Notes of SBEC-Chapter-2 -Nidhi Company

Nidhi Company

Nidhi Company [Section 406]

Nidhis Rules, 2014

  1. In this section, “Nidhi” or “Mutual Benefit Society” means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be.
  2. The Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act specified in the notification—
    • shall not apply to any Nidhi or Mutual Benefit Society; or
    • shall apply to any Nidhi or Mutual Benefit Society with such exceptions,
      modifications and adaptations as may be specified in the notification.

Important points of Nidhi Rules, 2014

Meaning of Nidhi [Rule 3(da)]
“Nidhi” means a company

  • which has been incorporated as a nidhi with the object of
    • cultivating the habit of thrift and saving amongst its members,
    • receiving deposits from, and lending to, its members only, for their mutual benefit, and
    • which complies with the rules made by the central Government for regulation of such class of companies

Declaration of Nidhis [Rule 3A]
The Central Government, on receipt of application (in Form NDH-4 along with fee thereon) of a public company for declaring it as Nidhi and on being satisfied that the company meets the requirements under these  rules, shall notify the company as a Nidhi in the official Gazette.

Provided that a Nidhi incorporated under the Act on or after the commencement of the Nidhi (Amendment) Rules, 2019 shall file Form NDH-4 within 60 days from the date of expiry of :-

  • 1 year from the date of its incorporation or
  • the period up to which extension of time has been granted by the Regional Director under sub-rule (3) of rule 5.

 Provided further that nothing in the first proviso shall prevent a Nidhi from filing Form NDH-4 before the period referred therein.

 Provided also that that in case a company does not comply with the requirements of this rule, it shall not be allowed to file 

Provided also that no company, which has not complied with the requirements of this rule, or fails to comply with such requirement on or after the commencement of the Nidhi (Amendment) Rules, 2022,  or in case the application submitted by the company in Form NDH-4 is or has been rejected by the Central Government, shall raise any deposit from its members or provide any loan to its members under the provisions of these rules from the date of such non-compliance, or from the date of the commencement of the above said rules, or the date of rejection of the application in Form NDH-4, whichever is later.

Provided also that if any deposit raised by a company after the date of non-compliance, or the date of commencement of the above said rules, or the date of rejection of the application in Form NDH-4, whichever is later as referred to in the fourth proviso shall be deemed to have been raised in pursuance of Chapter V of the Act, and shall be subject to all the requirements under that Chapter, or under any other provisions of the Act or the rules made thereunder, as the case may be.

Provided also that nothing in this rule shall apply to companies incorporated as Nidhi on or after the commencement of the above said rules.”

Inserted by  Nidhi (Amendment) Rules, 2022   Amendment Effective from 19th April, 2022

Form NDH-4 (Form for filing application for declaration as Nidhi Company and for updation of status by Nidhi.

 

Incorporation and incidental Matters (Rule 4)

  • Nidhi shall be incorporated as a public company with a minimum paid up equity share capital of Rs. 10 Lakh[With effect from 19th April, 2022, 5 Lakh shall be substituted by 10 Lakh (Substituted by  Nidhi (Amendment) Rules, 2022)]
  • No Nidhi shall issue preference shares and if any Nidhi has issued preference shares previously, such preference shares shall be redeemed in accordance with the terms of issue of such shares.
  • No Nidhi shall have any object in its Memorandum of Association other than
    • 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.
  • Every “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name

Requirements for Minimum Number of Members, Net Owned Fund etc. (Rule 5)
Every Nidhi shall, within a period of one year from the date of its incorporation, ensure that it has

  • not have less than 200 members
  • Net Owned Funds (Equity Share Capital + Free Reserves – Accumulated Losses – Intangible Assets) of Rs. 10 Lakhs or more
  • Unencumbered term deposits shall not be less than 10% of the outstanding deposits
  • Ratio of Net Owned Funds to deposits shall not be more than 1:20.

Return of compliance of Statutory Requirements
Within 90 days from the close of the first financial year after its incorporation and where applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form NDH-1 with the Registrar duly certified by a company secretary in practice or a chartered accountant in practice or a cost accountant in practice.

If a Nidhi is not able to comply above requirements
If a Nidhi is not complying with clauses (a) or (d) above, it shall within 30 days from the close of the first financial year, apply to the Regional Director in Form NDH-2 for extension of time and the Regional Director may consider the application and pass orders within 30 days of receipt of the application.

Regional Director may extend the period upto 1 year from the date of receipt of application.

If the failure to comply with above said requirements of this rule extends beyond the second financial year, Nidhi shall not accept any further deposits from the commencement of the second financial year till it complies with the provisions and gets itself declared under sub-section (1) of section 406, besides being liable for penal consequences as provided in the Act.

The provisions of this rule shall not be applicable for the companies incorporated as Nidhi on or after the commencement of the Nidhi (Amendment) Rules, 2022” i.e. with effect from 19th April, 2022.

