This article is written by Jagdish S. Kaisare, pursuing a Diploma in Entrepreneurship Administration and Business Laws, from Lawsikho.com Here he discusses “Nidhi Company under the Companies Act 2013”.

Introduction 

The term “Nidhi” translates to “funds” and accordingly, a Nidhi Company is a non-banking financial entity registered under the Companies Act 2013 (the Act) with the predominant objective of pursuing prudence and savings amongst its members, receiving deposits from and lending money to its members for their mutual benefit. Section 406 of the Act and the Companies Rules 2014 provide for Nidhi Company and other ancillary matters related to such Companies. In order to be qualified as a Nidhi Company, an entity has to be notified as a “mutual benefit society” by the Central Government. They are so notified because their transactions are strictly limited to its shareholders and members. Their principal source of funds is the contribution received from such members as deposits and their principal source of earning is from the interest received upon the structured lending of such funds to its members. 

Nidhi Companies being a category of a non-banking financial company (NBFC) comes under the ambit of the Reserve Bank of India (the RBI) that holds the authority to issue directions to such Companies. Considering the fact that the scope of every Nidhi Company is limited to its shareholders and members, the RBI has exempt Nidhi Companies from the core provisions of the RBI Act and other directives and compliance requisites applicable to NBFCs. In addition, the Central Government has enacted and notified the Companies (Nidhi Company) Rules 2014 to exhaustively provide for the law and procedure applicable to such Companies.

Prerequisites for Nidhi Company 

Every Nidhi Company shall be a Public Company bearing “Nidhi Limited” in its name and shall be incorporated with a minimum equity share capital of Rs. 5,00,000 (Rupees Five Lakhs Only). Every Nidhi Company shall comprise of 7 members and 3 Directors. Nidhi Companies are barred from issuing Preference Shares, Debentures or any other debt instruments and from admitting any body corporate, trust or minor as its member.

Registration Process for a Nidhi Company 

The first step in the process of registering a Nidhi Company is to file an application in the RUN facility of the Ministry of Corporate Affair’s (MCA) Portal in order to check for availability of name, followed by obtaining the Class 2 Digital Signature Certificate (DSC) of all the proposed Directors.

After successfully completing both the above-mentioned steps, the applicant has to duly fill and submit, in the prescribed form and manner, the SPICe 32 Form for the Nidhi Company’s incorporation. Such form has to be annexed with the Memorandum of Association (MOA), Articles of Association (AOA), PAN Card, ID Proof and Address Proof of the First Directors, Consent of the proposed Directors to act as Directors and Self Declaration in form DIR-2 and INC-9 respectively, Address Proof of the Company’s Registered Office along with the NOC from the Owner of the Premises as applicable, latest Utility Bills of the Registered Office.

Upon filing the SPICe 32 Form in the prescribed form and manner, with the prescribed registration fees and stamp duty, the MCA issues the Incorporation Certificate within 15-20 days and such Incorporation Certification shall be conclusive evidence that all formalities have been duly complied with.

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Post-Registration Requirement 

Post-registration, a Nidhi Company ought to secure a minimum membership of 200 members within the first year of its operation in order to avoid the “default” status. However, in the event a Nidhi Company is unable to secure membership of 200 members, the Company shall apply to the Regional Director, MCA, for additional time within 30 days of closure of the financial year in the prescribed NDH-2 Form.

Further, upon registration, every Nidhi Company ought to maintain a Minimum Net Owned Fund of Rs. 10 lakhs or more and shall maintain the net owned fund to deposit ratio at 1:20. By net owned fund to deposit ratio is meant if the Nidhi Company has Rs. 20 lakhs as its net owned funds, then the deposit limit for such Nidhi Company shall be Rs. 4 crores.

Annual Statutory Compliance 

Every Nidhi Company ought to comply with the applicable provisions of the law except those that are expressly exempt. Every Nidhi Company, apart from the income tax returns, ought to annually file the Auditors Certificate, NDH-1 and NDH-3 Forms instead of the regular AOC-4 and MGT-7 that are filed by other companies incorporated under the Companies Act.

The auditor’s certificate is required to declare that the Nidhi Company has complied with all the provisions of the law and the applicable Act.

