NBFC License Restoration: Complying with Regulations and RBI Norms

NBFC License Restoration: Complying with Regulations and RBI Norms. Non-Banking Financial Companies (NBFCs) constitute a vital component of the Indian financial architecture, particularly in extending credit, asset financing, and ancillary financial services to sectors that remain inadequately served by mainstream banking institutions. In recognition of their growing influence and systemic relevance, the Reserve Bank of India (RBI), acting under the mandate conferred by the Reserve Bank of India Act, 1934 and allied legislations, has promulgated a comprehensive regulatory and supervisory framework governing the operation of NBFCs.
To ensure financial stability, consumer protection, and adherence to prudential norms, NBFCs are required to obtain and maintain a valid Certificate of Registration (CoR) from the RBI. Continued compliance with the prescribed  statutory requirements including minimum net owned fund thresholds, periodic regulatory filings, and adherence to operational guidelines is a condition precedent to the retention of such registration.
Failure to adhere to these obligations may invite regulatory action, including the suspension or cancellation of the CoR by the RBI under the provisions of Section 45-IA (6) of the RBI Act, 1934. However, recognizing the principle of proportionality and the scope for rectifiable non-compliance, the RBI permits, in deserving cases, the restoration or reissuance of the CoR upon satisfactory demonstration of remedial measures and future compliance capability. 
Regulatory Framework Governing NBFCs: The regulatory framework for NBFCs is defined under:
RBI Act, 1934 (Chapter III-B)
This chapter forms the cornerstone of NBFC regulation. Section 45-IA mandates registration and specifies conditions under which an NBFC must operate, including maintaining minimum Net Owned Funds (NOF), filing returns, and adhering to prudential norms.
Companies Act, 2013
NBFCs are incorporated under this Act and must comply with general corporate governance, financial reporting, board structure, audit requirements, and ROC filings as applicable to all companies.
RBI Master Directions and Notifications
The RBI periodically issues Master Directions and circulars to guide NBFC operations. These cover areas such as fair practices, KYC norms, asset classification, capital adequacy, and outsourcing policies. Non-compliance can lead to penal action or cancellation of registration.
Income Tax and GST Laws
NBFCs must comply with income tax provisions, including TDS, interest income reporting, and GST obligations where applicable (such as services like processing fees, foreclosure charges). Tax evasion or incorrect filings may trigger regulatory scrutiny.
Certificate of Registration (CoR) Requirement
To legally function as an NBFC, a company must secure a CoR from the RBI under Section 45-IA of the RBI Act. Without this, financial activities like lending or investment in securities are prohibited. Post-registration continued regulatory compliance is mandatory to retain validity.
Common Reasons for NBFC License Cancellation:
The RBI may cancel an NBFC’s license under Section 45-IA (6) of the RBI Act, 1934 for various reasons. Some common causes include:

Non-commencement of business within six months of receiving CoR.

Failure to maintain Net Owned Funds (NOF) of Rs.10 crore for investment and credit companies (post-October 2022 framework).

Non-compliance with statutory filings, such as NBS-9, NBS-1, or other regulatory returns.

Engaging in prohibited activities, such as accepting public deposits without authorization.

Violation of directions issued by the RBI, including KYC, fair practices code, or asset classification norms.

Financial irregularities or insolvency of the company.

Dormant status or non-functional business operations.

Cancellation is communicated through a show-cause notice (SCN) followed by a final order if the NBFC fails to justify or correct its actions.
Legal Recourse Against License Cancellation
The cancellation of a Certificate of Registration (CoR) by the Reserve Bank of India (RBI) is a significant regulatory action with far-reaching consequences for an NBFC. However, affected entities are not without remedy. The following legal recourses may be pursued, depending on the stage and nature of the proceedings:
Response to Show Cause Notice (SCN) 
Before cancelling an NBFC license, the RBI typically issues a Show Cause Notice (SCN) under Section 45-IA(6) of the RBI Act, 1934. The SCN outlines the grounds of proposed cancellation and invites the company to respond.
A prompt and well-drafted reply to the SCN supported by documentary evidence, compliance undertakings, and legal justification can be decisive in averting cancellation. This response must address each alleged default comprehensively and include remedial steps taken, if any.
Legal advisors or regulatory consultants should ideally assist in preparing the reply to ensure it aligns with RBI expectations and regulatory precedents.
Filing a Writ Petition under Article 226
If the RBI proceeds with cancellation despite a valid defence or corrective action, the NBFC has the right to challenge the cancellation order before the jurisdictional High Court under Article 226 of the Constitution of India.
This writ remedy is invoked to seek judicial review of the RBI’s action on grounds such as:

