RBI Cannot Deny NBFC Surrender of Registration Without Hearing: Calcutta HC Quashes Rejection Order [Read Order]

In a recent ruling, the Calcutta High Court held that the Reserve Bank of India cannot reject an application for voluntary surrender of an NBFC’s Certificate of Registration without granting the company an opportunity of hearing and any such rejection would be invalid for violation of principles of natural justice.

J. Thomas Finance Private Limited, the petitioner, filed a writ petition challenging the rejection of its application for voluntary surrender of its Certificate of Registration as a Non-Banking Financial Company.

The petitioner company was registered as an NBFC since 1998. In 2024, its Board of Directors decided that continuing the NBFC business was not commercially feasible due to low profitability and high compliance costs, and resolved to surrender its registration. The petitioner accordingly applied for voluntary surrender on 18 March 2025.

The RBI had earlier informed the petitioner that it had failed to meet the minimum Net Owned Fund requirement and called upon it to comply, failing which regulatory action would follow. Despite this, the petitioner proceeded with its application for surrender.

TheRBI rejected the application, and the petitioner came to know of this rejection through an email dated 4 July 2025. The reason given was that the petitioner continued to satisfy the Principal Business Criteria, meaning that its financial assets and financial income exceeded the prescribed thresholds.

The petitioner’s counsel argued that under Section 45-IA(6)(i) of the RBI Act, the registration must be cancelled if the company ceases to carry on NBFC business. They further argued that the petitioner had already decided to exit the business and that the RBI’s refusal amounted to unlawful interference with its right to carry on business. The petitioner also argued that no opportunity of hearing was given before rejecting the application, which violated principles of natural justice.

The RBI’s counsel argued that as long as the company satisfied the twin conditions of the Principal Business Criteria, it continued to be an NBFC and was required to hold a valid Certificate of Registration. The counsel argued that voluntary surrender could not be permitted unless the company ceased to meet these conditions.

During the proceedings, the Court directed the RBI to clarify whether the petitioner could reduce its Principal Business Criteria without violating the conditions of its registration. The RBI explained that such reduction was permissible and could be achieved by liquidating financial assets or restructuring the asset composition of the company.

Based on this clarification, the petitioner reduced its financial assets and submitted a Chartered Accountant’s certificate showing that it no longer satisfied the Principal Business Criteria, and requested reconsideration of its application.

Justice Krishna Rao observed that the RBI had rejected the application solely on the ground that the petitioner satisfied the Principal Business Criteria at the relevant time, but had not given any opportunity of hearing to the petitioner before doing so. The court also observed that the RBI had not issued any notice guiding the petitioner on how to proceed with surrender.

The court held that the rejection of the petitioner’s application without granting an opportunity of hearing was not sustainable in law. It found that the decision-making process suffered from procedural unfairness.

The court set aside and quashed the impugned communication dated 4 July 2025 and directed the RBI to reconsider the petitioner’s application afresh along with the subsequent materials submitted by the petitioner, after granting an opportunity of hearing and by passing a reasoned order within four weeks.

The writ petition was disposed of accordingly.

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