All About Nidhi Companies

All About Nidhi Companies

All About Nidhi Companies

According to Indian language Nidhi means treasure. Nidhi company is formed mainly for cultivating the habit of thrift and savings amongst its members. Nidhi company is also called by the name Mutual Benefit Company. These companies aid people to come together and put their small savings at a place and also aid them to avail loans required for various needs. It assists the people coming from the modest sector of the society to avail loans that otherwise would have been impossible or difficult hence helping them at various steps of life, be it for personal use or for business use.

Nidhi Companies are like NBFCs only except the fact that the provisions of the Reserve Bank Of India Act applicable to NBFCsare are not applicable to the Nidhi Companies since they deal with their members only. Nidhi Companies are governed by the Companies Act 2013. The Companies Act has laid down rules called Nidhi Rules, 2014 which have to be followed by all the Nidhi Companies.

As per the Companies Act, 2013 under the provision of section 406(1), “Nidhi” means a “company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit”. Under the Companies Act, 2013, there are various limitations on shareholders and directors to accept and give away the money to the Company. Thereby, the Ministry of Corporate Affairs came up with the concept of Nidhi Companies whereby unlike Non-Banking Financial Company (NBFCs), these companies do not require a registration certificate by Reserve Bank of India (RBI) to operate. In a literal sense, the word “Nidhi” means “treasure”.

Mandatory Requirements for Incorporation of Nidhi Company 

The requirements which are needed to be fulfilled before the incorporation of a Nidhi company are the following as under :

  1. Should be a Public Company with a minimum paid-up capital of Rs. 5 lacs.
  2. Shall not issue preference shares.
  3. Shall have the last words “Nidhi Limited” as a part of its name.
  4. Minimum three Directors which shall mandatorily be members of Nidhi Company.
  5. Minimum seven shareholders.
  6. Within a period of one year of incorporation, the Nidhi Company has to ensure the following compliances:
    1. Minimum of two hundred members
    2. Net owned funds (“NOF”) of at least Rs. ten lakhs.
    3. The ratio of NOF to deposits of not more than 1:20.
    4. Unencumbered term deposits of not less than ten percent of the outstanding deposit
Deposits and Acceptance 

A Company shall accept deposits only on compliance with the following conditions which are as under:

  1. Shall not accept deposits exceeding twenty times of its NOF.
  2. Fixed Deposits shall be accepted for a period of a minimum of six months to a maximum of sixty months.
  3. Recurring Deposits shall be accepted for a period of a minimum of twelve months to a maximum of sixty months.
Restrictions on Nidhi Company 

A Nidhi Company shall not:

  1. carry on the business of chit fund, hire purchase finance, leasing finance, insurance, or acquisition of securities by any body corporate.
  2. issue preference shares or debt instruments.
  3. open any current account with its members.
  4. acquire any Company by way of purchase of securities or controlling the composition of Directors unless approval has been taken from the Regional Director.
  5. carry on any business other than the business of borrowing and lending its own name.
  6. accept deposits from and lend to anyone else, apart from its members.
  7. pledge any of the assets lodged by its members as security
  8. take deposits from or lend money to anybody corporate
  9. enter into any partnership arrangement in its borrowing or lending activities
  10. issue advertisement for soliciting the deposit.
  11. pay any brokerage or incentive for mobilizing deposits from members or for granting loans.
  12. levy service charges for the issue of its shares or issue less than ten shares per deposit holder.
  13. grant loans to members exceeding the ceiling as mentioned in the Nidhi Rules, 2014.
  14. charge rate of interest exceeding 7.5%.
  15. not declare dividends exceeding twenty-five percent.
Statutory Compliances For Nidhi Company

The Nidhi Company shall have to adhere to all the sections and provisions as applicable to a Public Company except the provisions that have been particularly exempted for Nidhi Company. Moreover, instead of Form AOC-4 and MGT-7 that we file for normal Companies, the following forms shall have to file for Nidhi Companies which are as under:

  1. NDH-1: Within Nighty days of closure of first financial year after its incorporation certified by a company secretary in practice or a chartered accountant in practice or a cost accountant in practice certifying that the Nidhi Company has duly complied with its post incorporation compliances.
  2. NDH-3: Half-yearly return shall have to be filed within thirty days from the conclusion of each half-year duly certified by a company secretary in practice or chartered accountant in practice or cost accountant in practice.
  3. Auditors Certificate that the Company has requisitely complied with all the provisions of the Act.
  4. Further, the Income Tax provisions w.r.t. a Nidhi Company and a normal Company are the same.
Recent Amendments in the Companies Act, 2013 Applicable to Nidhi Companies 

A new application form NDH-4 has been inserted for those companies which desire to get the status of Nidhi. It is one of the main alterations which have been introduced under the Companies Act. On receiving an application of a public company under Form NDH-4 along with the prescribed fees, if fully convinced that the company has complied with all the requirements under the Rules, then the Central Government may declare the company as a Nidhi company in the official gazette.