Violation of natural justice principles

Arbitrariness or disproportionality

Error in interpretation of facts or law

Failure to consider relevant documents or submissions

The petition may seek interim relief (e.g., stay on cancellation) and final relief in the form of reinstatement of the CoR. Courts generally examine whether RBI exercised its regulatory discretion in a fair, reasonable, and lawful manner.
Submission of a Restoration Application to RBI
In situations where the NBFC has genuinely defaulted but subsequently rectified all non-compliances, it may submit a formal application to the RBI requesting restoration of the cancelled license.
This application should be comprehensive and include:

A detailed explanation of past non-compliance

Evidence of rectification (e.g., increased capital, updated returns, audit reports)

A compliance plan to prevent recurrence

Board resolution authorizing restoration request

While there is no statutory guarantee of restoration, the RBI may exercise discretion to reinstate the CoR if satisfied with the corrective measures and future compliance intent.
Importance of Seeking Legal Counsel
Given the complex interplay of regulatory compliance, administrative law, and judicial remedies, it is strongly advised that NBFCs engage competent legal or regulatory professionals.
Legal counsel can help in:

Assessing the strength of the case

Drafting persuasive SCN replies

Structuring restoration applications

Representing the NBFC before judicial or quasi-judicial forums

Timely and strategic legal intervention can often make the difference between permanent cancellation and successful revival of the NBFC's business operations.
Process of NBFC License Restoration:
NBFC License restoration is not a statutory right, but a discretionary remedy offered by the RBI in deserving cases. The key steps include:
1. Identification of Non-Compliance: Conduct a detailed internal audit to identify the cause of cancellation, such as inadequate NOF, non-submission of returns, or deviation from business scope.
2. Rectification of Deficiencies: Correct the non-compliance by:

Infusing additional capital to meet NOF norms

Filing all overdue returns and audited financials

Updating KYC and internal compliance protocols

3. Submission of Restoration Application: A formal application should be submitted to the RBI's regional office with:

Cover letter requesting restoration

Explanation of non-compliance and proof of rectification

Latest audited financial statements

Compliance checklist and self-declaration

Board resolution approving restoration application

4. Representation and Follow-up: Engage in dialogue with RBI officers if required. Be prepared for inspection, interview, or documentary scrutiny before a decision is made. 
Documents Required for Restoration
The following documents must accompany the restoration application:

Copy of original Certificate of Registration (CoR)

Board resolution for restoration

Compliance reports and audit trail

Latest NOF certificate from statutory auditor

ROC filings (MCA documents)

PAN, GST, and Income Tax records

Details of past violations and corrective measures

Any court orders, if legal proceedings were involved

The documentation must be authentic, and organized to increase the chances of favorable consideration.
Role of Compliance and Legal Advisors in License Restoration
The process of restoring a cancelled NBFC license is complex, document-intensive, and procedurally sensitive, requiring strategic of regulatory and legal frameworks. In such scenarios, compliance experts and legal advisors play a critical role in facilitating a successful restoration by bridging regulatory expectations with the NBFC's operational realities.
Their involvement typically includes the following key functions:
Compliance Gap Analysis
The first step in any restoration effort is identifying the root causes of cancellation. Advisors conduct a detailed gap analysis to examine areas of non-compliance whether related to capital adequacy, statutory filings, operational irregularities, or deviation from RBI guidelines. This diagnostic assessment forms the foundation for all subsequent remedial measures.
Drafting Strategic Responses to Regulatory Notices
A legally sound and factually substantiated reply to RBI’s Show Cause Notice (SCN) is essential. Legal professionals bring precision to this task by drafting responses that:

Address each allegation pointwise

Present evidence of compliance or remedial action

Cite relevant regulatory provisions and RBI circulars

Argue proportionality and fairness in regulatory action

Such professional drafting significantly improves the likelihood of preventing or reversing cancellation.
Handling Legal Proceedings and Writ Petitions
Where the matter escalates to litigation such as the filing of a writ petition before the High Court under Article 226 the role of legal counsel becomes indispensable. Advisors assess the viability of legal remedies, prepare pleadings, represent the NBFC before courts, and negotiate interim reliefs such as stay on cancellation.
They also ensure that the litigation strategy aligns with business goals and reputational considerations.
Preparation of Restoration Dossier and Compliance Submissions
When applying for restoration, the NBFC must submit a complete and audit-compliant application demonstrating full rectification of earlier lapses. Advisors assist in compiling a robust documentation set, which typically includes:

