Can NBFC purchases a property after RBI have cancelled its license?

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Shubham Budhiraja[1]



NBFC license cancelled by RBI because NBFC failed to keep the minimum capital requirements and meanwhile the NBFC acquired a property as winner bidder during SARFESI proceedings but the SDM refused to record mutation on name of NBFC for simple reason that RBI has cancelled the NBFC license and therefore there is no authority. The HC has set aside such an order and direct SDM to register the mutation because NBFC is first a company under companies act and then a NBFC according to license issued by RBI. Mere because the license is cancelled by RBI that does not prevent such a company to acquire a property or sell them on its own name because the cancelled NBFC is continuing as a company for all the purposes as per companies act and such a company being a separate legal entity can acquire property on its own name[2].  

 

(I)          Certificate of registration as an NBFC is different from the certificate of registration as a company. As can be seen from Section 45-I(f) of the Act, an NBFC is primarily a Company. One of the prerequisites of being an NBFC is that of it being a company. An entity is formed as a company under the provisions of the Companies Act, 1956 or the Companies Act of 2013 (for short 'the Companies Act'), as the case may be. Once an entity becomes a company, if it has the objects as contemplated under the Companies Act, it can apply to register as an NBFC.

 

(II)       Registration as a Company and registration as an NBFC are under different and distinct statutes. A company registered under the Companies Act, is a legal entity by itself. The existence of a company is determined by the registration under the Companies Act, while registration as an NBFC determines different type of activities, such a registered company can indulge in.

 

(III)        When the existence as a company is not in dispute, it is entitled to acquire properties and continue its legal existence. Merely because the CoR to function as an NBFC is cancelled, that will not deprive the petitioner of its legal character as a company. The Company existence as a legal entity capable of holding properties remains unscathed, in spite of the cancellation of its registration as an NBFC.

 

(IV)          Cancellation of registration as an NBFC, midway during the securitization proceedings, will not result in the entity losing the opportunity to continue the proceedings under the SARFAESI Act to recover amounts due to it.


[1] Advocate, Delhi High Court, Associate Company Secretary, Member-Delhi High Court Bar Association,

9654055315, Shubhambudhiraja02@gmail.com

[2] WP(C) NO. 18263 OF 2021, HIGH COURT OF KERALA AT ERNAKULAM

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