Madras High Court
Federation Of Indian Asset Financiers ... vs Reserve Bank Of India on 27 March, 2025
Author: D.Bharatha Chakravarthy
Bench: D.Bharatha Chakravarthy
W.P.No.11218 of 2025
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 27.03.2025
CORAM:
THE HONOURABLE MR. JUSTICE D.BHARATHA CHAKRAVARTHY
W.P.No.11218 of 2025
and
WMP.Nos.12658, 12661 & 12662 of 2025
1.Federation of Indian Asset Financiers Associations,
Represented by its Secretary General Mr.Dinesh Kothari,
'Nahar Hall', Desabandhu Plaza, 1 Floor,
47, Whites Road, Royappettah, Chennai - 600 014.
2.Jay Mittal ... Petitioners
Vs
1. Reserve Bank of India,
Represented by its Chief General Manager,
Central Office Building,
Shahid Bhagat Singh Marg Fort,
Mumbai - 400 001.
2. Union of India,
Through Ministry of Finance,
North Block,
New Delhi - 110 001.
... Respondents
Prayer: Writ Petition filed under Article 226 of Constitution of India for the
issuance of Writ of Certiorari, calling for the records contained in Circular
dated 22.10.2021 issued by the 1st respondent bearing reference RBI/2021-
22/112 DOR.CRE.REC.No.60/03.10.001/2021-22 and quash the same and all
directions consequential thereto, as arbitrary, illegal and unjust.
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1/10
W.P.No.11218 of 2025
For Petitioners : Sathish Parasaran
Senior Counsel
assisted by
Arun Karthik Mohan
For R1 : Mr.C.Mohan
Senior Counsel
assisted by
Rexy Josephine Mary
for King & Partridge
For R2 : Mr.AR.L.Sundaresan
ACGSG
ORDER
The writ petition is filed to call for the records contained in the circular
dated 22.10.2021, issued by the 1st respondent, bearing reference RBI/2021-
22/112 DOR.CRE.REC.No.60/03.10.001/2021-22, and to quash the same.
2. Heard Mr.Sathish Parasaran, learned Senior Counsel representing
the petitioner, and Mr.Mohan, learned Senior Counsel for the Reserve Bank of
India and Mr. AR.L.Sundaresan, the learned Additional Solicitor General of
India for the second respondent.
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3. Upon hearing all the Learned Counsel and reviewing the affidavit
and the case materials, it is noted that the petitioner is the Federation of the
Associations of NBFCs. In this case, the petitioner represents NBFCs that do
not accept any deposits but have a customer base. After the introduction of
Chapter III -B to the Reserve Bank of India Act, 1934, the first respondent
began regulating these entities. In accordance with Section 45-IA, the net
owned fund for all these smaller-scale NBFCs was initially set at Rs
2,00,00,000/-. However, by the impugned circular dated 22.10.2021, this
amount was increased to Rs. 5,00,00,000/- within a period and further to Rs.
10,00,00,000/-. This circular took effect from 01.10.2022, and the time
granted to these NBFCs to increase their net owned fund upto Rs.
5,00,00,000/- is now set to expire on 31.03.2025.
4. The grievance expressed by Mr Sathish Parasaran, the learned
Senior Counsel representing the petitioner, is that when the RBI classified
NBFCs into four types, the members of the petitioners' association comprise
the base layer with an asset size of less than 1,000 crores. Within this layer,
these NBFCs do not accept deposits, nor do they utilise any public funds.
Therefore, they do not pose any systemic risk. He would submit that the
circular is in the nature of paternalistic legislation seeking to protect the
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NBFCs. When the NBFCs were categorised considering the factor of systemic
risk, they were grouped into one category that accepts deposits and another
that does not have deposits but utilises public funds along with a customer
base. According to the learned Senior Counsel, the RBI was not aware and did
not keep in mind that there can be a third category of NBFCs that have a
customer base but do not involve any public funds. They did not consider that
these categories do not pose any systemic risk and therefore should not be
equated with other categories that operate with public funds. Treating
unequals as equals and imposing such a significant burden would effectively
drive these smaller players out of business, failing the test of proportionality
and violating Article 14 of the Constitution of India. The petitioner has
continuously made representations immediately after the issuance of the
circular. To date, despite requests for information under the Right to
Information Act, there has been no positive response from the first
respondent, the RBI. Therefore, he submits that from 31.03.2025, since many
members of the petitioner association will go out of business, this Court
should entertain the writ petition and grant urgent interim reliefs. The
Learned Counsel would also rely upon the judgment in Internet and Mobile
Association of India -Vs- Reserve Bank of India (2020 10 SCC 274) for the
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proposition that the measures taken by RBI should pass the test of
proportionality.
