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Nidhi company overview & legal aspects
1.
2. A Nidhi Company, is one that belongs to the Non-
banking Indian finance sector and is recognized under
section “406” of the Companies Act, 2013. Their core
business is borrowing and lending money between their
members. Nidhi Companies are created for cultivating
the habit of saving amongst the members.
4. “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.
the Central Government may, by notification, direct that any of the provisions of this Act
shall not apply, or shall apply with such exceptions, modifications and adaptations as
may be specified in that notification, to any Nidhi or Nidhis of any class or description
as may be specified in that notification.
A copy of every notification proposed to be issued under sub-section (2), shall be laid in
draft before each House of Parliament, while it is in session, for a total period of thirty
days which may be comprised in one session or in two or more successive sessions, and
if, before the expiry of the session immediately following the session or the successive
sessions aforesaid, both Houses agree in disapproving the issue of the notification or
both Houses agree in making any modification in the notification, the notification shall
not be issued or, as
the case may be, shall be issued only in such modified form as may be agreed upon by
both the Houses.
5. Reserve Bank of India is empowered to issue directions to
them in matters relating to their deposit acceptance activities,
However as Nidhi Companies only accept/lend funds only
from/to its members, RBI has exempted Nidhi Companies
from the core provisions or regulations applicable on NBFC.
6. Applicability
o Every company which had been declared as Nidhi or Mutual Benefit
Society under section 620A (1) of the Companies Act, 1956.
o Every company functioning on the lines of a Nidhi company or Mutual
Benefit Society but has either not applied for or has applied for and
awaiting notification to be a Nidhi or Mutual Benefit Society under section
620A (1) of the Companies Act, 1956.
o Every company incorporated as a Nidhi pursuant to the provisions of
section 406 of the Act.
7. Incorporation Requirements
o Nidhi company that has to be incorporated under this Act shall
be a “Public Company”.
o It must have a minimum paid up equity share capital of
Rs.5,00,000/-.
o The name must contain “Nidhi Limited.
o The objective of Nidhi would be to imbibe in the members a
habit of thrift and saving and the services would only be
restricted to its members.
8. Post Incorporation Requirements:
Every Nidhi must, within a period of one year from the commencement
meet all of the following criteria:
o It must have minimum 200 members.
o It must also ensure that net owned funds are Rs. 10,00,000/- or more.
o It must also ensure that the ratio of net owned funds to deposit is not more
than 1:20.
o It must have unencumbered term deposits of not less than 10% of the
outstanding deposits.
9. General Restrictions:- Nidhi Company shall not :
Carry on the business of-
Chit Fund,
Hire Purchase finance,
Leasing Finance,
Insurance or Acquisition of Securities issued by anybody corporate.
Issue Preference Shares, Debentures or Any other debt instrument by any
name or in any form whatsoever.
Open any Current Account with its members.
10. General Restrictions:- Nidhi Company shall not :
Acquire another company by Purchase of securities or control the
composition of Board of Directors of any company in any manner
whatsoever or enter into any arrangement for the change of its management
unless it has approved by a Special Resolution in its general meeting and
also obtain the prior approval of Regional Director.
Carry on any business other than borrowing/lending in its own name.
(Nidhi which have adhered to all the provisions of Nidhi Rules may
provide locker facilities on rent to its members on rental basis, but the
rental income from such facilities not exceed 20% of the gross income of
the nidhi at any point of the time.)
11. General Restrictions:- Nidhi Company shall not :
Accept deposits from or lend to any person, other than its members.
Pledge any of the assets that have been lodged by its members as security.
Take Deposits from or lend money to any body corporate.
Enter into any Partnership Arrangement in its borrowing or lending activities.
Issue or cause to be issued any advertisement in any form for soliciting deposit.
Pay any brokerage or incentive for mobilizing deposits from members or for
deployment of funds or the granting loans.
12. Share capital and allotment.
o Minimum nominal value of each share – 10.
o Nidhi Shall allot to each deposit holder at least ten equity shares or shares
equivalent to one hundred rupees.
o A savings account holder and a recurring deposit holder shall hold at least
one equity share of rupees ten.
13. Membership
o A Nidhi shall not admit a body corporate or trust as a member.
o Minimum 200 members every time.
o A minor shall not admitted as a member of Nidhi
14. Net owned funds
Every Nidhi shall maintain Net owned fund of not less than
ten lakh rupees or such higher amount as the central
government may specify from time to time.