General Restrictions or Prohibitions (Rule 6)
No Nidhi shall-

  • carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body 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;
  • acquire another company by purchase of securities or control the composition of the Board of Directors of any other company in any manner whatsoever or enter into any arrangement for the change of its management, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over such Nidhi;[Content in red shall be considered as omitted w.e.f 19th April, 2022]
  • carry on any business other than the business of borrowing or lending in its own name:
    Provided that Nidhis which have adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding 20%. of the gross income of the Nidhi at any point of time during a financial year.
  • accept deposits from or lend to any person, other than its members;
  • pledge any of the assets 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:

    Provided that private circulation of the details of fixed deposit schemes among the members of the Nidhi carrying the words “for private circulation to members only” shall not be considered to be an advertisement for soliciting deposits.

  • pay any brokerage or incentive for mobilising deposits from members or for deployment of funds or for granting loans.

  • raise loans from banks or financial institutions or any other source for the purpose of advancing loans to members of Nidhi [Inserted by Nidhi (Amendment) Rules, 2022].

Share Capital and Allotment (Rule 7)

  1. Every Nidhi shall issue fully paid up equity shares of the nominal value of not less than Rs. 10 each:
  2. No service charge shall be levied for issue of shares.
  3. Every Nidhi shall allot to each deposit holder at least a minimum of 10 equity shares or shares equivalent to 100 rupees:
    Provided that a savings account holder and a recurring deposit account holder shall hold at least 1 equity share of Rs. 10.

Membership (Rule 8)

  • A body corporate or trust cannot become member of a Nidhi company.
  • Every Nidhi shall ensure that its membership is not reduced to less than 200 members at any time.
  • A minor shall not be admitted as a member of Nidhi but 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.
  • A member shall not transfer more than 50% of his shareholding (as on the date of availing of loan or making of deposit) during the subsistence of such loan or deposit, as the case may be.
    Provided that the member shall retain the minimum number of shares required under subrule (3) of rule 7 at all times [Inserted by  Nidhi (Amendment) Rules, 2022]

Net Owned Funds (Rule 9)
Every Nidhi shall maintain Net Owned Funds (excluding the proceeds of any preference share capital) of not less than 10 lakh  rupees or such higher amount as the Central Government may specify from time to time.[W.e.f 19th April, 2022, 10 lakh shall be replaced by 20 lakh]

Branches of Nidhi (Rule 10)

  1. A Nidhi may open branches, only if it has earned net profits after tax continuously during the preceding 3 financial years.
  2. A Nidhi may open up to 3 branches within the district.
  3. If a Nidhi proposes to open more than 3 branches within the district or any branch outside the district, it shall obtain the prior permission of the Regional Director[“by applying in Form NDH-2 along with fee specified in the Companies (the Registration Offices and Fees) Rules, 2014”] and an intimation is to be given to the Registrar about opening of every branch within 30 days of such opening.
  4. No Nidhi 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.
  5. No Nidhi shall open 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.
  6. A Nidhi shall not close any branch unless it-
    • publishes an advertisement in a newspaper in vernacular language in the place where it carries on business at least 30 days prior to such closure, informing the public about such closure;
    • fixes a copy of such advertisement or a notice informing such closure of the branch on the notice board of Nidhi for a period of at least 30 days from the date on which advertisement was published under clause (a) ; and
    • gives an intimation to the Registrar within 30 days of such closure.

 

W.e.f 19th April 2022, sub-rule 6 shall be replaced by
(a) A Nidhi shall not close any branch, unless, –
 (i) the proposal to close the branch along with the plan as to how the existing deposits have been or shall be paid off and how the existing loan shall be recovered is duly approved by the Board at its meeting; and
 (ii) it has obtained the prior approval of the Regional Director by applying in Form NDH-2 along with fee as specified in the Companies (the Registration Offices and Fees) Rules, 2014 at least sixty days prior to such closure.
Provided that the Regional director shall consider such application and pass orders within a period of thirty days of receipt of such application.

 (b) After obtaining approval from the Regional Director, the Nidhi shall-
(i) publish advertisement, as per format NDH-5, 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;
(ii) fixes a copy of such advertisement or a notice informing such closure of the branch on the notice board of Nidhi as well as the relevant Branch for a period of at least thirty days from the date on which advertisement was published;
(iii) give an intimation to the Registrar within a period of thirty days of such closure in Form NDH-2 along with fee as specified in Companies (the Registration Offices and Fees) Rules, 2014”.]
(7) Any place, not being a registered office or a branch, where a Nidhi carries on its  operation shall be closed within a period of six months from the date of commencement of the Nidhi (Amendment) Rules,2022 and intimation shall be sent to the Registrar in this regard in Form NDH-2.

Acceptance of Deposits
A Nidhi shall not accept deposits exceeding 20 times of its Net Owned Funds (NOF) as per its last audited financial statements.