Updated audited financials

Proof of statutory and regulatory compliance

Net Owned Fund (NOF) certificates

Revised governance policies and risk frameworks

Board resolutions and declarations

The quality and completeness of this submission often determine the outcome of the restoration request.
Interface and Representation Before the RBI
Restoration often involves clarification meetings, document scrutiny, and follow-up interactions with RBI officials. Experienced advisors represent the NBFC during these discussions, offering:

Clarifications on technical or legal queries

Additional documentation on demand

Assurance regarding future compliance systems

Their familiarity with RBI expectations, tone, and procedural norms helps present the NBFC’s case in the most credible and organized manner.
Ensuring Long-Term Regulatory Preparedness
Beyond immediate restoration, compliance advisors help design and implement long-term governance and compliance frameworks. This includes:

Internal control systems

Periodic compliance audits

Regulatory training for staff

Automation of statutory reporting mechanisms

Such preventive measures minimize future risk of cancellation and foster a culture of regulatory discipline.
Engaging Specialized NBFC Consultants
Given the sector-specific nature of NBFC regulations, general legal or corporate advisors may not be sufficient. It is prudent to engage professionals with demonstrated expertise in NBFC regulations, RBI procedures, and financial compliance. Their practical experience in handling restoration cases often proves decisive in overcoming regulatory hurdles.
RBI’s Approach and Discretionary Powers in License Restoration
The Reserve Bank of India (RBI), as the primary regulatory authority for Non-Banking Financial Companies (NBFCs), exercises both statutory authority and discretionary judgment when it comes to the cancellation and potential restoration of a Certificate of Registration (CoR). Although the RBI operates under established regulatory norms, decisions regarding restoration are not automatic and are subject to the Bank’s independent evaluation and discretion.
RBI considers several qualitative and quantitative parameters before taking a view on whether to reinstate or reject a restoration request. These include, but are not limited to, the following:
Severity of Original Non-Compliance
The RBI assesses the nature, frequency, and materiality of the non-compliance that led to cancellation. If the breach involves core regulatory provisions—such as failure to meet Net Owned Fund (NOF) requirements, illegal deposit-taking, fraudulent practices, or systemic risk exposure—the likelihood of restoration diminishes.
In contrast, procedural or technical defaults, if corrected timely, may be viewed more leniently.
Time Taken for Rectification of Deficiencies
The timeliness and responsiveness of the NBFC in correcting compliance gaps is another important factor. Restoration applications submitted promptly after cancellation, supported by complete documentary proof of rectification, are favourably considered.
Prolonged inaction or delay in addressing defaults may indicate poor governance or lack of operational readiness and can adversely affect the restoration outcome.
Financial and Operational Viability of the NBFC
The RBI evaluates whether the applicant NBFC is financially sound and operationally capable of continuing business in a compliant manner. This involves a review of:

Audited financial statements

Capital adequacy and liquidity position

Asset quality and provisioning norms

Business model sustainability

Adequacy of internal controls and risk management systems

The regulator must be satisfied that the NBFC will not pose solvency or compliance risk post-restoration.
Past Conduct and Compliance Track Record
The historical behaviour of the NBFC its responsiveness to past inspections, regulatory queries, and supervisory directions significantly influences the RBI’s decision. Entities with a history of repeat violations, evasive practices, or poor governance may find it difficult to secure restoration.
On the other hand, companies with a generally compliant track record and isolated or inadvertent lapses may benefit from the regulator’s constructive approach.
Public Interest and Systemic Risk Considerations
RBI’s mandate includes the protection of public interest, financial stability, and systemic integrity. Before restoring a license, the RBI assesses whether the NBFC’s continued operation aligns with these broader objectives.
Factors such as the NBFC’s market presence, customer base, geographical outreach, and interlinkage with other financial institutions may be weighed to evaluate systemic relevance. If restoration is likely to serve underserved sectors without increasing regulatory risk, the RBI may lean in favor of approval.
Restoration Through Fresh or Reissued CoR
If the RBI is satisfied on all fronts, it may choose to:

Reinstate the original Certificate of Registration that was cancelled, or

Issue a fresh CoR, subject to new conditions, enhanced compliance requirements, or restrictions for a specified period.

