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Public Interest Prevails: Overturns Stay Allowing NBFC Operations Despite RBI Cancellation
A Division Bench of the has set aside an interim order that permitted , a non-deposit-taking Non-Banking Financial Company (NBFC), to continue its lending business after the cancelled its Certificate of Registration (CoR). The bench, comprising Chief Justice Devendra Kumar Upadhyaya and Justice Tejas Karia, held that the Single Judge had failed to adequately weigh the larger public interest and the regulator's expert findings before granting the .
Regulator vs. NBFC: A Timeline of Events
Reliant Credits, registered in Kerala, had held a CoR from RBI since 2001. Following a statutory inspection in that allegedly revealed material violations, RBI issued a in proposing cancellation of the CoR. The company admitted several deficiencies in its compliance responses. After a personal hearing, RBI’s Executive Director cancelled the CoR in , citing regulatory non-compliance and concluding that the general character of the company's management was prejudicial to public interest.
The NBFC’s before the Appellate Authority was dismissed in . The company then moved the by way of a . Although a Vacation Bench initially declined interim relief, a Single Judge on , stayed the cancellation and appellate orders insofar as they restrained the company from carrying on its NBFC business. Aggrieved, RBI appealed to the Division Bench.
Arguments Before the Division Bench
Senior Counsel for RBI argued that the interim order effectively restored the cancelled CoR and granted the final relief sought in the at an interlocutory stage. They contended that the Single Judge had not considered the regulatory findings, the public-interest implications, or the risks to customers and the financial system. RBI also maintained that the company’s claim of rectification was disputed and required examination after filing of a counter affidavit.
On behalf of Reliant Credits, Senior Counsel submitted that the appeal was not maintainable as the interim order was purely ad interim and did not constitute a "judgment" under the . Without prejudice, they argued that cancellation was disproportionate, that defaults had been rectified, and that enforcing the cancellation would bring the company’s business to a standstill, affecting over 600 employees and 122 branches.
Court's Reasoning: Public Interest Trumps Corporate Hardship
The Division Bench held that the Single Judge's order did not disclose any consideration of RBI's submissions or the concurrent findings in the cancellation and appellate orders. Critically, the court observed that the cancellation order had recorded that the management's character was prejudicial to public interest, yet the interim order only considered the hardship alleged by the NBFC.
“ The Impugned Order has not examined this aspect of public interest while granting and only considered the hardship alleged by Respondent No. 1 ,” the Bench noted.
The court emphasized that interim relief requires a strong case, , and . It found that the squarely favored RBI, given the public interest findings. The Bench also stressed that courts must accord due deference to sectoral regulators like RBI, which possess specialized expertise.
“ Generally, the Courts must accord due deference to the determinations of sectoral regulators such as RBI, which possess specialised expertise, discharge statutory mandates, and remain continuously engaged with the complexities of the sectors under their supervision ,” the judgment stated.
Addressing maintainability, the court rejected the NBFC's objection, relying on Union of India v. Delhi Race Club (1940) Ltd. (2026 SCC OnLine Del 4127) to hold that the interim order bore the “ ” because it effectively granted the substantive relief sought in the by allowing the NBFC to resume business despite the cancellation.
Key Observations
The Division Bench further observed that the NBFC had acknowledged the existence of defaults, and that the cancellation and appellate orders had specifically found the company's management prejudicial to public interest. The court noted that the NBFC would not suffer irreparable prejudice because it remained free to conduct day-to-day banking transactions and recover existing loans—only the disbursal of fresh loans was restrained.
Final Verdict and Implications
The appeal was allowed, and the Single Judge's interim order was set aside insofar as it permitted the NBFC to carry on NBFI business. The Division Bench clarified that it had expressed no opinion on the merits of the , including the issues of rectification, proportionality, or territorial jurisdiction, leaving all contentions open for the Single Judge to adjudicate. The court requested the Single Judge to decide the pending interim relief application at the earliest.
The ruling reinforces the principle that interim relief must be grounded in a careful balancing of competing interests, with public interest and weighing heavily against corporate hardship where the regulator has made adverse findings.