According to Rule 13,

  1. The fixed deposits shall be accepted for a minimum period of 6 months and a maximum period of 60 months.
  2. Recurring deposits shall be accepted for a minimum period of 12 months and a maximum period of 60 months.
  3. 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.
  4. The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed 1 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 nationalised banks.
  5. 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 NBFC can pay on their public deposits.
  6. A fixed deposit account or a recurring deposit account shall be foreclosed by the depositor subject to the following conditions, namely:
    • a Nidhi shall not repay any deposit within a period of 3 months from the date of its acceptance;
    • where at the request of the depositor, a Nidhi repays any deposit after a period of 3 months, the depositor shall not be entitled to any interest up to 6 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 2% from the rate which Nidhi would have ordinarily paid, had the deposit been accepted for the period for which such deposit had run:
      Provided that in the event of death of a depositor, the deposit may be repaid prematurely to the surviving depositor or depositors in the case of joint holding with survivor clause, or to the nominee or to legal heir with interest up to the date of repayment at the rate which the company would have ordinarily paid, had such deposit been accepted for the period for which such deposit had run.

Un-encumbered Term Deposits (Rule 14)
Every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a scheduled commercial bank (other than a co-operative bank or a regional rural bank), or post office deposits in its own name an amount which shall not be less than 10% of the deposits outstanding at the close of business on the last working day of the 2nd preceding month.

Provided that in cases of unforeseen commitments, temporary withdrawal may be permitted with the prior approval of the Regional Director[by making application in Form NDH- 2 alongwith fee specified in the Companies (the Registration Offices and Fees) Rules, 2014] 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%.

[Content in red is effective from 19th April 2022]

Loans by Nidhi Companies (Rule 15)

  1. A Nidhi shall provide loans only to its members.
  2. The loans given by a Nidhi to a member shall be subject to the following limits, namely:-

Loan Amount

Where the total amount of deposits of such Nidhi from its members

Rs. 2 Lakh

is less than Rs. 2 crore

Rs. 7.5 Lakh

is more than Rs. 2 crore but less than Rs. 20 crore

Rs. 12 Lakh

is more than Rs. 20 crore rupees but less than Rs. 50 crore

Rs. 15 Lakh

is more than Rs. 50 crore

Where a Nidhi has not made profits continuously in the 3 preceding financial years, it shall not make any fresh loans exceeding 50% of the maximum amounts of loans specified above.

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.

3. A Nidhi shall give loans to its members only against the following securities, namely:-

Type of Security

Conditions

Gold, silver and jewellery

Provided that the repayment period of such loan shall not exceed one year.

Immovable property

Provided that

  •   total loans against immovable property shall not exceed 50% of the overall loan outstanding on the date of approval by the board,
  • the individual loan shall not exceed 50% of the value of property offered as security and
  • the period of repayment of such loan shall not exceed 7 years.

fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies

Provided that in the case of loan against fixed deposits, the period of loan shall not exceed the unexpired period of the fixed deposits.

Rate of Interest (Rule 16)
The rate of interest to be charged on any loan given by a Nidhi shall not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method:
Provided that Nidhi shall charge the same rate of interest on the borrowers in respect of the same class of loans and the rates of interest of all classes of loans shall be prominently displayed on the notice board at the registered office and each branch office of Nidhi.

Rules Relating to Directors (Rule 17)

  1. The Director shall be a member of Nidhi.
  2. The Director of a Nidhi shall hold office for a term up to 10 consecutive years on the Board of Nidhi.
  3. The Director shall be eligible for re-appointment only after the expiration of 2 years of ceasing to be a Director.
  4. 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.
  5. The person to be appointed as a Director
    • shall comply with the requirements of section152(4) w.r.t DIN Number and
    • shall not have been disqualified from appointment as provided in section 164 of the Act.

Dividend (Rule 18)
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; and
  • it has complied with all the rules as applicable to Nidhis.

    W.e.f 19th April, 2022 – New Rule 18
    A Nidhi shall not declare dividend exceeding twenty five per cent in a financial year

Auditor (Rule 19)

  1. No Nidhi shall appoint or re-appoint an individual as auditor for more than one term of 5 consecutive years.
  2. No Nidhi shall appoint or re-appoint an audit firm as auditor for more than 2 terms of 5 consecutive years;
    Provided that 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 Half Yearly Return (Rule 21)
Every Nidhi company shall file half yearly return with the Registrar in Form NDH-3 within 30 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.

Auditor’s Certificate (Rule 22)
The Auditor of the company shall furnish a certificate every year to the effect that the company has complied with all the provisions contained in the rules and such certificate shall be annexed to the audit report and in case of non-compliance, he shall specifically state the rules which have not been complied with.

Power to Enforce Compliance (Rule 23)

  1. For the purposes of enforcing compliance with these rules, the Registrar of companies may call for such information or returns from Nidhi as he deems necessary and may engage the services of chartered accountants, company secretaries in practice, cost accountants, or any firm thereof from time to time for assisting him in the discharge of his duties.
  2. In respect of any Nidhi which has violated these rules or has failed to function in terms of the Memorandum and Articles of Association, the concerned Central Government may appoint a Special Officer to take over the management of Nidhi and such Special Officer shall function as per the guidelines given by such Central Government.

 

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