Such restoration is formally communicated through an official RBI letter or order and may include specific directions or reporting obligations to ensure post-restoration monitoring. 
Precautionary Measures to Prevent Future Cancellation
Restored NBFCs must adopt proactive compliance practices to avoid future risks:

Regularly monitor capital adequacy and NOF

Maintain up-to-date statutory records and return filings

Establish a strong internal audit system

Implement robust KYC and AML compliance mechanisms

Train staff on regulatory updates

Engage a compliance officer or external advisor for periodic reviews

RBI’s regulatory for NBFCs is evolving rapidly. Timely compliance is important for long-term sustainability. 
Conclusion
The restoration of an NBFC license offers a second chance for promoters to rebuild trust with regulators and the financial community. While the process can be time-consuming and documentation-intensive, it reflects the RBI’s balanced approach toward compliance and correction.
With adequate preparation, transparency, and professional assistance, restoration is achievable even for companies with complex compliance histories. The key lies in demonstrating genuine intent, regulatory seriousness, and operational readiness to resume financial activities responsibly.
For NBFCs looking to restore their license, early action, expert support, and adherence to RBI norms are not just procedural requirements they are foundational to revival and growth in a dynamic financial environment.
For further information you can visit Compliance Calendar LLP
Email: info@ccoffice.in
Contact no. +91 998842411 
FAQs
Q1. Why can the RBI cancel an NBFC’s Certificate of Registration (CoR)? 
Ans. The RBI may cancel an NBFC’s CoR under Section 45-IA(6) of the RBI Act, 1934 for reasons such as failure to commence business within six months of registration, non-maintenance of Net Owned Funds (NOF), non-compliance with prudential norms, default in filing returns, or engaging in unlawful financial activities.
Q2. Can a cancelled NBFC license be restored? 
Ans. Yes. The RBI allows restoration of a cancelled license in deserving cases where the NBFC has rectified the non-compliance, demonstrated operational readiness, and filed a formal application supported by documentary evidence.
Q3. What is the first step after receiving a Show Cause Notice (SCN) from the RBI? 
Ans. Upon receiving an SCN, the NBFC must promptly respond with a detailed, point-wise reply, addressing each allegation with proof of compliance or corrective action. Legal counsel should ideally assist in drafting this reply to increase the chances of favourable consideration.
Q4. How long does it take to restore an NBFC license? 
Ans. There is no fixed timeline, as restoration depends on the complexity of the non-compliance, quality of the application, and RBI’s internal processing. On average, it may take 3 to 6 months post-submission, subject to RBI’s satisfaction and clarity of documentation.
Q5. Can a company approach the court if the RBI rejects the restoration request? 
Ans. Yes. An aggrieved NBFC may file a writ petition under Article 226 of the Constitution before the appropriate High Court, challenging the RBI’s decision on grounds such as arbitrariness, procedural violation, or disproportionality.
Q6. What documents are required to apply for license restoration? 
Ans. Typical documents include:

A cover letter/application for restoration

Audited financial statements

NOF compliance certificate

Latest statutory returns filed (NBS-9, NBS-1, etc.)

Proof of rectification of past defaults

Board resolution and updated corporate documents

Additional documents may be required depending on the nature of cancellation.
Q7. Does the RBI issue a fresh license or reinstate the old one? 
Ans. The RBI may choose to reinstate the original license or issue a fresh Certificate of Registration, depending on the circumstances. In some cases, restoration is granted with conditions such as enhanced supervision or limited scope of operation.
Q8. What is the role of legal and compliance professionals in the restoration process? 
Ans. Compliance experts and legal advisors play a key role in:

Conducting gap analysis

Drafting responses and restoration applications

Preparing documentation

Representing the NBFC before the RBI or courts

Ensuring long-term regulatory preparedness

Their expertise significantly improves restoration prospects.
Q9. Can restoration be requested after a long delay post-cancellation? 
Ans. While restoration is possible after a delay, prolonged inaction may negatively impact the case. It is advisable to apply as early as possible after rectifying non-compliances. A delay must be explained with justified reasons and proof of readiness.
Q10. Is restoration guaranteed if all compliance conditions are met? 
Ans. No. Restoration is not an automatic right. It lies within RBI’s discretionary powers and depends on multiple factors including severity of past non-compliance, systemic risk concerns, and public interest. However, strong compliance and professional representation improve the chances significantly.

