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Issues: (i) Whether non-banking financial companies registered and regulated under Chapter IIIB of the Reserve Bank of India Act, 1934 can also be subjected to State money-lending enactments such as the Kerala Money Lenders Act, 1958 and the Gujarat Money Lenders Act, 2011. (ii) Whether Chapter IIIB of the Reserve Bank of India Act, 1934 operates as a complete and overriding code for regulation of NBFCs, excluding State control over their lending business.
Issue (i): Whether non-banking financial companies registered and regulated under Chapter IIIB of the Reserve Bank of India Act, 1934 can also be subjected to State money-lending enactments such as the Kerala Money Lenders Act, 1958 and the Gujarat Money Lenders Act, 2011.
Analysis: The field of incorporation and regulation of financial corporations falls within the Union List, while money lending and money lenders fall within the State List. The State enactments were framed to regulate money lending and protect borrowers, but the Reserve Bank of India Act, 1934, through Chapter IIIB, establishes a comprehensive regime for registration, prudential control, directions, information gathering, inspection, and winding up of NBFCs. Once NBFCs are brought under that central regime, the State laws cannot operate so as to subject the same class of entities to a parallel and inconsistent regulatory control.
Conclusion: The State money-lending enactments do not apply to NBFCs registered under the Reserve Bank of India Act, 1934 and regulated by the Reserve Bank of India.
Issue (ii): Whether Chapter IIIB of the Reserve Bank of India Act, 1934 operates as a complete and overriding code for regulation of NBFCs, excluding State control over their lending business.
Analysis: Chapter IIIB contains a full regulatory structure governing the existence and functioning of NBFCs, including registration, policy directions, information requirements, inspection, reserves, exemptions, and winding up, and it expressly gives overriding effect over inconsistent laws. The statutory scheme shows that RBI control extends across the life cycle of an NBFC and occupies the field of its regulation. Because the central enactment is exhaustive and self-contained, State provisions that seek to regulate the same operational field of NBFC lending cannot survive.
Conclusion: Chapter IIIB is a complete and overriding code for NBFC regulation, and State control in the same field is excluded.
Final Conclusion: The appeals by the NBFCs succeed, the State appeals fail, and the impugned State-law control over NBFCs registered with the Reserve Bank of India cannot be sustained.
Ratio Decidendi: Where Parliament has enacted a complete and overriding regulatory code for NBFCs under the Union List, State money-lending laws cannot apply to those NBFCs in the same field of regulation.
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