15. Branches by Nidhi Company:
Required a good track record of profit:
A Nidhi may open branches, only if it has earned net profits
after tax CONTINUOUSLY during the preceding three financial years.
Maximum Branches allowed to Nidhi:
A Nidhi may open up to three branches within the district, it
cannot open any branch outside the district without prior approval
of Regional Director.
If a Nidhi 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.
16. Branches by Nidhi Company:
Branches outside the state:
Nidhi shall not open branches or collection centres or offices or deposit
centres, or by whatever name called outside the State where its registered
office is situated.
Up to date Compliance required:
Nidhi shall not open any branches or collection centres or offices or deposit
centres, or by whatever name called unless financial statement and annual
return (up to date) are filed with the Registrar.
17. Branches by Nidhi Company:
Closure of Branch:
Nidhi Company shall not close any of its branch until it complies with the
following conditions-
Nidhi Company will publish an advertisement in a newspaper in vernacular language in
the place where it carries on business at least thirty days prior to such closure for
informing the public about such closure.
A copy of such advertisement or a notice informing such closure of the branch will be
fixed on the notice board of Nidhi for a period of at least thirty days from the date on
which advertisement was published under clause (a)
Nidhi will intimate Registrar within thirty days of such closure.
18. Deposit
o The fixed deposits shall be accepted for a minimum period of six months and a
maximum period of sixty months.
o Recurring deposits shall be accepted for a minimum period of twelve months
and a maximum period of sixty months.
o 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.
o 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 2% above the rate of interest payable on
savings bank account by nationalized banks.
19. Deposit
o A Nidhi 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.
20. Foreclosure of Deposit Account:
A fixed deposit account or a recurring deposit account shall be foreclosed by the
depositor subject to the following conditions:
Nidhi shall not repay any deposit within a period of three months from the date of
its acceptance.
Where at the request of the depositor, a Nidhi repays any deposit after a period of
three months, the depositor shall not be entitled to any interest up to six months
from the date of deposit.
Where at the request of the depositor, a Nidhi makes repayment of a deposit before
the expiry of the period for which such deposit was accepted by Nidhi, the rate of
interest payable by Nidhi on such deposit shall be reduced by two per cent. from
the rate which Nidhi would have ordinarily paid, had the deposit been accepted for
the period for which such deposit had run:
21. Loan
A Nidhi shall provide loans only to its members.
The loans given by a Nidhi to a member shall be subject to the following limits:
Deposits from members Loan to a member
Less than 2 cr 2,00,000
2 cr To 20 cr 7,50,000
20 cr To 50 cr 1,200,000
More than 50 cr 1,500,000
22. Loan
Where a Nidhi has not made profits continuously in the three preceding
financial years, it shall not make any fresh loans exceeding fifty per cent.
of the maximum amounts of loans specified in earlier table.
A member shall not be eligible for any further loan if he has borrowed any
earlier loan from the Nidhi and has defaulted in repayment of such loan.
23. Loan
A Nidhi shall give loans to its members only against the following
securities:-
A. Gold, Silver and Jewellery.
B. Immovable property.
C. Fixed deposit receipts, National Savings Certificates, other
Government Securities and insurance policies
24. Rate of Interest
The rate of interest to be charged by Nidhi shall not exceed 7.50% above
the highest rate of interest offered on deposits by Nidhi and shall be
calculated on reducing balance method.
Same rate for same class of loans.
Rate of Interest shall be displayed on the notice board.
25. Dividend
A Nidhi shall not declare dividend exceeding 25 % 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:-
An equal amount is transferred to General Reserve.
There has been no default in repayment of matured deposits and interest.
It has complied with all the rules as applicable to Nidhis
26. Directors.
The Director shall be a member of Nidhi.
The Director of a Nidhi shall hold office for a term up to ten consecutive
years.
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 sub-section (4) of section 152 of the Act and shall not have
been disqualified from appointment as provided in section 164 of the Act.
27. Auditors.
No Nidhi shall appoint or re-appoint an individual as auditor for more than
one term of five consecutive years.
No Nidhi shall appoint or re-appoint an audit firm as auditor for more than
two terms of five consecutive years.
An auditor shall be eligible for subsequent appointment after the expiration
of two years from the completion of his or its term.
28. Important Compliances :
NDH-1 (Return of Statutory Compliances) :
Within ninety days from the close of the first financial year after its
incorporation and where applicable, the second financial year.
NDH-2 (Application to Regional Director for extension of time)
NDH-3 ( Half yearly return Within 30 days from the conclusion of half
year )