Non-Banking Financial Companies (NBFCs) constitute a vital component of the Indian financial architecture, particularly in extending credit, asset financing, and ancillary financial services to sectors that remain inadequately served by mainstream banking institutions. In recognition of their growing influence and systemic relevance, the Reserve Bank of India (RBI), acting under the mandate conferred by the Reserve Bank of India Act, 1934 and allied legislations, has promulgated a comprehensive regulatory and supervisory framework governing the operation of NBFCs.

To ensure financial stability, consumer protection, and adherence to prudential norms, NBFCs are required to obtain and maintain a valid Certificate of Registration (CoR) from the RBI. Continued compliance with the prescribed statutory requirements including minimum net owned fund thresholds, periodic regulatory filings, and adherence to operational guidelines is a condition precedent to the retention of such registration.

Failure to adhere to these obligations may invite regulatory action, including the suspension or cancellation of the CoR by the RBI under the provisions of Section 45-IA (6) of the RBI Act, 1934. However, recognizing the principle of proportionality and the scope for rectifiable non-compliance, the RBI permits, in deserving cases, the restoration or reissuance of the CoR upon satisfactory demonstration of remedial measures and future compliance capability.

Regulatory Framework Governing NBFCs: The regulatory framework for NBFCs is defined under:

RBI Act, 1934 (Chapter III-B)

This chapter forms the cornerstone of NBFC regulation. Section 45-IA mandates registration and specifies conditions under which an NBFC must operate, including maintaining minimum Net Owned Funds (NOF), filing returns, and adhering to prudential norms.

Companies Act, 2013

NBFCs are incorporated under this Act and must comply with general corporate governance, financial reporting, board structure, audit requirements, and ROC filings as applicable to all companies.

RBI Master Directions and Notifications

The RBI periodically issues Master Directions and circulars to guide NBFC operations. These cover areas such as fair practices, KYC norms, asset classification, capital adequacy, and outsourcing policies. Non-compliance can lead to penal action or cancellation of registration.

Income Tax and GST Laws

NBFCs must comply with income tax provisions, including TDS, interest income reporting, and GST obligations where applicable (such as services like processing fees, foreclosure charges). Tax evasion or incorrect filings may trigger regulatory scrutiny.

Certificate of Registration (CoR) Requirement

To legally function as an NBFC, a company must secure a CoR from the RBI under Section 45-IA of the RBI Act. Without this, financial activities like lending or investment in securities are prohibited. Post-registration continued regulatory compliance is mandatory to retain validity.

Common Reasons for NBFC License Cancellation:

The RBI may cancel an NBFC’s license under Section 45-IA (6) of the RBI Act, 1934 for various reasons. Some common causes include:

Non-commencement of business within six months of receiving CoR.
Failure to maintain Net Owned Funds (NOF) of Rs.10 crore for investment and credit companies (post-October 2022 framework).
Non-compliance with statutory filings, such as NBS-9, NBS-1, or other regulatory returns.
Engaging in prohibited activities, such as accepting public deposits without authorization.
Violation of directions issued by the RBI, including KYC, fair practices code, or asset classification norms.
Financial irregularities or insolvency of the company.
Dormant status or non-functional business operations.

Cancellation is communicated through a show-cause notice (SCN) followed by a final order if the NBFC fails to justify or correct its actions.

Legal Recourse Against License Cancellation

The cancellation of a Certificate of Registration (CoR) by the Reserve Bank of India (RBI) is a significant regulatory action with far-reaching consequences for an NBFC. However, affected entities are not without remedy. The following legal recourses may be pursued, depending on the stage and nature of the proceedings:

Response to Show Cause Notice (SCN)

Before cancelling an NBFC license, the RBI typically issues a Show Cause Notice (SCN) under Section 45-IA(6) of the RBI Act, 1934. The SCN outlines the grounds of proposed cancellation and invites the company to respond.

A prompt and well-drafted reply to the SCN supported by documentary evidence, compliance undertakings, and legal justification can be decisive in averting cancellation. This response must address each alleged default comprehensively and include remedial steps taken, if any.

Legal advisors or regulatory consultants should ideally assist in preparing the reply to ensure it aligns with RBI expectations and regulatory precedents.

