Calcutta High Court
J. Thomas Finance Private Limited & Anr vs Reserve Bank Of India & Ors on 20 April, 2026
IN THE HIGH COURT AT CALCUTTA
(Constitutional Writ Jurisdiction)
ORIGINAL SIDE
Present:
The Hon'ble Justice Krishna Rao
W.P.O. No. 642 of 2025
J. Thomas Finance Private Limited & Anr.
Vs.
Reserve Bank of India & Ors.
Mr. Ratnanko Banerji, Sr. Adv.
Mr. Rabindra K. Mitra
Mr. Siddharth Sharma
Mr. Rishav Dutt
Ms. Patrali Ganguli
....For the petitioners.
Mr. Aman Agarwal
Mr. Debabrata Das
Mr. A. Sarkar
Mr. Pratik Acharjee
....For the RBI.
Hearing Concluded On : 08.04.2026
Judgment on : 20.04.2026
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Krishna Rao, J.:
1. The petitioners have filed the present writ petition challenging the email
dated 4th July, 2025, issued by the respondent no.3 by rejecting the
application filed by the petitioners for Voluntary Surrender of
Certificate of Registration of Non-Banking Financial Company, herein
after referred to as “NBFC”.
2. The petitioner no. 1 is a NBFC operating as Non-Deposit Taking
Company. The Reserve Bank of India has granted Certificate of
Registration being No. 05.00378 dated 26th February, 1998, in the
name of the petitioner no.1. In the year 2024, the Board of Directors of
the petitioner no.1 took a decision that it was no longer commercially
feasible for the petitioner no.1 to continue operating the business of
NBFC as the petitioner no.1 is unable to make good profits from
running its NBFC business and was incurring substantial expenditures
to comply with the various statutory compliances that are mandatory
for an NBFC company, accordingly, the management of the petitioner
no.1 decided to discontinue the NBFC business and took a decision to
surrender the original Certificate of Registration to the respondent no.1.
3. By an email dated 18th February, 2025, the respondent no.1 informed
the petitioner no.1 regarding the requirement of achieving the
minimum Net Owned Fund of Rs. 5,00,00,000/- (Rupees Five Crores
Only) by 31st March, 2025 and Rs. 10,00,00,000/- (Rupees Ten Crores)
by 31st March, 2027. The respondent no.1 specifically noted that as per
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returns submitted by the petitioner no.1 for the financial year ending
31st March, 2024, the petitioner no.1’s Net Owned Fund stood at Rs.
2,66,47,000/- (Rupees Two Crores Sixty Six Lakhs Forty Seven
Thousand Only), which was below the prescribed limit i.e.
5,00,00,000/-. It was also informed to the petitioner no.1 to ensure
compliance with the minimum Net Owned Fund requirement within the
stipulated timeline, failing which regulatory action would be taken
against the petitioner no.1.
4. On 28th February, 2025, the Board of Directors of the petitioner no.1
had convened a meeting and the Board of Directors with the majority
approved the proposal to surrender the petitioners’ original Certificate
of Registration to the respondent no.1. On the basis of the decision
taken by the Board of Directors of the petitioner no.1, on 18th March,
2025, the petitioners have filed an application for Voluntary Surrender
of its Certificate of Registration as an NBFC.
5. The respondent no.1 had issued a notice to the petitioners on 30th May,
2025, on the allegation of non-compliance and directed the petitioners
to furnish comments/explanation for not maintaining the required Net
Owned Fund position. The petitioners have submitted its reply on 6th
June, 2025, informing that the petitioner no.1 had already submitted
an application for surrender of the NBFC registration and the same is
pending for confirmation and requested the respondent no. 1 to
consider the application filed by the petitioners. The petitioner no.1 also
submitted a detailed letter enclosing copy of Audited Financial
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Statement for the year ending 31st March, 2025, Statutory Auditor’s
Certificate, Certificate of Net Owned Fund, Non-Banking Financial
Companies Auditors’ Certificate as per requirements.
6. On 23rd April, 2025, the respondent no.1 had rejected the application
filed by the petitioner no.1 for surrender of NBFC Certificate of
registration which the petitioner came to know on 4th July, 2025. The
reason assigned for rejection of the application was “maintaining
Principal Business Criteria (hereinafter referred to as “PBC”) as on 31st
December, 2024″.
7. Mr. Ratnanko Banerji, Learned Senior Advocate representing the
petitioners submits that the respondents under Section 45-IA(6)(i) of
the Reserve Bank of India Act, 1934, has a duty and obligation to
cancel the registration if an NBFC company “ceases to carry on the
business of a non-banking financial institution in India”.
8. Mr. Banerji submits that a non-banking financial company has
financial assets more than 50% of its total assets and income from
financial assets more than 50% of the gross income as per paragraph 2
of the Reserve Bank of India’s Circular dated 19th October, 2006. He
submits that the financial assets held by the petitioner no.1 are
surplus funds parked in market-linked investments such as mutual
funds and therefore, the purpose and objective of the said Circular is
not applicable.
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9. Mr. Banerji submits that the petitioner has submitted a detailed
representation with the request for grant of personal hearing as under
the Second Proviso of Section 45-IA(6) of the Reserve Bank of India Act,
1934 which mandates that in the event of cancellation under Sub-
Section (6) of Section 45-IA of the Reserve Bank of India Act, 1934, a
“reasonable opportunity of hearing” shall be given to the company
before making an order of cancellation but in the case of the
petitioners, no opportunity of hearing was provided to the petitioners.
