Nidhi Company is an NBFC (Non-Banking Financial Company). Nidhi in simple terms means a company which is formed with the object of cultivating the habit of thrift and savings amongst the members and receiving deposits from and lending to the members for their mutual benefits.

Nidhi Company can be incorporated with a minimum seven members and out of these 7 members, 3 members must be the director of the company.

The present article explains the meaning of the word ‘Nidhi’, key features, and registration documents in brief.

Meaning of the word ‘Nidhi’

‘Nidhi’ is defined under rule 3 (da) of the Nidhi Rules, 2014 which means a company incorporated as Nidhi with the object of –

  • Cultivating habit of thrift and savings amongst the members, and
  • Receiving deposits from and lending to the members for their mutual benefit, and also duly complying with the rules formed by the Central Government.

Key Features of Nidhi

1. Conditions for incorporation [Rule 4] –

i. A Nidhi should be a ‘public company’.

ii. It should have a minimum paid up equity share capital of INR 5 Lakhs.

iii. On incorporation, Nidhi shall not issue preference shares. If the preference shares are already issued prior to incorporation, then, such shares should be redeemed in accordance with the terms of the issue of such shares.

iv. The object of Nidhi should be cultivating the habit of thrift and savings amongst the members and receiving deposits from and lending to its members for mutual benefits.

v. Nidhi shall have the last words as ‘Nidhi Limited’ as part of its name.

2. Conditions to be satisfied by the Nidhi after incorporation [Rule 5] –

Within a period of one year from the date of incorporation –

i. The Nidhi Company should have minimum 200 members; and

ii. Net Owned Funds of Nidhi Company should be INR 10 Lakhs or more; and

iii. Unencumbered term deposits of not less than 10% of the outstanding deposits; and

iv. The ratio of Net Owned Funds to Deposits should not be more than 1:20.

Please note Net Owned Funds = Equity Share Capital + Free Reserves (-) accumulated losses (-) intangible assets.

If the above listed conditions are satisfied, then, the Nidhi Company is required to file a return of statutory compliances in Form NDH-01. The return is to be filed within a period of 90 days from the end of the first financial year after incorporation. The Form NDH-01 is required to be certified by the practicing Chartered Accountant / Cost Accountant / Cost Accountant.

In case the Nidhi Company is unable to comply with the condition of minimum 200 members and / or if the ratio of net owned funds to deposits is more than 1:20. Then the Nidhi Company can file an application in Form NDH-2 to the Regional Director for extension of time within a period of 30 days from the end of the first financial year.

However, if the failure to comply with the above listed conditions extends beyond the second financial year, then, the Nidhi Company cannot accept any further deposits from the commencement of the second financial year till the conditions are satisfied.

3. Restrictions / Prohibitions [Rule 6] –

Major restrictions / prohibitions on Nidhi are listed below –

  • Cannot carry on the business of chit fund or leasing finance or hire purchase finance or insurance or acquisition of securities issued by body corporates.
  • Cannot issue preference shares / debentures / any other debt instruments.
  • Cannot open any current account with its members.
  • Cannot accept deposits or lend to any person other than members.
  • Cannot advertise for itself asking for a deposit.

Documents for Registration –

  1. MOA – Memorandum of Association
  2. AOA – Article of Association
  3. DIN of directors
  4. Property documents / rent agreement / lease agreement
  5. NOC of owner / landlord
  6. PAN of members
  7. Address proof of members
  8. Identity proof

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June 2021