Filing a Writ Petition under Article 226

If the RBI proceeds with cancellation despite a valid defence or corrective action, the NBFC has the right to challenge the cancellation order before the jurisdictional High Court under Article 226 of the Constitution of India.

This writ remedy is invoked to seek judicial review of the RBI’s action on grounds such as:

Violation of natural justice principles
Arbitrariness or disproportionality
Error in interpretation of facts or law
Failure to consider relevant documents or submissions

Submission of a Restoration Application to RBI

In situations where the NBFC has genuinely defaulted but subsequently rectified all non-compliances, it may submit a formal application to the RBI requesting restoration of the cancelled license.

This application should be comprehensive and include:

A detailed explanation of past non-compliance
Evidence of rectification (e.g., increased capital, updated returns, audit reports)
A compliance plan to prevent recurrence
Board resolution authorizing restoration request

While there is no statutory guarantee of restoration, the RBI may exercise discretion to reinstate the CoR if satisfied with the corrective measures and future compliance intent.

Importance of Seeking Legal Counsel

Given the complex interplay of regulatory compliance, administrative law, and judicial remedies, it is strongly advised that NBFCs engage competent legal or regulatory professionals.

Legal counsel can help in:

Assessing the strength of the case
Drafting persuasive SCN replies
Structuring restoration applications
Representing the NBFC before judicial or quasi-judicial forums

Timely and strategic legal intervention can often make the difference between permanent cancellation and successful revival of the NBFC's business operations.

Process of NBFC License Restoration:

NBFC License restoration is not a statutory right, but a discretionary remedy offered by the RBI in deserving cases. The key steps include:

1. Identification of Non-Compliance: Conduct a detailed internal audit to identify the cause of cancellation, such as inadequate NOF, non-submission of returns, or deviation from business scope.

2. Rectification of Deficiencies: Correct the non-compliance by:

Infusing additional capital to meet NOF norms
Filing all overdue returns and audited financials
Updating KYC and internal compliance protocols

3. Submission of Restoration Application: A formal application should be submitted to the RBI's regional office with:

Cover letter requesting restoration
Explanation of non-compliance and proof of rectification
Latest audited financial statements
Compliance checklist and self-declaration
Board resolution approving restoration application

4. Representation and Follow-up: Engage in dialogue with RBI officers if required. Be prepared for inspection, interview, or documentary scrutiny before a decision is made.

Documents Required for Restoration

The following documents must accompany the restoration application:

Copy of original Certificate of Registration (CoR)
Board resolution for restoration
Compliance reports and audit trail
Latest NOF certificate from statutory auditor
ROC filings (MCA documents)
PAN, GST, and Income Tax records
Details of past violations and corrective measures
Any court orders, if legal proceedings were involved

The documentation must be authentic, and organized to increase the chances of favorable consideration.

Role of Compliance and Legal Advisors in License Restoration

The process of restoring a cancelled NBFC license is complex, document-intensive, and procedurally sensitive, requiring strategic of regulatory and legal frameworks. In such scenarios, compliance experts and legal advisors play a critical role in facilitating a successful restoration by bridging regulatory expectations with the NBFC's operational realities.

Their involvement typically includes the following key functions:

Compliance Gap Analysis

The first step in any restoration effort is identifying the root causes of cancellation. Advisors conduct a detailed gap analysis to examine areas of non-compliance whether related to capital adequacy, statutory filings, operational irregularities, or deviation from RBI guidelines. This diagnostic assessment forms the foundation for all subsequent remedial measures.

Drafting Strategic Responses to Regulatory Notices

A legally sound and factually substantiated reply to RBI’s Show Cause Notice (SCN) is essential. Legal professionals bring precision to this task by drafting responses that:

Address each allegation pointwise
Present evidence of compliance or remedial action
Cite relevant regulatory provisions and RBI circulars
Argue proportionality and fairness in regulatory action

Such professional drafting significantly improves the likelihood of preventing or reversing cancellation.

Handling Legal Proceedings and Writ Petitions

Where the matter escalates to litigation such as the filing of a writ petition before the High Court under Article 226 the role of legal counsel becomes indispensable. Advisors assess the viability of legal remedies, prepare pleadings, represent the NBFC before courts, and negotiate interim reliefs such as stay on cancellation.

They also ensure that the litigation strategy aligns with business goals and reputational considerations.

