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SUPREME COURT OF INDIA
Hemant Gupta, V. Ramasubramanian, JJ.
Nedumpilli Finance Company Limited – Appellant
Versus
State of Kerala & Ors. – Respondents
Civil Appeal No. 5233 of 2012 with Civil Appeal No. 5230 of 2012; Civil Appeal No. 5190 of 2012; Civil Appeal No. 5191 of 2012; Civil Appeal No. 5184 of 2012; Civil Appeal No. 5241 of 2012; Civil Appeal No. 5185 of 2012; Civil Appeal No. 5111 of 2012; Civil Appeal No. 5188 of 2012; Civil Appeal No. 5187 of 2012; Civil Appeal No. 5183 of 2012; Civil Appeal No. 5113 of 2012; Civil Appeal No. 3857 of 2022 (@SLP (Civil) No. 8331 of 2015); Transfer Petition (Crl.) No. 359 of 2015; Civil Appeal No. 5186 of 2012; Civil Appeal No. 5192 of 2012; Civil Appeal No. 5189 of 2012; Civil Appeal No. 5112 of 2012; Civil Appeal No. 5232 of 2012; Civil Appeal No. 5231 of 2012; Civil Appeal No. 5234 of 2012; Civil Appeal No. 5237 of 2012; Civil Appeal No. 5238 of 2012; Civil Appeal No. 5315 of 2012; Civil Appeal Nos. 18786--18787 of 2017; Civil Appeal No. 1324 of 2015 and Civil Appeal No. 7836 of 2012
Decided On : 10-05-2022
The question as to whether Non-Banking Financial Companies (NBFCs) regulated by the Reserve Bank of India, in terms of the provisions of Chapter III-B of the Reserve Bank of India Act, 1934 (RBI Act) could also be regulated by State enactments such as Kerala Money Lenders Act, 1958 (Kerala Act) and Gujarat Money Lenders Act, 2011 (Gujarat Act), has arisen for our consideration in these appeals, with the Kerala and Gujarat High Courts taking opposite views.
Fact of the Case:
The legislature of the State of Kerala passed the Kerala Act, 1958, with the professed object of providing for the regulation and control of the business of money lending in the State of Kerala. The Bombay Money Lenders Act, 1946, which was applicable in the State of Gujarat, was sought to be invoked by the Registrar in the office of the Prevention of Money Lenders, against NBFCs operating in the State of Gujarat, in the year 2009. Challenging the action so initiated, NBFCs filed a batch of special civil applications before the High Court of Gujarat.
Finding of the Court:
The scheme of the Kerala Act is to make it obligatory for a money lender to obtain a licence under the Act; to prohibit any person from carrying on or continuing the business of money lending without licence; to prevent money lenders from charging interest at a rate higher than the rate prescribed under the Act; to prevent money lenders from giving any gifts, commissions or presents other than the interest provided in Section 4(2) to any depositor; to enable the debtor to deposit the money due in respect of a loan, into any Court having jurisdiction to entertain a suit for recovery of the loan and to seek the recording of full or part satisfaction of the loan; to make it mandatory for money lenders to keep books of accounts and to give receipts; to issue a pawn ticket, the possession of which will give rise to a presumption that the holder of the pawn ticket has a right to redeem the pledge; to prescribe the procedure for redemption of pledge, sale of pledge and compensation for depreciation of pledge; to appoint inspectors with certain powers of inspection and search; to empower the licensing authority to demand additional security from the money lender, if there is excess of liabilities over the assets of the money lenders at any time; and providing for cancellation of licence, forfeiture of security and imposing penalty for violation of the provisions of the Act.
Issues: Whether Non-Banking Financial Companies (NBFCs) regulated by the Reserve Bank of India, in terms of the provisions of Chapter III-B of the Reserve Bank of India Act, 1934 (RBI Act) could also be regulated by State enactments such as Kerala Money Lenders Act, 1958 (Kerala Act) and Gujarat Money Lenders Act, 2011 (Gujarat Act)?
Ratio Decidendi: Chapter III-B of the RBI Act is a complete code in itself and the power of intervention available for the RBI over NBFCs, is from the cradle to the grave. In other words, no NBFC can carry on business without being registered under the Act and a NBFC which takes birth with the registration under the Act is liable to be wound up at the instance of the RBI. The entire life of a NBFC from the womb to the tomb is also regulated and monitored by RBI. Therefore, the Kerala Act and the Gujarat Act will have no application to NBFCs registered under the RBI Act and regulated by RBI.