Form NDH-1 certifies that the Nidhi Company has duly complied with the above-mentioned post-registration requirement. Such form has to be certified by a practising Company Secretary or Chartered Accountant or Cost Accountant and ought to be filed within 90 days of the closure of the financial year. In. the event a Nidhi Company requires an extension in filing Form NDH-1, it shall apply to the Regional Director in Form NDH-2 along with the prescribed extension fees and the Regional Director shall pass an order within 30 days of the receipt of such extension application.

Form NDH-3 declares the half-yearly returns of the Nidhi Company and such returns shall be duly certified by a Company Secretary or Chartered Accountant and shall be filed within 30 days from the completion of each half year.

Prescribed Corporate Structure of a Nidhi Company 

• Share Capital and Allotment 

The Companies Rules provides that a Nidhi Company shall issue equity shares at a nominal price of not less than Rs. 10 per share and that, such Nidhi Company shall not levy service charge on such an issue of equity shares.

The Rules also provide that, every depositor shall be allotted a minimum of 10 equity shares or shares worth Rs. 100 and further that, each saving or recurring deposit holder shall hold at minimum 10 equity shares worth Rs. 10 each.

• Acceptance of Deposits 

As stated above, a Nidhi Company is barred from accepting deposit beyond 20 times its Net Owned Assets. A fixed deposit can be accepted for a minimum period of 6 months and a maximum period of 60 months, whereas, a recurring deposit can be accepted for a minimum period of 12 months and a maximum period of 60 months and interest paid for such deposits shall not exceed the maximum rate of interest prescribed by the Reserve Bank for NBFCs.

The rules further provide that, every Nidhi Company shall invest in unencumbered term deposits an amount not less than 10% of its outstanding deposits with either a post office or a scheduled commercial bank. 

• Loan 

A Nidhi Company can extend loans to only its members subject to the following limitations: 

• If the total deposit amount is less than Rs. 2 crores, then they can extend a loan of up to Rs. 2.0 lakhs.  
• If the total deposit amount is more than Rs. 2 crores but less than Rs. 20 crores, then they can extend a loan of up to Rs. 7.50 lakhs. 
• If the total deposit amount is more than Rs. 20 crores but less than Rs. 50 crores, then they can extend a loan of up to Rs. 12.0 lakhs. 
• If the total deposit amount is more than Rs. 50 crores, then they can extend a loan of up to Rs. 15 lakhs.

Such loan can be extending only against securities like immovable property, gold or silver. In case the security given is gold or silver, then the repayment period shall not exceed one year and in case the security given is immovable property, then the repayment period shall not exceed seven years. Further, the rate of interest charged on such loans shall not be in excess of 7.5% above the highest interest rate offered on deposits by that Nidhi Company and shall be on basis of the reducing balance method.

• Dividend 

A Nidhi Company cannot declare dividend in excess of 25% of their profits or such higher amount as approved in writing by the Regional Director provided there has been no default in repayment of any dues, the Nidhi Company has complied with all applicable laws and an amount equal to its dividend is transferred to its General Reserve.

• Returns 

Every Nidhi Company shall comply with the statutory filing requirements as mentioned above in part V of this article.

• Branches 

The rules provide that, a Nidhi Company can open branches only if has earned profits (PAT) continuously for the preceding three financial years, and that, it can open a maximum of 3 branches within the district. In the event the company proposes to open more than 3 branches with the district or outside, then it shall obtain the prior permission of the Regional Director and intimate the Registrar within 30 days of such opening. A Nidhi Company is barred from opening branches or centres beyond the territorial limits of the State in which its registered office is located.

In the event a Nidhi Company intends to close any of its branch, it shall publish an advertisement in a local newspaper at least 30 days prior to such closure and further shall intimate the Registrar within 30 days from such closure.

General Restrictions on Nidhi Company

Every Nidhi Company is barred from engaging in the business of chit fund, leasing finance, hire-purchase finance or any insurance-related businesses. They are also barred from opening current accounts for its members, acquiring any body corporate by purchase of securities or acquiring control over the management, accept deposits or lend money to persons other than its members, pledge any of the member’s assets given to them as security, enter into partnership agreements for its primary activities, issue any advertisements to solicit deposits or pay brokerage to anybody for mobilizing deposits.

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