Preparation of Restoration Dossier and Compliance Submissions

When applying for restoration, the NBFC must submit a complete and audit-compliant application demonstrating full rectification of earlier lapses. Advisors assist in compiling a robust documentation set, which typically includes:

Updated audited financials
Proof of statutory and regulatory compliance
Net Owned Fund (NOF) certificates
Revised governance policies and risk frameworks
Board resolutions and declarations

The quality and completeness of this submission often determine the outcome of the restoration request.

Interface and Representation Before the RBI

Restoration often involves clarification meetings, document scrutiny, and follow-up interactions with RBI officials. Experienced advisors represent the NBFC during these discussions, offering:

Clarifications on technical or legal queries
Additional documentation on demand
Assurance regarding future compliance systems

Their familiarity with RBI expectations, tone, and procedural norms helps present the NBFC’s case in the most credible and organized manner.

Ensuring Long-Term Regulatory Preparedness

Beyond immediate restoration, compliance advisors help design and implement long-term governance and compliance frameworks. This includes:

Internal control systems
Periodic compliance audits
Regulatory training for staff
Automation of statutory reporting mechanisms

Such preventive measures minimize future risk of cancellation and foster a culture of regulatory discipline.

Engaging Specialized NBFC Consultants

Given the sector-specific nature of NBFC regulations, general legal or corporate advisors may not be sufficient. It is prudent to engage professionals with demonstrated expertise in NBFC regulations, RBI procedures, and financial compliance. Their practical experience in handling restoration cases often proves decisive in overcoming regulatory hurdles.

RBI’s Approach and Discretionary Powers in License Restoration

The Reserve Bank of India (RBI), as the primary regulatory authority for Non-Banking Financial Companies (NBFCs), exercises both statutory authority and discretionary judgment when it comes to the cancellation and potential restoration of a Certificate of Registration (CoR). Although the RBI operates under established regulatory norms, decisions regarding restoration are not automatic and are subject to the Bank’s independent evaluation and discretion.

RBI considers several qualitative and quantitative parameters before taking a view on whether to reinstate or reject a restoration request. These include, but are not limited to, the following:

Severity of Original Non-Compliance

The RBI assesses the nature, frequency, and materiality of the non-compliance that led to cancellation. If the breach involves core regulatory provisions—such as failure to meet Net Owned Fund (NOF) requirements, illegal deposit-taking, fraudulent practices, or systemic risk exposure—the likelihood of restoration diminishes.

In contrast, procedural or technical defaults, if corrected timely, may be viewed more leniently.

Time Taken for Rectification of Deficiencies

The timeliness and responsiveness of the NBFC in correcting compliance gaps is another important factor. Restoration applications submitted promptly after cancellation, supported by complete documentary proof of rectification, are favourably considered.

Prolonged inaction or delay in addressing defaults may indicate poor governance or lack of operational readiness and can adversely affect the restoration outcome.

Financial and Operational Viability of the NBFC

The RBI evaluates whether the applicant NBFC is financially sound and operationally capable of continuing business in a compliant manner. This involves a review of:

Audited financial statements
Capital adequacy and liquidity position
Asset quality and provisioning norms
Business model sustainability
Adequacy of internal controls and risk management systems

The regulator must be satisfied that the NBFC will not pose solvency or compliance risk post-restoration.

Past Conduct and Compliance Track Record

The historical behaviour of the NBFC its responsiveness to past inspections, regulatory queries, and supervisory directions significantly influences the RBI’s decision. Entities with a history of repeat violations, evasive practices, or poor governance may find it difficult to secure restoration.

On the other hand, companies with a generally compliant track record and isolated or inadvertent lapses may benefit from the regulator’s constructive approach.

Public Interest and Systemic Risk Considerations

RBI’s mandate includes the protection of public interest, financial stability, and systemic integrity. Before restoring a license, the RBI assesses whether the NBFC’s continued operation aligns with these broader objectives.

Factors such as the NBFC’s market presence, customer base, geographical outreach, and interlinkage with other financial institutions may be weighed to evaluate systemic relevance. If restoration is likely to serve underserved sectors without increasing regulatory risk, the RBI may lean in favor of approval.

Restoration Through Fresh or Reissued CoR

If the RBI is satisfied on all fronts, it may choose to:

Reinstate the original Certificate of Registration that was cancelled, or
Issue a fresh CoR, subject to new conditions, enhanced compliance requirements, or restrictions for a specified period.

