This article is written by CA Chetan Swaroop Monga. In this article, he explains the concept of Nidhi Companies and the provisions of Companies Act applicable to these kind of companies.

Introduction

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

Provisions of Companies Act, 2013 applicable to Nidhi Companies

Nidhi Companies are like NBFCs only except the fact that the provisions of RBI Act applicable to NBFCs don’t apply 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.  The quick view of the rules is being discussed as under:

• A Nidhi Company shall be a public company and shall have a minimum paid-up capital of Five Lakh Rupees.
• A Nidhi Company shall not issue preference shares.
• It is mandatory that a Nidhi Company shall have the last words “Nidhi Limited” as part of its name.  
• Every Nidhi Company shall within a year of its incorporation fulfil the following conditions:

1. It has at least 200 members (members shall not be reduced below 200 at any time during the year).
2. It has a Net Owned Fund of at least 10 lakhs (Net owned fund means the aggregate of paid-up equity share capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet).
3. It has unencumbered term deposits of at least 10 percent of the outstanding deposits at the close of the last working day of the second preceding month. In cases of unforeseen commitments, temporary withdrawal may be permitted with the prior approval of the Regional Director for the purpose of repayment to depositors, subject to such conditions and time limit which may be specified by the Regional Director to ensure restoration of the prescribed limit of 10 percent.
4. It has ratio of Net Owned Funds to Deposits of not more than 1:20 (means that a Nidhi Company can’t accept deposits exceeding 20 times of Net owned Funds).

A Nidhi Company shall not admit a body corporate o trust as a member. A minor shall not be admitted as a member of Nidhi Company, however, the deposits may be accepted in the name of a minor, if they are made by the natural or legal guardian who is a member of Nidhi Company.

• A Nidhi Company shall provide loans to its members basis the amount of deposits standing in the balance sheet of the Nidhi Company which is being discussed below:

Provided that where a Nidhi Company has not made profits continuously in the three preceding financial years, it shall not make any fresh loans exceeding 50% of the maximum amount specified above.

• The rate of interest to be charged on any loan given by Nidhi Company shall not exceed 7.5% above the highest rate of interest offered on deposits and shall be calculated on reducing balance method which means it can earn a maximum margin of 7.5% on the funds raised from the members.
• A Nidhi Company shall give loans to its members only against the following securities, namely:

1. gold, silver and jewellery.
2. immovable property.
3. fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies.

• A Nidhi Company shall accept deposits as per below norms: 

1. There are primarily three products offered by Nidhi Companies on which interest is offered which are namely Saving Deposits, Fixed Deposits & Recurring Deposits.
2. The fixed deposits shall be accepted for a minimum period of six months and a maximum period of sixty months.
3. Recurring deposits shall be accepted for a minimum period of twelve months and a maximum period of sixty months. In case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi Company.
4. A Nidhi Company may offer interest on fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the Reserve Bank of India which the Non-Banking Financial Companies can pay on their public deposits.

• A Nidhi Company may open branches, only if it has earned net profits after tax continuously during the preceding three financial years. However, a Nidhi Company may open up to three branches within the district. If a Nidhi Company proposes to open more than three branches within the district or any branch outside the district, it shall obtain the prior permission of the Regional Director and an intimation is to be given to the Registrar about opening of every branch within thirty days of such opening. No Nidhi Company shall open branches or collection centres or offices or deposit centres, or by whatever name called outside the State where its registered office is situated.
• A Nidhi Company shall not close any branch unless it:

1. publishes an advertisement in a newspaper in vernacular language in the place where it carries on business at least thirty days prior to such closure, informing the public about such closure;
2. fixes a copy of such advertisement or a notice informing such closure of the branch on the notice board of Nidhi Company for a period of at least thirty days from the date on which advertisement was published;
3. gives an intimation to the Registrar within thirty days of such closure.

• The Director of a Nidhi Company shall be a member of Nidhi who shall hold office for a term up to ten consecutive years on the Board of Nidhi. The Director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a Director. Where the tenure of any Director, in any case, had already been extended by the Central Government, it shall terminate on expiry of such extended tenure. The person to be appointed as a Director shall comply with the requirements of subsection (4) of Section 152 of the Act and shall not have been disqualified from appointment as provided in Section 164 of the Act.
• A Nidhi shall not declare dividend exceeding 25 percent or such higher amount as may be specifically approved by the Regional Director for reasons to be recorded in writing and further subject to the following conditions, namely:

1. an equal amount is transferred to General Reserve;
2. there has been no default in repayment of matured deposits and interest;
3. it has complied with all the rules as applicable to Nidhi Companies.

• No Nidhi Company shall appoint or re-appoint an individual as auditor for more than one term of five consecutive years. No Nidhi Company shall appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years, however, an auditor (whether an individual or an audit firm) shall be eligible for subsequent appointment after the expiration of two years from the completion of his or its term.
• Filing of various forms:

1. Form NDH-1 is the Return of Statutory Compliances which needs to be filed within 90 days from the closure of the first financial year. The form has to be duly certified by a Chartered Accountant or a Company’s Secretary in practice.
2. Form NDH-2 It is the Application for Extension of Time. One has to file NDH-2 for extension of time within 30 days from the closure of the first financial year. For that, a Nidhi Company will apply to the Regional Director with the specified fee under Nidhi Rules, 2014. The Regional Director will examine the application and pass orders within thirty days of the arrival of application. NDH-2 needs to be filed when a Nidhi Company fails to meet the compliances of (a) Maintaining a minimum of 200 members within one year of incorporation, and (b) Not maintaining the NOF to deposit ratio of 1:20.
3. Form NDH-3 refers to the Half-Yearly Return. It needs to be filed with the Registrar of Companies (ROC) within 30 days from the completion of each half-year along with the prescribed fees. Additionally, the form has to be duly certified by a practising Chartered Accountant or Company Secretary or Cost Accountant.

Recent Amendments in the Companies Act, 2013 applicable to Nidhi Companies

A new application form NDH-4 has been introduced for those companies which wish to get the status of Nidhi. It is one of the major 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, the Central Government may declare the company as a Nidhi company in the official gazette.

All the Nidhi companies incorporated under the Companies Act, 2013 on or after the commencement of the amended rules, are required to mandatorily file Form NDH-4 within the prescribed stipulated time. The company not abiding the said provision will not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment). This requirement has been introduced to make sure a check is built for Nidhi Companies. This will make sure that the lapses in the working of Nidhi Companies, if any, are controlled and there are better rules and regulations governing the Nidhi Companies.