How Section 45QA Of The Reserve Bank Of India Act, 1934, Can Bridge The NBFC Recovery Gap

Sometimes the most effective strategy is not to look for a new remedy, but to know the existing one better.

Introduction:

When one Non-Banking Financial Company (“NBFC”) lends money to another NBFC and the borrower defaults, the lender finds itself in a surprisingly constrained recovery landscape.

An NBFC, merely by virtue of its NBFC status, does not qualify as a “financial institution” under Section 2(h) of The Recovery of Debts and Bankruptcy Act, 1993 (“RDB Act”). Accordingly, unless specifically covered/notified under the said provision, an NBFC lender cannot initiate recovery proceedings before the Debt Recovery Tribunal (“DRT”).

Further, under the Insolvency and Bankruptcy Code, 2016 (“IBC”), insolvency proceedings cannot be initiated against an NBFC borrower through the ordinary corporate insolvency route, since NBFCs, as financial service providers, are expressly excluded from the definition of “corporate debtor” under the IBC.

A commercial suit still remains available, but is both slow and expensive.

As matters stand, this article examines an underused provision of the Reserve Bank of India Act, 1934 (“RBI Act”), Section 45-I(bb) of Chapter IIIB, which statutorily classifies a loan received by NBFC as a “deposit” and vests the National Company Law Tribunal (“NCLT”) with exclusive jurisdiction under Section 45QA to direct repayment of the deposit. In the right case, this provision may be the sharpest tool in the lender's recovery arsenal.

I. The Problem Nobody Talks About: The Inter-NBFC Recovery Gap

India’s NBFC sector has grown from a peripheral participant in the financial system into a Rs. 61.09 lakh¹ crore industry that touches everything from consumer credit to infrastructure finance. With that growth has come a quiet, largely undiscussed problem: what happens when an NBFC lends money to another NBFC, and the borrower defaults?

The question is not academic. Inter-NBFC lending is structurally common. Larger, well-capitalized NBFCs routinely place funds with smaller NBFCs through inter-corporate loans, treasury deployments, short-term liquidity support, or other financial accommodation. The difficulty begins when the borrower NBFC defaults. The lender’s instinctive first move is to look for the standard recovery routes. That instinct often leads to an uncomfortable realisation.

II. Three Roads, Three Dead Ends: Why the Conventional Routes Fall Short

A. The DRT Problem: Not Every NBFC Has Standing

The Recovery of Debts and Bankruptcy Act, 1993 (“RDB Act”) is a specialised statute. Section 19 of the RDB Act permits a ‘bank’ or ‘financial institution’ to move the DRT for recovery of debt. The first question for any NBFC lender must be: Does it qualify as a ‘financial institution’ within the meaning of Section 2(h) of the RDB Act?

The recovery framework under the RDB Act is not open to all regulated entities; it is available only to ‘banks’ and to ‘financial institutions’ specifically notified by the Central Government for the purpose of the RDB Act - Section 2(h)(ii) of the RDB Act clarifies this position beyond doubt. Therefore, an NBFC, regardless of the scale of its operations, its RBI registration, does not automatically acquire the status of a ‘financial institution’ under the RDB Act. The status is conferred; it cannot be assumed.

The result, for inter-NBFC recovery, is unambiguous. Where the lender NBFC has not been independently notified as a "financial institution" under Section 2(h) of the RDB Act, the DRT is not an available forum.

This brings us to a practical misconception that has caused more than a few NBFC lenders to take a wrong turn at the very first step: a notification under the SARFAESI Act is not a pass to the DRT.

The position under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) must be understood separately. Section 2(1)(m)(iv) of the SARFAESI Act empowers the Central Government to notify an NBFC as a "financial institution" solely for that Act. This notification is confined to the SARFAESI framework and does not extend to the RDB Act.

This distinction was authoritatively settled by the Bombay High Court in Tata Motors Finance Solutions Ltd. v. Naushad Khan², decided on December 20, 2023. Notification under SARFAESI does not automatically confer financial institution status under the RDB Act. The definitions are legislatively distinct, and the entry tests are different.

The Delhi High Court's decision in Aditya Birla Finance Limited v. Anjali Nag & Ors³., decided on March 19, 2024, reinforced this position. The Court observed that although Aditya Birla Finance Limited had been notified as a “financial institution” under Section 2(1)(m)(iv) read with Section 31A of the SARFAESI Act vide notification dated August 5, 2016, issued by the Department of Financial Services, Ministry of Finance, no corresponding notification existed under the RDB Act.

The lesson from both decisions is the same: SARFAESI notification and RDB Act standing are not two sides of the same coin. They are different coins entirely. An NBFC that has not cleared the independent notification threshold under Section 2(h) of the RDB Act has no standing before the DRT, irrespective of what it holds under the SARFAESI Act, and irrespective of whether its borrower is an NBFC or any other entity.

