Money Lenders Act not binding on all NBFCs: SC

The Kerala High Court asked banks to go soft on students seeking loan while the apex court was lenient towards a set of NBFCs

Published: 11th May 2022 06:34 AM  |   Last Updated: 11th May 2022 06:34 AM   |  A+A-

Supreme Court

Supreme Court. (Photo| Shekhar Yadav, EPS)

By Express News Service

THIRUVANANTHAPURAM: The Kerala Money Lenders Act, 1958 is not applicable to non-banking finance corporations (NBFC) registered under the RBI Act and regulated by the Reserve Bank, the Supreme Court has ruled.In an order issued on Tuesday, a bench comprising Justice V Ramasubramanian and Justice Hemant Gupta said: “We are of the considered opinion that the Kerala Act and the Gujarat Act will have no application to NBFCs registered under the RBI Act and regulated by RBI.”  

All aspects of NBFCs are regulated by RBI, observes Supreme Court

The SC allowed a batch of appeals filed by Kerala Non-Banking Finance Companies Welfare Association and a few NBFCs challenging the Kerala High Court order that Money Lenders Act would be applicable to all NBFCs. The court also considered an appeal filed by Gujarat against an order by that state’s HC that Gujarat Money Lenders Act wouldn’t be binding on NBFCs and dismissed that.

The Kerala Government had earlier directed the NBFCs to obtain licence under the Kerala Money Lenders Act, 1958 which was challenged before the High Court. The HC dismissed a plea by the NBFCs, prompting them to file an appeal in the SC. The Kerala assembly passed the Money Lenders Act, 1958 for the regulation and control of the business of money lending. 

The SC, after examining provisions of the state acts and the RBI (amendment) act, observed that Chapter IIIB of the RBI Act provides a supervisory role for the RBI to oversee the functioning of the NBFCs.

“From the time of their birth till the time of their commercial death, all activities of NBFCs automatically come under the scanner of RBI. Since the regulations issued by RBI are binding on NBFCs, it is clear from the above that all aspects of NBFCs are regulated by RBI and nothing is left untouched,” the order said.

Lawyer R K Nair, who represented the NBFCs at the SC said, “The above ruling settles the long-standing question regarding the applicability of state Money Lenders legislations to the Reserve Bank governed NBFCs. The SC has clarified that consequent to this order, the Money Lenders Acts of the other states shall also have no application on such NBFCs.”


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