All about Nidhi Company – Incorporation, Requirement, Restrictions etc.

In this write-up we will discuss about the Objects, procedure, compliance requirement, restrictions, penalties & exemption related to a Nidhi Company.

Before starting with the topic let us understand the meaning of the ‘Nidhi Company’ first.

Sub-Section 1 of Section 406 of Companies Act, 2013 defines Nidhi as follows: –

“Nidhi means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings among 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.”  

Object of a Nidhi Company is quite clear from its definition itself i.e. cultivating the habit of thrift & savings, receiving deposits & lending among its members only, which means all these activities are not allowed for non-member or outsider or general Public.

Incorporation of a Nidhi Company

A Nidhi is incorporate similar to a Public Limited Company therefore following criteria shall met before in-corporation: –

• Minimum number of proposed members at the time of incorporation shall be 7 or more.
• Minimum number of proposed directors at the time of incorporation shall be 3 or more.
• Name of the Company shall end with “Nidhi Limited”. Reserve Name of the Company through “RUN” service having name ending with “Nidhi Limited”.
• After name approval file form SPICe for incorporation of Nidhi Company.

Requirements to fulfill by Nidhi Company

A Nidhi is shall meet with following requirements after its incorporation: –

• Within One year of its incorporation Nidhi Company shall have not less than 200 Members, Net Owned Funds of not less than Rupees 10 Lakhs & shall have Un-encumbered Term Deposit of not less than 10% of its Outstanding Deposits.
• Ratio of Net Owned Funds to its Deposits shall not be more than 2:1.
• Nidhi Company shall file Form NDH-1(Return of Statutory Compliances), certified by CA/CS/CMA within 90 days of closure of First Financial Year.
• If not meeting with the above requirements within one year of its incorporation then Nidhi Company shall seek extension from RD in Form NDH-2 within 30 days of closure of First Financial Year. RD shall grant such orders as may deem fit within 30 says of receipt of Application for extension.
• If non-compliance of Point No. 1 & 2 extends beyond second Financial Year, Nidhi shall not accept any further deposits from the commencement of second Financial Year till it complies with the provisions.
• Nidhi Company shall file Form NDH-3 (Half Yearly Return), certified by CA/CS/CMA within 30 days of conclusion of each half year.
• Every Director of the Nidhi shall be its member also.

Restrictions on Nidhi Company

A Nidhi shall not: –

• Carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issue by any body-corporate.
• Issue preference shares, debentures or any other debt instrument or in any form.
• Open any current account with its members.
• Acquire other company by way of control, share purchase, composition of the Board of Directors etc.
• Carry on any business other than borrowing or lending in its own name.
• Accept deposit or lend to any person other than its members.
• Pledge any of the assets lodged by its members as security.
• Issue or cause to be issued any advertisement in any form for soliciting deposits.
• Enter into any partnership arrangement in its borrowing or lending activities.
• Accept deposits more than 20 times of its Net Owned Funds as per the last audited balance Sheet.
• Declare dividend more than 25%, if wants to declare more than 25% than seek prior approval from Regional Director & transfer amount equal to such higher amount in General Reserves.
• Appoint Auditor for more than 1 term of consecutive 5 years & Audit Firm for more than 2 terms of Consecutive 5 Years. However, Such Auditor/Auditor Firm may be reappointed after completion of 2 years from completion his/its term.
• Appoint Director for a term of more than 10 consecutive years but eligible for re-appointment after completion of 2 years from ceasing to be director.

Membership of Nidhi Company

A Nidhi shall: –

• Not admit a Body-corporate/Trust/minor as a member (deposits may be accepted in name of minor, if made through natural/legal guardian) and ensure that its members shall not reduce to less than 200 at any time.
• Allot to every Deposit Holder minimum 10 Shares of Rupees 10 each (equivalent to Rs. 100/-) & at least 1 share of Rupees 10 to Savings Account Holder.

Branches of Nidhi Company

A Nidhi may open Branches if earned Net Profits After Tax continuously during preceding three financial years, up to 3 branches within the District. For opening more than 3 branches in the district or any branch outside the district, it shall obtain the prior permission of the Regional Director & shall intimate the ROC within 30 days about such opening.

Restriction in opening branches:

Ø No Nidhi shall open branches/collection offices/deposit centers outside the state where Registered Office is situated.

Ø No Nidhi shall open branches/collection offices/deposit centers unless Financial Statements & Annual Returns (up to date) are filed with the ROC.

Closure of Branches:

For closing any Branch Office, a Nidhi shall publish Advertisement in Vernacular language newspaper 30 days prior to closure & fix such notice of closure on the Notice Board of the Company.

After closure of Branch office, the Company shall intimate to the ROC within 30 days.

Penalty for Non-Compliance

If any Nidhi Company fails to comply with any provision mentioned above then such Company & every Officer in Default shall be punishable with fine which may extend to Rs. 5000/- & if contravention continues then punishable with fine which may extend to Rs. 500/- per day till the contravention continues.

Exemptions to Nidhi Company

Apart from many requirements & restrictions, Nidhi Company also enjoys certain exemption over any other Company. Ministry of Corporate Affairs issued a Notification on 5^th June, 2015 mentioning those sections which are not applicable on Nidhi Companies. Find the Notification in the link below:-(http://mca.gov.in/Ministry/pdf/Exemptions_to_nidhis_companies_05062015.pdf).

Let us mention those sections of the Companies Act, 2013 where exemption is granted to Nidhi: –

• Sub-section 2 of Section 20
• Section 42
• Clause (b) of Sub-section 1 of Section 47
• Section 62
• Sub-section 1 of Section 67
• Sub-Section 5 of Section 123
• Section 127
• Sub-Section 1 of Section 136
• Section 160
• Section 185
• Sub-section 1 of Section 197
• Section 403

{The author is a Company Secretary in Practice & can be reached at (M) 9811888288 (E) mail@csdeepikashukla.com}