10. Mr. Banerji submits that the action of the respondent authorities by
rejecting the application of the petitioner no.1 amounts to an
unauthorized and unlawful interference with the business operation of
the petitioners and is in direct violation of their fundamental right
guaranteed to carry on business under Article 19(1)(g) of the
Constitution of India, 1950. In support of his case, he has relied upon
the judgment in the case of Harinagar Sugar Mills Ltd. (Biscuit
Division) and Another Vs. State of Maharashtra and Others
reported in 2025 SCC OnLine SC 1303.
11. Mr. Aman Agarwal, Learned Advocate representing the respondents
submits that if a company’s financial assets to total assets (net of
intangibles) and financial income to total income, are more than 50%,
i.e. if it is meeting the twin condition of Principal Business Criteria
(PBC), it would be identified as an NBFC. Accordingly, a company
would be required to hold a Certificate of Registration from the Reserve
Bank so long it is meeting twin condition of PBC.
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12. Mr. Agarwal submits that the Reserve Bank of India may cancel the
Certificate of Registration of an NBFC on account of voluntary
surrender in terms of Section 45-IA(6)(i) of the Reserve Bank of India
Act, 1934, if the NBFC ceases to carry on the business of a non-
banking financial institution i.e. not meeting the twin condition of PBC.
He further submits that as long as the NBFC meets the PBC, voluntary
cancellation of Certificate of Registration cannot be permitted.
13. The Reserve Bank of India rejected the application of the petitioner for
surrendering the Certificate of Registration of NBFC of the petitioner
no.1 on the ground that the petitioner company was meeting the PBC
as on 31st December, 2024, as per the Statutory Auditor’s certificate
dated 25th March, 2025. Section 45-IA(6)(i) of the Reserve Bank of India
provides that “The Bank may cancel a certificate of registration granted
to a non-banking financial company under this section if such company:
(i) Ceases to carry on the business of a non-banking financial institution
in India or…..”
14. The petitioners were apprehending that if the petitioners of their own,
reduces the PBC, it will be the violation of the terms and conditions of
the license granted to the petitioners. By an order dated 13th January,
2026, this Court directed the respondent no.1 to address the issue, if
the petitioners reduces PBC of their own, whether it will be violation of
the terms and conditions of the Certificate of Registration and how the
quantum of PBC can be reduced so as to enable the respondents to
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take appropriate decision for allowing the petitioners to surrender the
Certificate of Registration.
15. It is admitted by the respondent no.1 that for the purpose of voluntary
cancellation, reducing the PBC to less than 50% while holding the
Certificate of Registration will not conflict with the terms and conditions
of the Certificate of Registration. It was also informed by the respondent
no.1 that (i) the quantum of PBC may be reduced by liquidation of
financial assets (investments in equities or mutual funds or other
investments of alike nature) and by deploying the proceeds thereof into
the proposed new non NBFI business which would lead to decrease in
financial assets to less than 50% of the total assets. (ii) By increase in
total assets of the company with corresponding reduction in financial
assets and (iii) by reduction of FI/TI to below 50%.
16. The petitioners taking into consideration of the stand of the respondent
no.1 reduced its Principal Business Criteria (PBC) below 50% and
shown the percentage of Financial Assets to Total Assets as 0.81% and
percentage of Financial Income to Gross Income shown as 99.99% in
the balance sheet dated 20th February, 2026.
17. After reducing the PBC below 50%, the petitioners have forwarded the
Chartered Accountant Certificate dated 20th February, 2026 to the
respondent no.1 on 17th March, 2026, with the request for issuance of
direction for voluntary surrender of Certificate of Registration.
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18. As per Press Release: 1998-99/1269 dated 8th April, 1999, the Reserve
Bank of India to consider the gross assets and the gross income for
identification of principal business of an NBFC which reads as follows:
“The Reserve Bank of India today announced
that in order to identify a particular company as a
non-banking financial company (NBFC), it will
consider both, the assets and the income pattern as
evidence from the last audited balance sheet of the
company to decide its principal business. The
company will be treated as an NBFC if its financial
assets are more than 50 per cent of its total assets
(netted off by intangible assets) and income from
financial assets should be more than 50 per cent of
the gross income. Both these tests are required to
be satisfied as the determinant factor for principal
business of a company.”
19. The request of the petitioners for cancellation of Certificate of
Registration as an NBFC was rejected only on the ground of not
meeting the twin conditions of PBC. Now the petitioners have complied
with twin conditions of the PBC by reducing the Financial Assets to
Total Assets as 0.81% and percentage of Financial Income to Gross
Income is 99.99%.
20. At the time of rejection of the application of the petitioners, dated 4th
July, 2025, the respondent no.1 has neither issued any notice for
reduction of twin condition of PBC nor any opportunity was given to the
petitioners.
21. Considering the above, the impugned communication dated 4th July,
2025, is set aside and quashed. The respondents are directed to
consider the request of the petitioners dated 18th March, 2025, afresh
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along with the communication dated 17th March, 2026 and the
enclosures thereto and to pass a reasoned and speaking order after
giving an opportunity of hearing to the petitioners within four (4) weeks
from the date of communication of this order.
22. WPO No. 642 of 2025 is disposed of.
(Krishna Rao, J.)