B. The IBC Dead End: Why Insolvency Proceedings Cannot Be Initiated Against an NBFC Borrower

Where one NBFC has lent money to another NBFC and the borrower defaults, the lender cannot initiate insolvency proceedings against the borrower NBFC under the IBC. This is not a gap in practice; it is a statutory exclusion by design.

The Corporate Insolvency Resolution Process (“CIRP”) under Part II of the IBC is available only against a “corporate debtor” as defined under Section 3(8) of the IBC. Section 3(7) of the IBC defines a “corporate person”, and Section 3(8) defines a “corporate debtor” as a corporate person who owes a debt to any person. However, the definition of “corporate person” under Section 3(7) expressly excludes a “financial service provider”. An NBFC, being a financial service provider within the meaning of Section 3(17) of the IBC, falls outside the definition of a corporate debtor altogether. Accordingly, neither a financial creditor under Section 7 nor an operational creditor under Section 9 of the IBC can initiate CIRP against an NBFC borrower. The exclusion is categorical and applies irrespective of the quantum of default or the nature of the lending arrangement.

Even under Section 227 of the IBC read with the Insolvency and Bankruptcy Board of India (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (“FSP Rules, 2019”) and MCA Notification No. S.O. 4139(E), the position of a lender NBFC remains unchanged; despite the enabling framework for Financial Service Providers with assets over Rs. 500 crores, only the RBI (not a private or NBFC lender) possesses the standing to initiate proceedings, effectively leaving an NBFC lender without an IBC remedy against a defaulting NBFC borrower.

C. The Commercial Suit Problem

One can safely say that a lender NBFC retains the option of filing a commercial suit for recovery before the appropriate forum. Under the Commercial Courts Act, 2015, a financing transaction between two business entities would typically qualify as a ‘commercial dispute’ within the meaning of Section 2(1)(c) of that Act, provided the specified value and jurisdictional requirements are met. But availability and efficiency are different things.

Section 12A of the Commercial Courts Act, 2015 mandates Pre-Institution Mediation before filing a suit, unless urgent interim relief is sought. In practice, the lender must first exhaust the Pre-Institution Mediation and Settlement (“PIMS”), adding another layer of delay before proceedings can begin.

Further, a money suit entails substantial ad valorem court fees and is vulnerable to prolonged procedural disputes on issues such as authority, limitation, interest computation and contractual term. Accordingly, the remedy is commercially inefficient.

III. The Statutory Turn: Section 45QA of the RBI Act, 1934

Against this backdrop, Section 45QA of the RBI Act, 1934, offers a different route. Chapter IIIB, which governs deposits accepted by NBFCs, is backed by Section 45Q, a non-obstante provision giving the chapter overriding effect over inconsistent laws and instruments. Section 45QA empowers NCLT to direct repayment where an NBFC fails to repay in accordance with its terms.

The entire issue, however, turns on two words: “deposit” and “depositor.”

IV. Section 45-I(bb): Why Inter-NBFC Loans Qualify as Deposits for Section 45QA

Section 45-I(bb) of the RBI Act defines “deposit” for Chapter IIIB purposes widely, it includes "any receipt of money by way of deposit or loan or in any other form", subject to specified exclusions. For inter-NBFC lending, the relevant exclusion is under clause (iii), which covers amounts received from scheduled banks, co-operative banks, banking companies, Development Banks, and specified financial institutions. An NBFC lending to another NBFC falls within none of these categories.

The statutory architecture of Section 45-I(bb) places the burden of proof strategically. The definition casts a wide net: any receipt of money, in any form, is a deposit unless excluded. Once the lender establishes the fact of the borrower NBFC's receipt of money, the initial burden is discharged. It is then for the borrower to demonstrate that the transaction falls squarely within one of the specified exclusions under Section 45-I(bb). The borrower cannot merely assert exclusion; it must prove it. This reversal of burden is not a procedural technicality; it is built into the statute's design and operates as a powerful forensic advantage for the lender at the threshold stage.

For Chapter IIIB of the RBI Act, Section 45-I(bb) includes any receipt of money by way of loan within the statutory meaning of deposit. Therefore, even an inter-corporate loan would qualify as a deposit, and given the notwithstanding nature of Section 45Q of the RBI Act, the exclusion available under Rule 2(1)(c)(vi) of the Companies Acceptance of Deposit Rules, 2014, for “any amount received by a company from another company” might not be available to the borrower.

Judicial endorsement of this reading is now authoritative. In Madhusudan Vehicles Pvt. Ltd. v. Shivam Traders and Hire Purchase Pvt. Ltd,⁴ decided on January 16, 2026, the NCLT Allahabad Bench entertained a Section 45QA petition filed by one NBFC against another for recovery of a Rs. 19.25 crore loan.

The Allahabad High Court, in the first appeal arising from those proceedings, Shivam Traders and Hire Purchase Pvt. Ltd. v. Madhusudan Vehicles Pvt. Ltd.⁵, decided on March 31, 2026, resolved a critical tactical risk that lenders previously faced. Section 430 of the Companies Act, 2013, prohibits civil courts from entertaining matters that the Tribunal is empowered to determine. Once a Section 45QA application is filed, the borrower NBFC cannot obtain a civil court injunction to stay the NCLT proceedings. The NCLT's jurisdiction is exclusive and uncircumventable.