5. Per contra, Mr C. Mohan, the learned counsel appearing on
behalf of the Reserve Bank of India, submits that the circular was issued as
early as 2021 and came into force in 2022. When the representations were
made, the officials also met with the members of the petitioner association. It
is true that subsequently, no decision was expressly taken and communicated;
however, at the same time, the petitioner and the affected members could have
approached this Court at an earlier point. They are approaching in the ninth
hour. The learned counsel also opposes the maintainability of the writ petition
through the association. It is submitted that when the experts, taking into
consideration the relevant factors and have fixed the quantum of the net
owned fund, this Court cannot substitute its wisdom for that of the experts and
interfere in the issue. The entire exercise is within the policy realm of the
Reserve Bank of India. The learned counsel would also rely upon the
judgment in Deccan Chronicles Holdings Ltd -Vs-Union of India (2014 3
CTC 321) for the proposition that the writ petition filed by the association may
not be entertained by this Court.
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6. Mr AR.L. Sundaresan, learned Additional Solicitor General of
India, appearing on behalf of the second respondent, would reiterate the
objection to maintainability and submit that the petitioners have approached at
the very last minute. Furthermore, he would argue that the impugned circular
is of the nature of subordinate legislation and is, therefore, usually passed after
wide consultation with stakeholders and consideration of ground situations,
etc.
7. I have considered the opposing submissions made by both sides
and reviewed the material records of the case.
8. To determine the validity of the circular, this court must grant the
respondents an opportunity to file their counter. Only then can the contentions
raised by the petitioner be addressed. Similarly, this applies to the preliminary
objections raised by the respondents as well, including the issue regarding
maintainability. In view of the grave urgency pleaded, this Court will not
examine the merits of the various grounds presented to challenge the Circular
or its validity, nor will it consider the objections by the respondents. The sole
consideration is based on the assertion made by the learned Senior Counsel
that many of these small players will exit the business effective from 01. 04.
2025, which necessitates urgent attention.
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9. In light of this argument, this court directed the learned counsel for
the Reserve Bank of India to obtain instructions as to the authority who shall
consider the representation and could provide a hearing to the petitioner
Association regarding their grievances. Since the representations remain
unresolved, this authority may also dispose of the representation according to
the law. When the matter was taken up for hearing again in the afternoon, Mr
C. Mohan, the learned Counsel representing the first respondent, on
instructions stated that the Chief General Manager of the relevant department
would grant an opportunity of hearing to the office bearers of the association
or its members, preferably limited to 2 to 4 individuals, and their
representation would be considered by 30.04.2025.
10. In view thereof, this writ petition is disposed of on the following
terms :
(a)Given the significant urgency pleaded, the petitioner Association
may approach the concerned authority as soon as possible with a request for
any extension of time, which shall also be considered on its own merits by the
Chief General Manager;
(b) The Chief General Manager shall grant an opportunity of hearing to
the officer bearers of the petitioners/its members as stated above and consider
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the concerns expressed by the petitioner association/its members as per their
representation dated 17/02/2021 and the subsequent representations and pass
orders thereon in accordance with law on order before 30/04/2025;
(c) The petitioners will also be entitled to make such requests for any
interim relief to them, including extension of time, which shall also be
considered by the same authority;
(d) It is clarified that this Court has not delved into the issue, and this
writ petition is disposed of solely to address the urgent concerns raised by the
petitioner. Both parties retain the right to reassert their respective grounds
should the above exercise not yielding satisfactory results.
(e) The parties shall act based on the web copy of this order without
waiting for a certified copy;
(f) No costs. Consequently, the connected miscellaneous petitions are
closed.
27.03.2025
veda
Neutral Citation: Yes/No
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To
1. Reserve Bank of India,
Represented by its Chief General Manager,
Central Office Building,
Shahid Bhagat Singh Marg Fort,
Mumbai - 400 001.
2. Union of India,
Through Ministry of Finance,
North Block,
New Delhi - 110 001.
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D.BHARATHA CHAKRAVARTHY, J.
veda
27.03.2025
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