Appealing the Cancellation of NBFC Registration

Introduction

Cancellation of the registration of an NBFC is believed to have serious adverse implications for the financial institution. It has tremendous operational disruption, reputational damage, and financial losses. In case a notice of cancellation is received from RBI, the first step is to understand what options are available and appeal the same immediately.

Reasons for Registration Cancellation

Study the cancellation reasons announced by RBI in advance before filing an appeal. The cancellation reason is mostly for any of the following:

•Non-adherence to RBI guidelines: Where a bank has failed to adhere to the RBI norms, the registration may be cancelled.

•Financial Irregularities: Fraud, misappropriation, etc., can be known as financial irregularities and may further lead to cancellation.

•Functional inefficiencies: Repeated functional inefficiencies or failure to attain performance standards may result in cancellation.

•Public interest: The RBI can cancel an NBFC’s registration on public interest.

Also Read: Understanding the Regulatory Differences: NBFCs vs. Nidhi Companies

Grounds For Appeal

Depending on the grounds of cancellation, you will determine whether you have a valid reason for an appeal. Some common reasons for an appeal include the following:

• There are mistakes or omission in the cancellation order: You might have a case if the RBI has erred or made some omissions in their decision.

• The RBI has violated natural justice: If the RBI has not followed the principle of natural justice by not giving you an opportunity to be heard or did not give due consideration to your representations you can appeal.

•Unproportionate penalty: In case the amount of penalty by RBI is felt to be unfair or disproportionate to the violation, it may be appealed for an order.

•Change in circumstances: In case there is a substantial change of circumstances from when the cancellation order was served, it may be possible to appeal the decision that the change in circumstances justifies no longer permitting the decision.

Drafting the Appeal

Appealing at RBI requires careful attention, and gathering and document evidence is a significant part of it. Some of the key steps are as follows:

1.Collect evidence: Collect all relevant documents and evidence supporting your appeal. Such evidence may contain copies of correspondence with the RBI, financial statements, amongst other relevant information.

2.Seek advice from legal experts: Discuss your matter with legal experts who specialize in financial regulatory matters to know their rights and get a very effective appeal.

3.Write detailed appeal letter: Put a well-written appeal letter before the court articulating the grounds of appeal and proofs that you have.

4.File Appeal: file the appeal with the RBI within the given time frame.

Also Read: Risk Assessment and Mitigation: A Strategic Approach to NBFC Due Diligence

The Appeals Procedure

The RBI may possibly admit your appeal and either confirm or reverse the cancellation order passed by the authorities. If appeal is rejected you can submit further appeal before another higher authority or seek redress in a court of law.

Tips for Successful Appeal

•Act prompt: Not to waste any time since there might be a limitation period.

 • Counter the RBI’s reasons by mentioning RBI’s reasons for cancellation directly and showing how they are overcome or mitigated

• The grounds for appealing and all the evidence made as clear as possible

 • Lawyers be consulted: particularly those whose expert advice covers financial regulation, so the appeal is properly prepared and presented.

Compliance steps should be taken prior to filing a formal appeal. It would be best for ADR mechanisms such as mediation or arbitration to be explored first. Such processes may even be less formal and more efficient in resolving disputes and help in saving time than what often follows in protracted legal procedures.

Public Relations and Reputation Management

An NBFC registration cancellation can seriously and adversely affect the reputation of the NBFC. A public relations strategy must be developed to mitigate damage to one’s reputation while retaining customer, investor, and other stakeholder relationships.

Impact on Business Operations

Cancellation of an NBFC registration will have some serious and disastrous effects on its business operations, including:

•Disruption of Services: The NBFC might be forced to stop the services or seriously decrease its operations.

•Financial Losses: The cancellation may lead to losses like losing customers, income, and assets.

•Damage to Reputation: The cancellation will probably damage the reputation of the NBFC and attract very little new business. Future Courses of Action

If your appeal is rejected then you might need to explore alternative courses of action such as

•Re-registration of License: There is a possibility that if the ground for cancellation has been addressed, you may be allowed to reapply for the NBFC registration at the end of a specific period.

•Liquidation: Sometimes: liquidation can be the only option.

•Form of Business: You can even opt for changing the form of NBFC into some other form of business organization, say LLP or a company limited by shares.

Conclusion

Appeal for cancellation of the registration of an NBFC is an elaborate process that involves much thought and preparation. Ground for appeal may be understood, evidence may be collected, and then possibly legal advice sought to improve one’s chances of success. It’s very important to take action in time, as per prescribed procedure, so that avoidable delays or penalties don’t occur.