Such restoration is formally communicated through an official RBI letter or order and may include specific directions or reporting obligations to ensure post-restoration monitoring.

Precautionary Measures to Prevent Future Cancellation

Restored NBFCs must adopt proactive compliance practices to avoid future risks:

Regularly monitor capital adequacy and NOF
Maintain up-to-date statutory records and return filings
Establish a strong internal audit system
Implement robust KYC and AML compliance mechanisms
Train staff on regulatory updates
Engage a compliance officer or external advisor for periodic reviews

RBI’s regulatory for NBFCs is evolving rapidly. Timely compliance is important for long-term sustainability.

Conclusion

The restoration of an NBFC license offers a second chance for promoters to rebuild trust with regulators and the financial community. While the process can be time-consuming and documentation-intensive, it reflects the RBI’s balanced approach toward compliance and correction.

With adequate preparation, transparency, and professional assistance, restoration is achievable even for companies with complex compliance histories. The key lies in demonstrating genuine intent, regulatory seriousness, and operational readiness to resume financial activities responsibly.

For NBFCs looking to restore their license, early action, expert support, and adherence to RBI norms are not just procedural requirements they are foundational to revival and growth in a dynamic financial environment.

For further information you can visit Compliance Calendar LLP

Email: info@ccoffice.in

Contact no. +91 998842411

FAQs

Q1. Why can the RBI cancel an NBFC’s Certificate of Registration (CoR)?

Ans. The RBI may cancel an NBFC’s CoR under Section 45-IA(6) of the RBI Act, 1934 for reasons such as failure to commence business within six months of registration, non-maintenance of Net Owned Funds (NOF), non-compliance with prudential norms, default in filing returns, or engaging in unlawful financial activities.

Q2. Can a cancelled NBFC license be restored?

Ans. Yes. The RBI allows restoration of a cancelled license in deserving cases where the NBFC has rectified the non-compliance, demonstrated operational readiness, and filed a formal application supported by documentary evidence.

Q3. What is the first step after receiving a Show Cause Notice (SCN) from the RBI?

Ans. Upon receiving an SCN, the NBFC must promptly respond with a detailed, point-wise reply, addressing each allegation with proof of compliance or corrective action. Legal counsel should ideally assist in drafting this reply to increase the chances of favourable consideration.

Q4. How long does it take to restore an NBFC license?

Ans. There is no fixed timeline, as restoration depends on the complexity of the non-compliance, quality of the application, and RBI’s internal processing. On average, it may take 3 to 6 months post-submission, subject to RBI’s satisfaction and clarity of documentation.

Q5. Can a company approach the court if the RBI rejects the restoration request?

Ans. Yes. An aggrieved NBFC may file a writ petition under Article 226 of the Constitution before the appropriate High Court, challenging the RBI’s decision on grounds such as arbitrariness, procedural violation, or disproportionality.

Q6. What documents are required to apply for license restoration?

Ans. Typical documents include:

A cover letter/application for restoration
Audited financial statements
NOF compliance certificate
Latest statutory returns filed (NBS-9, NBS-1, etc.)
Proof of rectification of past defaults
Board resolution and updated corporate documents

Additional documents may be required depending on the nature of cancellation.

Q7. Does the RBI issue a fresh license or reinstate the old one?

Ans. The RBI may choose to reinstate the original license or issue a fresh Certificate of Registration, depending on the circumstances. In some cases, restoration is granted with conditions such as enhanced supervision or limited scope of operation.

Q8. What is the role of legal and compliance professionals in the restoration process?

Ans. Compliance experts and legal advisors play a key role in:

Conducting gap analysis
Drafting responses and restoration applications
Preparing documentation
Representing the NBFC before the RBI or courts
Ensuring long-term regulatory preparedness

Their expertise significantly improves restoration prospects.

Q9. Can restoration be requested after a long delay post-cancellation?

Ans. While restoration is possible after a delay, prolonged inaction may negatively impact the case. It is advisable to apply as early as possible after rectifying non-compliances. A delay must be explained with justified reasons and proof of readiness.

Q10. Is restoration guaranteed if all compliance conditions are met?

Ans. No. Restoration is not an automatic right. It lies within RBI’s discretionary powers and depends on multiple factors including severity of past non-compliance, systemic risk concerns, and public interest. However, strong compliance and professional representation improve the chances significantly.