Section Section 2
of the Industrial Development Bank of India Act; 1964 (18 of 1964);] ~firm" mean
section 2 of the Industrial Development Bank of India Act; 1964 (18 of 1964);] ~firm" means a firm as defined in the Indian Partnership Act; 1932 (9 of 1932) 2***= (e) non-banking institution" means a company, corporation [or co-operative society]; '[Cf) ~non-banking financial company' means financial institution which is a company; (ii) non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme O arrangement O in any other manner, Or lending in any manner; (iii) such other non-banking institution Or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify:] [45-IA. Requirement of registration and net owned fund.-(1) Notwithstanding anything contained in this Chapter o in any other law for the time being in force, no non-banking financial company shall commence or carry on the business of a non-banking financial institution without (a) obtaining a certificate of registration issued under this Chapter; and S[(b) having the net owned fund of twenty-five lakh rupees O such other amount; not exceeding hundred crore rupees, as the Bank may, by notification in the Official Gazette, specify: Provided that the Bank may notify different amounts of net owned fund for different categories of non-banking financial companies.] (2) Every non-banking financial company shall make an application for registration to the Bank in such form as the Bank may specify: Provided that a non-banking financial company in existence on the commencement of the Reserve Bank of India (Amendment) Act; 1997 (23 of 1997) shall make an application for registration to the Bank before the expiry of six months from such commencement and notwithstanding anything contained in sub-section (1) may continue to carry on the business of a non-banking financial institution until certificate of registration is issued to it Or rejection of application for registration is communicated to it: (3) Notwithstanding anything contained in sub-section (1), non-banking financial company in existence 0n the commencement of the Reserve Bank of India (Amendment) Act; 1997 (23 of 1997) and having a net owned fund of less than twenty-five lakh rupees may, for the purpose of enabling such company to fulfil the requirement of the net owned fund, continue to carry on the business of non- banking financial institution for a period of there years from such commencement; or (ii) for such further period as the Bank may, after recording the reasons in writing for So doing; extend, subject to the condition that such company shall, within three months of fulfilling the requirement of the net owned fund, inform the Bank about such fulfillment:
Ins. by Act 23 of 1997 S.2 (w.e.f: 9-1-1997) 2 The words of which the capital subscribed by its partners exceeds one lakh of rupees" omitted by Act of 1984, (w.e.f: 15-2-1984) 3_ Subs: by s. 9, ibid , for co-operative society Or firm" (W.e.f 15-2-1984). 4. Ins by Act 23 of 1997 s. 3 (w.e.f: 9-1-1997)- 5. Subs. by Act 23 of 2019, 137, for clause (b) (w.e.f: 9-8-2019)
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Provided that the period allowed to continue business under this sub-section shall in no case exceed six years in the aggregate. The Bank, for the purpose of considering the application for registration, may require to be satisfied by an inspection of the books of the non-banking financial company or otherwise that the following conditions are fulfilled: that the non-banking financial company is or shall be in a position to pay its present or future depositors in full as and when their claims accrue; (b) that the affairs of the non-banking financial company are not being or are not likely to be conducted in a manner detrimental to the interest of its present or future depositors; that the general character of the management O the proposed management of the non-banking financial company shall not be prejudicial to the public interest O the interests of its depositors; that the non-banking financial company has adequate capital structure and earning prospects; that the public interest shall be served by the grant of certificate of registration to the non- banking financial company to commence Or to carry on the business of India; that the grant of certificate of registration shall not be prejudicial to the operation and consolidation of the financial sector consistent with monetary stability, and economic growth considering such other relevant factors which the Bank may, by notification in the Official Gazette, specify; and g any other condition, fulfilment of which in the opinion of the Bank, shall be necessary to ensure that the commencement of r carrying 0n of the business in India by non-banking financial company shall not be prejudicial to the public interest Or in the interests of the depositors The Bank may, after being satisfied that the conditions specified in subsection (4) are fulfilled, grant certificate of registration subject to such conditions which it may consider fit to impose. The Bank cancel certificate of registration granted to non-banking financial company under this section if such company ceases to carry on the business of a non-banking financial institution in India; O (ii) has failed to comply with any condition subject to which the certificate of registration