Lenders Law

1. Introduction The RBI has, through its April 2026 draft directions , initiated a fundamental recalibration of the regulatory framework governing NBFCs. For NBFCs, this is not merely a consolidation of legacy circulars. It represents a transition toward a supervision-led regulatory architecture , with direct implications for governance, credit strategy, outsourcing models, and regulatory exposure. This blog examines key elements emerging from select draft directions and their implications for NBFCs, fintechs, and regulated entities. 2. Compliance Function: Institutionalizing Control at the Core of NBFC Operations The Reserve Bank of India (Non-Banking Financial Companies – Compliance Function) Directions, 2026 introduce: Annual Compliance Risk Assessment:  Senior management is required to conduct a formal, enterprise-wide compliance risk assessment and implement a mitigation plan. Chief Compliance Officer (CCO) Framework: Mandatory appointment of a CCO (including exter...

The Supreme Court of India has, in a recent decision in Gloster Limited vs. Gloster Cables Limited & Ors. , delivered an important clarification on the limits of insolvency jurisdiction , particularly where intellectual property ownership disputes intersect with the Corporate Insolvency Resolution Process (CIRP). The ruling is significant for lenders, resolution applicants and insolvency professionals, as it reinforces that insolvency forums are not substitutes for civil courts in adjudicating complex title disputes. Background:  The dispute arose in the CIRP of Fort Gloster Industries Limited , where competing claims were raised over the ownership of the trademark “Gloster” . The successful resolution applicant asserted that the trademark was a corporate debtor asset , capable of being transferred under an approved resolution plan. Another party (who was assigned the rights over the trademark vide an assignment agreement, and was also an associate company of t...

Loans against shares (LAS) to listed companies or their promoters are often perceived as low-risk, fully secured exposures —especially when the initial Loan-to-Value (LTV) appears comfortable (2x cover). In reality, equity-backed lending is one of the fastest deteriorating credit exposures if governance, monitoring, and documentation are weak . This blog sets out everything lenders should evaluate before and after sanction . Understand the Risk: Shares Are Not Static Collateral: Unlike real estate or fixed assets, listed shares: Are marked-to-market daily; Are exposed to price volatility, liquidity risk, and sentiment shocks; Can lose value before the lender is operationally ready to act. A “2x cover” at sanction is only a point-in-time comfort , not a risk mitigant by itself. Initial LTV Is Only the Entry Point — Stress Testing Is Critical: Before sanction, NBFC should stress-test: 30/60-day average; Fall in trading volumes during market stress; Impact of simultaneous i...

India’s lending regulation is founded on a deliberate legal distinction:  the law regulates the “business of lending”, not every instance of lending . Accordingly: The Reserve Bank of India (RBI) regulates lending by Non-Banking Financial Companies (NBFCs) . State Governments regulate moneylenders under local Money Lending Acts. Yet, a significant and increasingly common practice now sits between these two regimes: Loans are advanced not by the NBFC, but by an individual promoter or by other group entities in which the promoter has a stake—often to borrowers who originally approached the NBFC itself. Such lending falls outside RBI regulation and outside State moneylender laws , creating a regulatory grey zone. Why RBI Regulation Does Not Extend to Individuals and Certain Group Entities? RBI’s powers under the RBI Act, 1934 extend only to entities carrying on the business of a non-banking financial institution . The 50–50 Test for NBFCs- An entity qualifies as an NBFC on...

The Reserve Bank of India (RBI) recently cancelled  the Certificate of Registration (CoR) of four Non-Banking Financial Companies (NBFCs). While CoR cancellations are not routine, they are a powerful supervisory tool used when an NBFC fails to comply with prudential, regulatory, or governance requirements. This development has again placed the spotlight on Section 45-IA(6) of the Reserve Bank of India Act, 1934 , the statutory basis for cancellation of an NBFC’s CoR. What Does Section 45-IA(6) of the RBI Act Provide? Section 45-IA deals with registration requirements for NBFCs . Sub-section (6) empowers RBI to cancel an NBFC’s CoR if it fails to comply with essential conditions. RBI may cancel the CoR if the NBFC: Fails to comply with conditions of registration; Does not maintain the prescribed Net Owned Fund (NOF); Fails to submit statutory returns or documents; Operates in a manner that is prejudicial to public interest; Violates RBI directions, circulars, o...

The Insolvency and Bankruptcy Code (IBC) places a heavy responsibility on the Resolution Professional (RP) to ensure that only eligible Resolution Applicants (RAs) —and their connected persons —participate in a Corporate Insolvency Resolution Process (CIRP). With the recent IBBI Circular No. IBBI/CIRP/88/2025 dated 18 November 2025 , the scope, depth, and documentation requirements for such due diligence have become even more critical. The RP must directed to place a detailed note on section 29A compliance before the CoC when resolution plans are considered and ensure that deliberations and observations of the CoC are properly recorded in the minutes. This post distils the framework I personally follow as a legal practitioner, incorporating including digital tools like Tofler , ZaubaCorp , public-domain searches, SEBI jurisprudence on “persons acting in concert,” and a printable checklist. Understanding Section 29A and Who It Covers: Section 29A extends ineligibility not only t...

The Hon'ble Supreme Court’s ruling in  EPC Constructions India Ltd. v. Matix Fertilizers and Chemicals Ltd.   (2025) clarifies that preference shares—however structured—remains part of a company's share capital, and cannot be regarded as "debt". Even if classified as “financial liability” under Ind AS 32, legal character under the Companies Act still governs enforceability. A cautionary tale for investors and creditors relying on redeemable or “put option” structures to secure repayment.  The Case in Brief In EPC Constructions (supra), the appellant had over ₹400 crores in receivables for project work. The appellant/ former operational creditor agreed to convert its dues into 8% Cumulative Redeemable Preference Shares (CRPS)—redeemable in three years. When the respondent/ debtor failed to redeem, the appellant (then in liquidation), through its liquidator, filed a Section 7 petition under the Insolvency and Bankruptcy Code (IBC), claiming default on redemption. Both ...