In this blogpost, Sonal Srivastava, Student, Amity Law School, Lucknow, writes about what is Nidhi Company, what are the general restrictions, membership, deposits, loans, rules relating to directors and penalty for non– compliance.

According to section 406 of the Companies Act, 2013, “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, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies. Thus, the present article intends to bring forth all the necessary provisions related to Nidhi Companies.

Incorporation and incidental matters         

According to rule 4 of Nidhi rules, 2014 a Nidhi company incorporated under the Act shall be a public company and shall have a minimum paid-up equity share capital of rupees five lakhs. Every company incorporated as a “Nidhi” shall have the last words “Nidhi Limited” as part of its name.

Requirements for minimum number of members, net owned fund, etc

According to rule 5 of the Nidhi Rules, 2014, every Nidhi shall within one year of its commencement shall ensure that it has minimum of two hundred members, net owned funds of ten lakh rupees or more and unencumbered term loan deposits of not less than 10% of the outstanding deposits and ratio of net Owned Funds to deposits of not more than 1:20.

Within 90 days from the close of the first financial year after its incorporation and where applicable, and the second financial year Nidhi shall file a return of statutory compliances in Form NDH-1 along with such fee as provided in the applicable rules.

Any failure to comply with the provisions of the said rules, the Nidhi shall not accept any further deposits and shall be liable to penal consequences as well.

General Restrictions

According to rule 6, no Nidhi company shall carry on the business of chit funds, hire purchase, leasing finance, insurance or acquisition of securities issued by any body corporate, issue preference shares or open any current account with its members, accept deposits from or lend to any person, other than its members, take deposits from or lend money to any body corporate, etc.

Share capital and allotment

According to rule 7, every Nidhi shall issue equity shares of the nominal value of not less than ten rupees each, no service charge shall be levied for the issue of shares and shall allot to each deposit holder, at least, a minimum of ten equity shares or shares equivalent to one hundred rupees.

Membership

According to rule 8, no Nidhi shall admit a body corporate or trust as a member. A minor shall also be not admitted as a member.

Deposits

According to rule 13,

• Fixed deposits shall be accepted for a minimum period of six months and a maximum period of sixty months.
• Recurring deposits- minimum period:12 months, maximum period: 60 months
• The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees at any point of time, and the rate of interest shall not exceed two percent of the rate of interest payable on savings bank account by nationalized banks.

Loans

According to rule 15, a Nidhi shall provide loan only to its members.

Rule relating to Directors

According to rule 17, a director shall be a member of Nidhi and 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.

The director shall comply with the provisions of the rule.

Filing of Half- Yearly Return

According to rule 21, every company covered under rule 2 shall file half yearly return with the registrar in form NDH- 3 along with such fees as provided in Companies Rules, 2014 within 30 days from the conclusion of each half year.

Power to enforce Compliance

According to rule 23, for the purpose of enforcement of such rules, the registrar of the company may call upon any member of Nidhi for any information and may put the matter before Regional Director, who may upon giving an opportunity to be heard may decide the matter accordingly.

Penalty for non- compliance

According to rule 24, for any contraventions of the rules, any company, and all its members who are in default shall be punishable with a fine which may extend to five thousand rupees and in the case of continuance then five hundred rupees for each day of such contravention.

Conclusion

The purpose of Nidhi companies is to give growth and encouragement to small scale companies and inculcate in them the habit of savings and working for the benefit of their own members by way of lending, receiving deposits, etc