had been issued to it; Or (iii) at any time fails to fulfil any of the conditions referred to in clauses to g of sub-section (4); or (iv) fails to comply with any direction issued by the Bank under the provisions of this Chapter; Or b) to maintain accounts in accordance with the requirements of any law O any direction O order issued by the Bank under the provisions of this Chapter; Or to submit o offer for inspection its books of account and other relevant documents when so demanded by an inspecting authority of the Bank; or has been prohibited from accepting deposit by an order made by the Bank under the provisions of this Chapter and such order has been in force for a period of not less than three months: Provided that before cancelling certificate of registration on the ground that the non-banking financial company has failed to company with the provisions of clause (ii) or has failed to fulfil any of the conditions referred to in clause (iii) the Bank, unless it is of the opinion that the delay in cancelling the certificate of registration shall be prejudicial to public interest O the interest of the depositors or the non-banking financial company, shall give an opportunity to such company 0n such term as the Bank may specify for taking necessary steps to comply with such provision Or fulfilment of such condition: Provided further that before making any order of cancellation of certificate of registration, such company shall be given a reasonable opportunity of being heard.
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A company aggrieved by the order of rejection of application for registration Or cancellation of certificate of registration may prefer an Appeal, within a period of thirty days from the date o which such order of rejection or cancellation is communicated to it, to the Central Government and the decision of the Central Government where an appeal has been preferred to it, Or of the Bank where no appeal has been preferred, shall be final: Provided that before making any order of rejection of appeal, such company shall be given reasonable opportunity of being heard Explanations --For the purposes of this section; ~net owned fund means the aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance-sheet of the company after deducting there from accumulated balance of loss; ii) deferred revenue expenditure; and iii) other intangible assets; and further reduced by the amounts representing investments of such company in shares of its subsidiaries; (ii) companies in the same group; (iii) all other non-banking financial companies; and 2) the book value of debentures, bonds, outstanding loans and advances (including hire - purchase and lease finance) made to, and deposits with; subsidiaries of such company; and companies in the same group, to the extent such book value exceeds ten per cent: of a above_ (ID) "subsidiaries" and "companies in the same group" shall have the same meanings assigned to them in the Companies Act; 1956, (1 of 1956).] 45-IB. Maintenance of percentage of assets: (1) Every non-banking financial company shall invest and continue to invest in India in unencumbered approved securities, valued at price not exceeding the current market price of such securities, an amount which, at the close of business o any day, shall not be less than five per cent. O1 such higher percentage not exceeding twenty-five per cent as the Bank may, from time to time and by notification in the Official Gazette, specify, of the deposits outstanding at the close of business o the last working day of the second preceding quarter: Provided that the Bank may specify different percentages of investment in respect of different classes of non-banking financial companies. (27 For the purpose of ensuring compliance with the provisions of this section, the Bank may require every non-banking financial company to furnish a return to it in such form; in such manner and for such period as may be specified by the Bank: (3) If the amount invested by non-banking financial company at the close of business on any day falls below the rate specified under sub-section (/), such company shall be liable to pay to the Bank, in respect of such shortfall, a penal interest at a rate of three per cent-per annum above the bank rate on such amount by which the amount actually invested falls short of the specified percentage, and where the shortfall continues in the subsequent quarters, the rate of penal interest shall be five per cent:per annum above the bank rate on such shortfall for each subsequent quarter:
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(a) The penal interest payable under sub-section (3) shall be payable within a period of fourteen days from the date on which a notice issued by the Bank demanding payment of the same is served on the non-banking financial company and, in the event of a failure of the non-banking financial company to pay the same within such period, penalty may be levied by direction of the principal civil court having jurisdiction in the area where an office of the defaulting non-banking financial company is situated and such direction shall be made only upon an application made in this behalf to the court by the Bank; and b when the court makes a direction under clause (a), it shall issue a certificate specifying the sum payable by the non-banking financial company and every such certificate shall be enforceable in the same manner as if it were a decree made by the court in a suit: (5) Notwithstanding anything contained in this section, if the Bank is satisfied that the defaulting non- banking financial company had sufficient cause for its failure to comply with the provisions of sub- section (1), it may not demand the payment of the penal interest: Explanation.-~For the purpose of this section; approved securities" means securities of any State Government O of the Central Government and such bonds, both the principal whereof and the interest whereon shall have been fully and unconditionally guaranteed by any such Government; (ii) "unencumbered approved securities" includes the approved securities lodged by the non- banking financial company with another institution for an advance O any other arrangement to the extent to which such securities have not been drawn against Or availed of or encumbered in any manner; (iii) "quarter means the period of three months ending on the last day of March; June, September or December. 45-IC. Reserve fund. -(1) Every non-banking financial company shall create a reserve fund the transfer therein sum not less than twenty per centof its net profit every year as disclosed in the profit and loss account and before any dividend is declared: (2) No appropriation of any sum from the reserve fund shall be made by the non-banking financial company except for the purpose as may be specified by the Bank from time to time and every such appropriation shall be reported to the Bank within twenty-one days from the date of such withdrawal: Provided that the Bank may; in any particular case and for sufficient cause being shown, extend the period of twenty-one days by such further period as it thinks fit o condone any delay in making such report. (3) Notwithstanding anything contained in sub-section (1) the Central Government may, on the recommendation of the Bank and having regard to the adequacy of the paid-up capital and reserves of non-banking financial company in relation to its deposit liabilities, declare by order in writing that the provisions of sub-section (1) shall not be applicable to the non-banking financial company for such period as may be specified in the order: Provided that no such order shall be made unless the amount in the reserve fund under sub-section (1) together with the amount in the share premium account is not less than the paid-up capital of the non- banking financial company:] I[45-ID. Power of Bank to remove directors from office.-( 1) Where the Bank is satisfied that in the public interest O to prevent the affairs of a non-banking financial company being conducted in manner detrimental to the interest of the depositors Or creditors, Or financial stability O for securing the proper management of such company, it is necessary $o to do, the Bank may , by order and for reasons to be recorded in writing, remove from office, a director (by whatever name called) of such company, other than Government owned non-banking financial company with effect from such date as may be specified in the said order. (2) No order under sub-section (1) shall be made unless the director concerned has been given reasonable opportunity of making a representation to the Bank against the proposed order:
Ins. by 23 of 2019- 138 (w.e.f: 9-8-2019).
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Provided that if, in the opinion of the Bank, any delay will be detrimental to the interest of the said company or its depositors, the Bank may, at the time of giving the aforesaid opportunity or at any time thereafter, by order direct that; pending the consideration of the representation, if any, the director, shall not, with effect from the date of such order
act as such director of that company;
(b) in any way, whether directly or indirectly, be concerned with Or take part in the management of that company. (3) Where any order is made in respect of a director of a company under sub-section (/), he shall cease to be director of that non-banking financial company and shall not, in any way, whether directly o indirectly, be concerned with, O take part in the management of any non-banking financial company for such period not exceeding five years at time as may be specified in the order: Where an order under sub-section (1) has been made, the Bank may, by order in writing, appoint a suitable person in place of the director; who has been so removed from his office, with effect from such date as may be specified in such order: (5) Any - person appointed under sub-section shall, hold office during the pleasure of the Bank and subject thereto for a period not exceeding three years or such further periods not exceeding three years at a time; b) not incur any obligation or liability by reason oly of his being a director for anything done Or omitted to be done in good faith in the execution of the duties of his office or in relation thereto. Notwithstanding anything contained in any other law for the time being in force O in any contract; memorandum Or articles of association, on the removal of a director from office under this section, such director shall not be entitled to claim any compensation for the loss or termination from office. 