Final Decision: All the appeals filed by NBFCs against the judgment of the Kerala High Court are allowed. Likewise the appeals filed by the State of Gujarat against the judgment of the Gujarat high Court are dismissed. As a consequence, Transfer Petition (Crl.) No. 359 of 2015, shall also stand allowed and the First Information Report filed against the officer of the NBFC for violation of the provisions of the Kerala Act shall stand quashed.
JUDGMENT :
V. Ramasubramanian, J.
The question as to whether Non-Banking Financial Companies (for short "NBFCs") regulated by the Reserve Bank of India, in terms of the provisions of Chapter III-B of the Reserve Bank of India Act, 1934 (hereinafter referred to as "RBI Act") could also be regulated by State enactments such as Kerala Money Lenders Act, 1958 (hereinafter referred to as "Kerala Act") and Gujarat Money Lenders Act, 2011 (hereinafter referred to as "Gujarat Act"), has arisen for our consideration in these appeals, with the Kerala and Gujarat High Courts taking opposite views.
2. We have heard the learned counsel for the respective parties, the learned senior counsel appearing for the State of Kerala, the learned standing counsel appearing for the State of Gujarat and the learned counsel appearing for RBI.
FACTUAL MATRIX
3. A brief sojourn into the factual matrix may provide the setting, in the context of which, the above question of law has arisen. It goes as follows:-
KERALA
3.1 The legislature of the State of Kerala passed the Kerala Act, 1958, with the professed object of providing for the regulation and control of the business of money lending in the State of Kerala. The statement of objects and reasons spelt out, that by passing the said enactment, "it was intended to regulate the interest to be charged by money lenders and to provide protection to borrowers". At the time when this Act was enacted, the concept of non-banking financial companies was not very familiar in India. Therefore, the Reserve Bank of India and the Parliament had not stepped in to regulate financial companies which were not banks or banking companies.
3.2 It appears that after the mushroom growth of NBFCs, the Government of Kerala started insisting upon NBFCs to take a license under the Kerala Act, failing which penal consequences were threatened. Therefore, after unsuccessfully approaching the Government of Kerala for exemption, NBFCs filed a batch of writ petitions on the file of the High Court of Kerala.
3.3 A learned Judge of the High Court of Kerala dismissed the batch of writ petitions and the said order was confirmed by the Division Bench of the High Court. Therefore, NBFCs operating in the State of Kerala have come up with the above batch of appeals.
3.4 All the appeals, by the NBFCs operating in the State of Kerala, arise out of writ petitions seeking a declaration that NBFCs registered under the RBI Act will not come within the purview of the Kerala Act. Apart from several appeals, there is also a petition in Transfer Petition (Crl.) No.359 of 2015, filed by the Chief Executive Officer of one NBFC by name Bajaj Finance Limited, seeking a transfer of the quash petition pending on the file of the High Court of Kerala under Section 482 of the Code of Criminal Procedure praying for quashing an FIR registered under the Kerala Act.
GUJARAT
3.5 The Bombay Money Lenders Act, 1946, which was applicable in the State of Gujarat, was sought to be invoked by the Registrar in the office of the Prevention of Money Lenders, against NBFCs operating in the State of Gujarat, in the year 2009. Challenging the action so initiated, NBFCs filed a batch of special civil applications before the High Court of Gujarat. When it was pending, the decision of the Kerala High Court came. But disagreeing with the view taken by the Kerala High Court, a learned Judge of the Gujarat High Court quashed the notices issued to the NBFCs under the Bombay Money Lenders Act, by a judgment dated 13.01.2010.
3.6 Thereafter, the legislature of the State of Gujarat passed the Gujarat Act, 2011 (Gujarat Act 14 of 2011) which received the assent of the Governor on 6.04.2011 and was published in the Gujarat Government Gazette on 8.04.2011.
3.7 Therefore, a fresh batch of special civil applications were filed, seeking a declaration that the provisions of the Gujarat Act 14 of 2011 are not
Chapter III-B of the RBI Act is a complete code in itself and the power of intervention available for the RBI over NBFCs, is from the cradle to the grave.
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