THIRUVANANTHAPURAM: The Kerala Money Lenders Act 1958 is not applicable to Non-Banking Financial Companies (NBFCs) registered under the RBI Act and regulated by the Reserve Bank, the Supreme Court has ruled. In an order issued on Tuesday, a bench consisting of Justices V Ramasubramanian and Justice Hemant Gupta said: “We are of the view that Kerala law and Gujarat law will not apply to NBFCs registered under the RBI and regulated by the RBI.”
All aspects of NBFCs regulated by RBI, Supreme Court observes
The SC cleared a batch of appeals filed by the Kerala Non-Banking Finance Companies Welfare Association and a few NBFCs challenging the Kerala High Court’s order that the Money Lenders Act would apply to all NBFCs . The court also considered an appeal filed by Gujarat against an order by that state’s HC that the Gujarat Money Lenders Act would not be binding on NBFCs and dismissed it.
The Kerala government had previously ordered NBFCs to obtain a license under the Kerala Money Lenders Act 1958, which was challenged in the High Court. The HC rejected a plea from the NBFCs, prompting them to file an appeal with the CS. The Kerala Assembly passed the Money Lenders Act 1958 for the regulation and control of money lending activities.
The SC, after reviewing the provisions of the State laws and the RBI (Amendment) Act, observed that Chapter IIIB of the RBI Act provides the RBI with a supervisory role to oversee the operation of the NBFCs.
“From inception to commercial death, all NBFC activities automatically fall under the RBI scanner. 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 reads.
Attorney RK Nair, who represented NBFCs at the SC, said: “The above decision resolves the long-standing question regarding the applicability of state moneylender laws to Reserve Bank-governed NBFCs. . The SC clarified that as a result of this order, money lender laws of other states will also not apply to these NBFCs.