A borrower will almost certainly argue that inter-corporate loans between companies are excluded from ‘public deposits’ under the RBI's Master Directions DNBR.PD.002/03.10.119/2016-17⁶ on Non-Banking Financial Companies. That argument must be directly addressed. The distinction is critical: ‘deposit’ under Section 45-I(bb) and ‘public deposit’ under the RBI Master Directions for NBFCs are not co-extensive concepts. Acting under its powers under Chapter III of the RBI Act, Section 45K, 45L and 45 JA, RBI restricts which categories of deposits NBFCs may accept from the public and imposes prudential conditions. The statutory definition in Section 45-I(bb) is a different question; it answers what amounts to a deposit for Chapter IIIB's repayment remedy.

Also, A formal loan agreement may not necessarily be a sine qua non for maintaining a petition under section 45QA as expressly held in the case of Renu Agarwal v. Shivam Traders and Hire Purchase Pvt. Ltd⁷ decided on January 16, 2026, by NCLT Allahabad. The Tribunal further held that even an oral arrangement would not absolve the borrower NBFC of its obligation to repay amounts admittedly received and utilised.

V. NCLT as Forum: The Procedural and Commercial Advantage

Once the statutory foundation is established, the procedural advantages of the Section 45QA route over a commercial suit become substantial.

A. Filing and Cost:

Rule 65 of the NCLT Rules, 2016 applies the NCLT Rules, mutatis mutandis, to applications under Section 45QA(2) of the RBI Act. Rule 73 provides that an application for repayment of deposits, including an application under Section 45QA, is to be filed in Form NCLT-11 with the relevant documents.

The NCLT filing cost for deposit repayment applications is nominal. Unlike a commercial suit, where court fees scale with the quantum of the claim and can represent a significant capital outflow, the NCLT schedule keeps filing costs proportionate and fixed. In high-value NBFC exposures, often running to several crores, this is a meaningful commercial advantage.

B. Statutory Design Favours Expedition

The statutory framework explicitly mandates an expedited timeline for deposit repayment. Under Rule 73(3) of the NCLT Rules, 2016, the Tribunal is required to pass an appropriate order within a period of sixty days from the date of receipt of the application.

This expedited 60-day mechanism bypasses the prolonged pre-trial and trial stages typical of a commercial suit. The only statutory prerequisite to this timeline is that the Tribunal must, before making any order, give a reasonable opportunity of being heard to the company and any other person interested in the matter.

VI. Why This Route Matters and What It Is Not

Section 45 QA remains one of the most underutilised recovery mechanisms available to NBFC lenders.

Where an NBFC has received money by way of a loan, the first question should not be whether a suit can be filed or whether insolvency can be triggered. The first question should be whether that receipt falls within the statutory definition of a “deposit” under Section 45-I(bb) of the RBI Act.

The lender may gain access to a direct repayment remedy before the NCLT and avoid hefty court fees and procedural delays, ultimately saving time and costs. Section 45QA might not be a universal solution, but it can apply in cases with strong analysis and documentary or circumstantial evidence, even without a written or oral agreement. When these requirements are satisfied, it can serve as a statutory mechanism for claiming repayment.

The irony is difficult to miss. An NBFC lender may spend years searching for a recovery remedy while overlooking one contained in the very statute that governs its borrower. Section 45QA does not create a new right; it simply reveals one that has been there all along.

Footnotes

1. https://economictimes.indiatimes.com/industry/banking/finance/nbfc-balance-sheets-expand-in-fy25-on-loan-growth-microfinance-stress-persists-rbi/articleshow/126239137.cms?from=mdr

2. Tata Motors Fin. Sols. Ltd. v. Naushad Khan, 2023 SCC OnLine Bom 2716.

3. Aditya Birla Fin. Ltd. v. Anjali Nag, ARB.P. 771/2023, 2024 SCC OnLine Del 2568 (Delhi High Ct. Mar. 19, 2024)

4. Madhusudan Vehicles Pvt. Ltd. v. Shivam Traders & Hire Purchase Pvt. Ltd., (2026) ibclaw.in 203 NCLT, CP No. 190/ALD/2020 (N.C.L.T. Allahabad Bench Jan. 16, 2026).

5. Shivam Traders & Hire Purchase Pvt. Ltd. v. Madhusudan Vehicles Pvt. Ltd., First Appeal No. 253 of 2025, 2026:AHC:67074 (All. H.C. Mar. 31, 2026)

6. Reserve Bank of India, Master Direction – Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016, Master Direction No. DNBR.PD.002/03.10.119/2016-17 (Aug. 25, 2016), https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10563.

7. Renu Agarwal v. Shivam Traders & Hire Purchase Pvt. Ltd., (2026) ibclaw.in 199 NCLT, CP No. 54/ALD/2024 (N.C.L.T. Allahabad Bench Jan. 16, 2026).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.