Net owned fund computation for NBFCs must follow statutory deductions, and registration may be cancelled for non-compliance without fresh cure time.

For an NBFC, net owned fund under Explanation I to Section 45-IA must be computed by deducting investments in shares and the book value of debentures, bonds, outstanding loans and advances made to subsidiaries and group companies, to the extent specified by the statute. The master circular relied on by the petitioner was confined to exposure norms for specified financial institutions and did not govern this computation. The court also held that cancellation of the certificate of registration did not require a further opportunity to cure the shortfall, because the petitioner had already been given time to comply with regulatory directions and the proviso invoked was inapplicable where cancellation followed non-compliance under Chapter III-B.

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Issues: (i) Whether the petitioner's net owned fund was to be computed by excluding loans and advances made to group companies under the Reserve Bank of India Act, 1934, or by applying the master circular relied upon by the petitioner. (ii) Whether cancellation of the certificate of registration required a further opportunity to make good the shortfall in net owned fund.

Issue (i): Whether the petitioner's net owned fund was to be computed by excluding loans and advances made to group companies under the Reserve Bank of India Act, 1934, or by applying the master circular relied upon by the petitioner.

Analysis: The definition of net owned fund under Explanation I to Section 45-IA requires deductions from owned funds for investments in shares and for the book value of debentures, bonds, outstanding loans and advances made to subsidiaries and companies in the same group, to the extent the amount exceeds ten per cent of owned funds. The master circular relied upon by the petitioner was meant for exposure norms applicable to specified all India financial institutions and did not govern computation of net owned fund for the petitioner as an NBFC. The Reserve Bank therefore correctly computed the net owned fund by deducting the relevant investments and advances.

Conclusion: The computation made by the Reserve Bank was upheld and the petitioner's challenge on this ground failed.

Issue (ii): Whether cancellation of the certificate of registration required a further opportunity to make good the shortfall in net owned fund.

Analysis: The certificate was cancelled because the petitioner failed to comply with the directions issued under Chapter III-B of the Reserve Bank of India Act, 1934, including the requirement to maintain the prescribed net owned fund within the stipulated time. The proviso relied upon by the petitioner was held inapplicable where cancellation proceeded on the footing of non-compliance with directions under clause (iv) of sub-section (6). The petitioner had already been given sufficient time by the regulatory notification to meet the requirement, and the shortfall could not be cured years later.

Conclusion: No further opportunity was required before cancellation of the certificate of registration.

Final Conclusion: The regulatory action cancelling the certificate of registration was sustained, and the writ petition was rejected.

Ratio Decidendi: For an NBFC, net owned fund must be computed strictly in accordance with Section 45-IA of the Reserve Bank of India Act, 1934, and a certificate of registration may be cancelled for failure to comply with regulatory directions without extending a further opportunity where the statutory proviso is inapplicable.

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