LexNEDUMPILLI FINANCE COMPANY LIMITED versus STATE OF KERALA & ORS.
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A B C D E F G H 1005 [2022] 7 S.C.R. 1005 1005 NEDUMPILLI FINANCE COMPANY LIMITED v. STATE OF KERALA & ORS. (Civil Appeal No. 5233 of 2012) MAY 10, 2022 [HEMANT GUPTA AND V. RAMASUBRAMANIAN, JJ.] Reserve Bank of India Act, 1934 (RBI Act) – Chapter III-B – Kerala Money Lenders Act,1958 (Kerala Act) – Gujarat Money Lenders Act, 2011 (Gujarat Act) – Applicability of States’ Act on Non-Banking Financial Companies – Whether Non-Banking Financial Companies (NBFCs) regulated by the Reserve Bank of India, in terms of the provisions of Chapter III-B of the RBI Act could also be regulated by State enactments such as Kerala Act and Gujarat Act – Held : By Act 23 of 1997, amendment made to Chapter III-B, after which this Chapter has become a complete Code in so far as NBFCs are concerned – The scheme of Chapter III-B of the RBI Act shows that the power of intervention available for the RBI over NBFCs, is from the cradle to the grave – Once it is found that Chapter III-B of the RBI Act provides a supervisory role for the RBI to oversee the functioning of NBFCs, from the time of their birth (by way of registration) till the time of their commercial death (by way of winding up), all activities of NBFCs automatically come under the scanner of RBI – As a consequence, the single aspect of taking care of the interest of the borrowers which is sought to be achieved by the State enactments gets subsumed in the provisions of Chapter III-B – The Kerala Act and the Gujarat Act will have no application to NBFCs registered under the RBI Act and regulated by RBI. Principles/Doctrines – Doctrine of Eclipse, conflict and repugnancy – The moment the Parliament stepped in to codify the law relating to registration and regulation of NBFCs, by inserting certain provisions in Chapter III-B of the RBI Act, the same would cast a shadow on the applicability of the provisions of the Kerala Act to NBFCs registered under the RBI Act and regulated by RBI – In case of Gujarat, State of Gujarat contended that the Gujarat Act exempts NBFCs registered under the RBI Act from seeking registration under the Gujarat Act – However, u/s. 5(2) of the A B C D E F G H 1006 SUPREME COURT REPORTS [2022] 7 S.C.R. Gujarat Act, NBFCs registered under the RBI Act are deemed to have been registered under the Gujarat Act – Gujarat Act, 2011 tacitly recognizes the regulation of NBFCs under the RBI Act – Yet the State got the assent of only the Governor – Therefore, Kerala Act and the Gujarat Act will have no application to NBFCs registered under the RBI Act and regulated by RBI – Reserve Bank of India Act, 1934 (RBI Act) – Kerala Money Lenders Act,1958 (Kerala Act) – Gujarat Money Lenders Act, 2011 (Gujarat Act). Disposing of the appeals, the Court HELD : Scheme of Kerala Act, Gujarat Act and RBI Act 1. In the background of the facts, the legal issue arising for consideration has to be resolved by looking at the scheme of the two State enactments, the scheme of RBI Act and the relevant Entries in the appropriate List of the Seventh Schedule, to which these enactments can be traced. [Para 4][1016-D-E] 2. The only object of the Kerala Money Lenders Act was to afford protection to borrowers from unscrupulous money lenders who advanced usurious loans. Though it was proclaimed in the statement of objects, in general terms, that it was intended to regulate the business of money lending, the Act was primarily intended only to cover one aspect of the business of financing. [Para 4.7][1017-E] 3. Section 2(7) of the Kerala Act, defines a “money lender”. In the definition, 7 different types of business entities are excluded from the definition of the expression “money lending”. A financial corporation which is not a bank and which is otherwise known as NBFC, is not listed as one of the entities excluded from the definition of the expression “money lender”. [Paras 4.8, 4.9][1017-F; 1018-G-H] 4. But the definition of “money lender” in the Kerala Act excludes only a “bank” to which the Banking Regulation Act applies. It does not exclude a non banking institution from the definition. Therefore, the Kerala State authorities started claiming and technically rightly so, that NBFCs are not excluded from the definition of “money lender”. Though the NBFCs claimed that under clause (f) of sub-section (7) of Section 2, “any institution A B C D E F G H 1007 established by or under an Act of Parliament or the Legislature of a State” are excluded from the definition of the expression “money-lender” an
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