45-IE: Supersession of Board of directors of non-banking financial company (other than Government Company). (1) Where the Bank is satisfied that in the public interest O to prevent the affairs of a non-banking financial company being conducted in a manner detrimental t0 the interest of the depositors Or creditors, Or of the non-banking financial company (other than Government Company), Or for securing the proper management of such company Or for financial stability, it is necessary so to do, the Bank may, for reasons to be recorded in writing, by order, supersede the Board of Directors of such company for a period not exceeding five years as may be specified in the order, which may be extended from time to time, SO, however, that the total period shall not exceed five years. (2) The Bank may, on supersession of the Board of Directors of the non-banking financial company under sub-section (/), appoint a suitable person as the Administrator for such period as it may determine. 3) The Bank may issue such directions to the Administrator as it may deem appropriate and the Administrator shall be bound to follow such directions. Upon making the order of supersession of the Board of Directors of non-banking financial company, the chairman, managing director and other directors shall from the date of super session of the Board of Directors vacate their offices;
all the powers, functions and duties, which may, by Or under the provisions of this Act O any other law for the time being in force, be exercised and discharged by Or on behalf of the Board of Directors of such non-banking financial company o by a resolution passed in general meeting of such
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non-banking financial company, shall, until the Board of Directors of such company is reconstituted, be exercised and discharged by the Administrator referred to in sub-section (2). (5) The Bank may constitute committee consisting of three or more members who have experience in law, finance, banking, administration or accountancy to assist the Administrator in discharge of his duties. (b) The committee shall meet at such times and places and observe such rules of procedure as may be specified by the Bank The salary and allowances payable to the Administrator and the members of the committee constituted by the Bank shall be such as may be specified by the Bank and be paid by the concerned non- banking financial company. On or before the expiration of the period of super session of the Board of Directors as specified in the order issued under sub-section (1), the Administrator of the non-banking financial company shall facilitate reconstitution of the Board of Directors of the non-banking financial company. (8 Notwithstanding anything contained in any other law for the time being in force O in any contract; no person shall be entitled to claim any compensation for the loss o termination of his ffice. The Administrator referred to in sub-section (2) shall vacate office immediately after the Board of Directors of the non-banking financial company has been reconstituted ] 45J. Bank to regulate or prohibit issue Of prospectus or advertisement soliciting deposits of money:~The Bank may, if it consider necessary in the public interest s0 to do, by general 0 special order_ regulate or prohibit the issue by any non-banking institution of any prospectus Or advertisement soliciting deposits of money from the public, and (b) specify the conditions subject to which any such prospectus or advertisement; if not prohibited, may be issued. '[4SJA. Power of Bank to determine policy and issue directions. 1) If the Bank is satisfied that; in the public interest O to regulate the financial system of the country to its advantage O to prevent the affairs of any non-banking financial company being conducted in manner detrimental to the interest of the depositors or in a manner prejudicial to the interest of the non-banking financial company, it is necessary or expedient so to do, it may determine the policy and give directions to all O any of the non-banking financial companies relating to income recognition, accounting standards, making of proper provision for bad and doubtful debts, capital adequacy based on risk weights for assets and credit conversion factors for off balance-sheet items and also relating to deployment of funds by a non-banking financial company O1 class of non-banking financial companies or non-banking financial companies generally, as the case may be, and such non-banking financial companies shall be bound to follow the policy so determined and the direction so issued. Without prejudice to the generality of the powers vested under sub-section (1), the Bank may give directions to non-banking financial companies generally O to a class of non banking financial companies Or to any non-banking financial company in particular as to the purpose for which advances or other fund based or non-fund based accommodation may not be made; and b the maximum amount of advances of other financial accommodation Or investment in shares and other securities which, having regard to the paid-up capital, reserves and deposits of the non- banking financial company and other relevant considerations, may be made by that non-banking financial company to any person Or a company Or to a group of companies:]
Ins. by Act 23 of 1997 S. 4 (w.e.f: 9-1-1997).
