bank for CoR afresh, in future, in case it intends to carry out NBFI/ HFI activity.
- Statutory Auditor Certificate (SAC) indicating that:
- The company has repaid all the existing public deposits and stopped accepting fresh public deposits (applicable only for deposit taking NBFCs/ HFCs).
- The company has stopped NBFI activity w.e.f. ____ (indicate date). As on ___ (indicate date of latest financials), the Financial Assets/ Total Assets and Financial Income/Gross Income is at __ % and __ % respectively.
- Write-up in brief on the details of the business of the company that it proposes to undertake post cancellation of CoR.
- Undertakings from the company (applicable only in case the company has plan to continue its legal existence in future) that:
- It will apply to RoC, MCA within 30 days post cancellation of CoR for suitably changing its Name and Industrial Activity Code, which will not represent carrying out financial business.
- It will amend its Memorandum of Association (MoA) deleting clauses related to financial business from its Main objects, within 30 days post cancellation of CoR.
- It will submit the audited financials for next 2 fiscal years to the Reserve Bank, within 30 days post finalization of annual accounts, but not later than 31st December.
It may be noted that, mere submission of application with documents by a company cannot be treated as cancellation of CoR. The NBFC needs to continue adhering to the guidelines/instructions issued by the RBI, and also continue submitting requisite regulatory/supervisory returns etc., as applicable, until the CoR is cancelled and the decision is communicated by the Reserve Bank to the entity concerned.
After being satisfied with the documents, the Reserve Bank of India has the power to cancel the Certificate of Registration under the provisions the provisions of sub-section (6) of section 45- IA of the Reserve Bank of India Act, 1934. The companies shall not transact any business relating to non- banking financial institutions.
If the NBFC that falls under the above cases does not surrender it’s CoR, the RBI has the power to penalize such NBFCs for violating the provisions of the Reserve Bank of India Act, 1934 or the directions or orders issued by RBI. The penal action can also result in RBI cancelling the Certificate of Registration issued to the NBFC, or prohibiting them from accepting deposits and alienating their assets or filing a winding up petition.