Rbi query

Others 791 views 3 replies

Nirav Kadakia

Executive Company secretary

24 Points Joined October 2012

Dear all,

Can anybody tell me that whether any Partnership firm can indulge in Non banking Financials Activity? or is there any compliance need to follow with RBI or any other authoeity?

I m putting one supporting herewith, but its not saying anything about Partnership firm :-

NBFCs under RBI Act 1934:

Chapter IIIB of Reserve Bank of India Act 1934 (â€˜the Actâ€™) governs the provisions relating to a Non- Banking Financial Company. Non â€“Banking Financial Company (â€˜NBFCâ€™) has been defined in clause (f) of Section 45-I of the Act to mean-

a financial institution which is a company;
a non- banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner , or lending in any manner;
such other non- banking institution or class of such institutions, as the bank may, with the previous approval of the Central Government and by notifications in the Official Gazette specify.

Regards,

Nirav Kadakia

Replies (3)

Smriti Dhawan

Company Secretary

347 Points Joined June 2009

A partnership Firm can indulge in finance business but such entity cannot accept deposits from public as per Section 45S of the RBI Act. Any form of entity other than a company under the Companies Act is not an NBFC. Accordingly, individuals, partnership firms, LLPs, trusts, etc. carrying on financial business are not NBFCs.

No Compalince with regard to RBI Guidelines for NBFC is required to be done by a Partnership Firm.

Guest

Dear Nirav,

There is nothing wrong about a Partnership firm carrying on activity of non-banking finance, as an unincorporated entity. There are also some partnership firms engaged in the business of non-banking finance, like Muthoot Fincorp. Such Partnership Finance firms are not regulated by RBI. However, such entity cannot accept deposits from public as per sec 45S of the RBI Act.

But, Section 45-S does not in any way prohibit or restrict any unincorporated body or individual from carrying on the business that it likes. It is open to unincorporated bodies like a partnership firms to carry on their financial business either from their own funds or the funds borrowed from their relatives or from financial institutions. [Bhavesh D. Parish vs. Union of India (Writ petition (c) no. 168 of 1997 decided on May 12, 2000)]

At the same time, any form of entity other than a company under the Companies Act is not an ‘NBFC’. Accordingly, individuals, partnership firms, LLPs, trusts, etc. carrying on financial business are not ‘NBFCs’.

Regards,

Veeral Gandhi