RBI supremacy over NBFC regulation bars State money-lending laws from applying to RBI-registered NBFCs.

The RBI Act, 1934 was treated as a comprehensive supervisory code for RBI-regulated NBFCs, covering the field from registration to winding up. On that basis, and in light of the overriding effect of Section 45-Q and prior Supreme Court authority on materially similar State laws, the Telangana HC concluded that State micro finance and money-lending enactments cannot operate against RBI-registered NBFCs in that field. The Court accepted the constitutional validity challenge to the State enactments only in principle, but granted a declaration that those enactments do not apply to RBI-regulated NBFCs.

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Issues: Whether non-banking financial companies registered with and regulated by the Reserve Bank of India are governed by the State micro finance and money-lending enactments, and whether those enactments can be applied to such entities.

Analysis: The State enactments were examined against the backdrop of Chapter III-B of the Reserve Bank of India Act, 1934, and the earlier Supreme Court ruling on materially similar State laws. It was held that the RBI framework provides a comprehensive supervisory regime over NBFCs from registration to winding up, and that the protection of borrowers sought to be achieved by the State laws stands subsumed within that central regime. The Court also noted that Section 45-Q of the Reserve Bank of India Act, 1934 gives overriding effect to Chapter III-B and that the State enactments are pari materia to the laws already held inapplicable to RBI-regulated NBFCs.

Conclusion: NBFCs registered with the RBI and regulated under the Reserve Bank of India Act, 1934 are excluded from the operation of the State enactments.

Final Conclusion: The constitutional challenge to the State enactments was not accepted, but the petitioners obtained a declaration that those enactments do not apply to RBI-regulated NBFCs.

Ratio Decidendi: Where a central regulatory code under the Reserve Bank of India Act, 1934 comprehensively governs NBFCs and contains an overriding provision, State money-lending laws cannot be applied to RBI-regulated NBFCs to the extent of that field.

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