Provisions of NBFCs

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A little-known provision of the businesses Act, 2013 provides non-banking money firms (NBFCs) parity with banks. This may have way reaching consequences as NBFCs are going to be able to charge recipients with “fraud provisions” of the businesses Act if the borrower has evoked the investor to lend cash by supply dishonest data. There are serious implications of fraud below the Act, with imprisonment for a minimum of six months however growing to ten years. Not solely this. Since auditors of NBFCs are obligatorily needed to report fraud, NBFCs could effectively force the auditors to report the fraud to the MCA.

 

The genesis of the newfound parity granted by Companies Act to NBFCs is a newly inserted definition of “financial institution” in section 2 (39) of the Act, whereby financial institution is defined to include a bank, or any “financial institution defined or notified under the RBI Act”.

At first blush, one would have thought, the monetary establishments outlined underneath the run Act would come with public monetary establishments like the IFCI or IDBI of yester-years. However, if one sees the definition of “financial institutions” in section 45I (c) of the run Act, scan with section 45I (e), the definition clearly covers non-banking monetary corporations.