Summary
The Court held that the Kerala and Gujarat money-lending enactments did not apply to NBFCs registered under the RBI Act and regulated by RBI. Chapter III-B constituted a comprehensive regulatory code with overriding effect. RBI’s choice to leave interest rates largely to market forces did not create a gap for State regulation. The Kerala appeals succeeded and Gujarat’s appeals failed.
Issues
- Whether RBI-regulated NBFCs were additionally subject to the Kerala and Gujarat money-lending enactments.
- Whether RBI’s powers covered lending and interest rates.
- Whether the competing legislative fields attracted Article 254 or Article 246.
Provisions considered
- Chapter III-B, particularly sections 45-JA, 45-L and 45-Q, Reserve Bank of India Act, 1934Treated the scheme as a complete code; recognised broad policy and business-direction powers and overriding effect over inconsistent State regulation. (¶¶ 6.14-6.20, 7-7.9, 10)
- Article 246(1); Seventh Schedule, List I entries 38, 43, 45 and List II entry 30, Constitution of IndiaRecognised State competence over money-lending generally but applied Union legislative priority to the regulation of the NBFCs in issue. (¶¶ 4.1-4.4, 8.3, 8.4)
- Section 2(7)(f), Kerala Money Lenders Act, 1958Rejected the contention that incorporation under a parliamentary enactment equated to establishment by or under such an enactment for the exclusion clause. (¶¶ 4.8, 4.15)
Held
- State legislative competence over money-lending generally was not in doubt. Nonetheless, Chapter III-B and the binding RBI directions comprehensively regulated the registered NBFCs, including lending and borrower-related matters. The Kerala and Gujarat enactments could not operate as additional regulatory regimes for them. (¶¶ 4.3, 4.4, 6.19, 6.20, 7, 7.1, 10, 11)
- The matters listed after the words relating to in section 45-JA(1) were illustrative, not exhaustive. Together with section 45-L’s business-direction power, the scheme permitted RBI intervention on interest rates. A regulatory choice to leave rates to market forces did not authorise the State to prescribe its own maximum rates for these NBFCs. (¶ 7.2-7.8)
- Article 254 repugnancy concerned competing legislation referable to the Concurrent List. Here the RBI enactment and the State enactments were traced respectively to Union and State fields, making Article 246(1), rather than Article 254, the relevant constitutional basis. (¶ 8.1-8.4)
- The NBFCs did not qualify for Kerala’s section 2(7)(f) exclusion merely because they were incorporated under the Companies Act. Their success instead rested on the controlling RBI regulatory scheme. Gujarat’s deemed-registration arrangement likewise did not cure the attempted application of its remaining controls. (¶¶ 4.15, 10.1)
- The dispute concerned registered, RBI-regulated NBFCs; exempt categories were not adjudicated. The Court stated that the principles would equally apply to the identified Tamil Nadu enactments, while expressly noting that it had not examined their provisions and dismissing the impleadment application. It did not dispose of that applicant’s separate IPC complaint on its merits. (¶¶ 6.21, 11.2)
Result
NBFC appeals from Kerala allowed; Gujarat’s appeals dismissed. Transfer Petition (Criminal) No.359 of 2015 allowed and the FIR for violation of the Kerala Act quashed. Impleadment application dismissed; no costs.