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4SK. Power of Bank to collect information from non-banking institutions as to deposits and to give directions: (1) The Bank may at any time direct that every non-banking institution shall furnish to the Bank; in such form; at such intervals and within such time, such statements information OT particulars relating to O connected with deposits received by the non-banking institution, as may be specified by the Bank by general or special order. (2) Without prejudice to the generality of the power vested in the Bank under sub-section (1), the statements, information Or particulars to be furnished under sub-section (1), may relate to all or any of the following matters, namely, the amount of the deposits, the purposes and periods for which, and the rates of interest and other terms and conditions on which, they are received: (3) The Bank may, if it considers necessary in the public interest so to do, give directions to non- banking institutions either generally or to any non-banking institution or group of non-banking institutions in particular, in respect of any matters relating to Or connected with the receipt of deposits, including the rates of interest payable o such deposits, and the periods for which deposits may be received: If any non-banking institution fails to comply with any direction given by the Bank under sub- section (3), the Bank may prohibit the acceptance of deposits by that non-banking institution:
(6) Every non-banking institution receiving deposits shall, if so required by the Bank and within such time as the Bank may specify, cause to be sent at the cost f the non-banking institution a copy of its annual balance-sheet arid profit and loss account Or other annual accounts to every person from whom the non-banking institution holds, as o the last day of the year to which the accounts relate, deposits higher than such sum as may be specified by the Bank A5L. Power of Bank to call for information from financial institutions and to give directions. (1) If the Bank is satisfied for the purpose of enabling it to regulate the credit system of the country to its advantage it is necessary $o to do, it may require financial institutions either generally or any group of financial institutions or financial institution in particular, to furnish to the Bank in such form; at such intervals and within such time, such statements, information Or particulars relating to the business of such financial institutions O institution, aS may be specified by the Bank by general O1 special order; (b) give to such institutions either generally O to any such institution in particular, directions relating to the conduct of business by them or by it as financial institutions O institution. (2) Without prejudice to the generality of the power vested in the Bank under clause (a) of sub- section (/), the statements, information O particulars to be furnished by a financial institution may relate to all or any of the following matters, namely, the paid-up capital, reserves or other liabilities, the investments whether in Government securities O otherwise, the persons to whom, and the purposes and periods for which, finance is provided and the terms and conditions, including the rates of interest; on which it is provided. (3) In issuing directions to any financial institution under clause (b) of subsection (1), the Bank shall have due regard to the conditions in which; and the objects for which, the institution has been established, its statutory responsibilities, if any, and the effect the business of such financial institution is likely to have on trends in the money and capital markets. 4SM. Duty of non-banking institutions to furnish statements, etc , required by Bank. ~It shall be the duty O every non-banking institution to furnish the statements, information O particulars called for, and to comply with any direction given to it, under the provisions of this Chapter.
1. Sub-section (5) omitted by Act 51 of 1974,s. 18 (w.e.f: 13-12-1974)_
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[4SMA . Powers and duties of auditors. (1) It shall be the duty of an auditor of a non-banking institution to inquire whether or not the non-banking institution has furnished to the Bank such statements, information O particulars relating to O connected with deposits received by it; aS are required to be furnished under this Chapter, and the auditor shall, except where he is satisfied on such inquiry that the non-banking institution has furnished such statements, information O particulars, make a report to the Bank giving the aggregate amount of such deposits held by the non-banking institution.
H(IA) The Bank may, on being satisfied that it is necessary so to do, in the public interest O in the interest of the depositors or for the purpose of proper assessment of the books of accounts, issue directions to any non-banking financial company O any class of non-banking financial companies O non- banking financial companies generally or to the auditors of such non-banking financial company or companies relating to balance-sheet, profit and loss account, disclosure of liabilities in the books of accounts or any matter relating thereto.]
(2) Where, in the case of [a non-banking financial company], the auditor has made, O intends to make, report to the Bank under sub-section (7), he shall include in his report under sub-section (27 of
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