Natural justice and net owned fund compliance under RBI registration rules upheld against challenge

A fair opportunity to be heard under the Reserve Bank of India Act was held to be satisfied by a written show-cause notice and written reply, where the petitioner did not seek an oral hearing; the cancellation of registration was therefore not vitiated for breach of natural justice. The court also held that net owned fund must be computed strictly under the statutory formula, and total asset value alone cannot establish compliance. On the record, the petitioner failed to show that the required net owned fund threshold was met, so the challenge failed and the cancellation of registration was upheld.

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Issues: (i) whether the order cancelling the certificate of registration was vitiated for want of an oral hearing and breach of natural justice under Section 45-IA(6) of the Reserve Bank of India Act, 1934; (ii) whether the petitioner satisfied the statutory net owned fund requirement under Section 45-IA(7) of the Reserve Bank of India Act, 1934.

Issue (i): whether the order cancelling the certificate of registration was vitiated for want of an oral hearing and breach of natural justice under Section 45-IA(6) of the Reserve Bank of India Act, 1934.

Analysis: The statutory proviso requires a reasonable opportunity of being heard before cancellation of registration, but this does not invariably mean an oral hearing at every stage. A written show-cause notice and a written reply may satisfy natural justice where the authority considers the representation fairly and the delinquent does not seek an oral hearing. On the facts, the petitioner had notice, replied in writing, and did not request oral hearing.

Conclusion: The cancellation order was not vitiated by breach of natural justice, and the contention was rejected.

Issue (ii): whether the petitioner satisfied the statutory net owned fund requirement under Section 45-IA(7) of the Reserve Bank of India Act, 1934.

Analysis: Net owned fund must be determined in the manner prescribed by the statutory formula. The total value of assets by itself cannot be treated as the net owned fund. The material on record did not show that the petitioner's net owned fund, computed in accordance with the statutory formula, exceeded the required threshold of Rs. 200 lakhs as on 31 March 2017.

Conclusion: The petitioner failed to establish compliance with the net owned fund requirement, and this contention was rejected.

Final Conclusion: The cancellation of registration was upheld, and the writ petition was dismissed.

Ratio Decidendi: A statutory requirement of a reasonable opportunity of being heard is satisfied by a fair opportunity to submit a written representation unless the statute or the circumstances require an oral hearing, and compliance with the net owned fund threshold must be assessed strictly according to the statutory formula.

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