Analysis of Nidhi (Amendment) Rules, 2022

Sr. No.

(aa) “Branch” means a place other than the registered office of Nidhi.

 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.

Further extending the restrictions, the MCA has inserted 3 provisos in this regard.

According to the fourth proviso, a 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 not be allowed 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.

According to the fifth proviso, if any company raises deposits in contravention of the fourth proviso, the same shall be deemed to have been raised in pursuance of Chapter V (Acceptance of Deposits by Companies) 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.

Sixth proviso provides that this rule i.e., rule 3A shall not apply to those companies which are incorporated as Nidhi on or after the commencement of the amendment rules. This is because a new Rule 3B is inserted vide this amendment which provides for totally different set of provisions to be followed by companies to comply with the requirement of filing form NDH-4.

(1) On and after commencement of Nidhi (Amendment) Rules, 2022, public company desirous to be declared as a Nidhi shall apply, in Form NDH-4, within a period of one hundred twenty days of its incorporation for declaration as Nidhi, if it fulfils the following conditions, namely: –

(I) it has not less than two hundred members; and

(II) it has Net Owned Funds of twenty lakh rupees or more.

(2) The company shall also attach, along with Form NDH-4, the declaration with regard to fulfilment of fit and proper person criteria, as per this sub-rule, by all the promoters and directors of the company.

(3) For the purpose of determining as to whether any promoter or director is a “fit and proper person”, the following shall be taken into account, namely: –

(a) integrity, honesty, ethical behaviour, reputation, fairness and character of the

person; and

(b) the person not incurring any of the following disqualifications, namely: –

(i) criminal complaint or information under section 154 of the Code of Criminal

Procedure, 1973 (2 of 1974) has been filed by a person authorised by the Central Government against such person and which is pending;

(ii) charge sheet has been filed against such person by any enforcement agency in

matters concerning economic offences which is pending;

(iii) an order of restraint, prohibition or debarment has been passed against such person by any regulatory authority or enforcement agency in any matter concerning company law, securities laws or financial markets which is in force;

(iv) an order of conviction has been passed against such person by a court for any offence involving moral turpitude;

(v) such person has been declared insolvent and not been discharged;

(vi) such person has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force;

(vii) such person has been categorised as a willful defaulter;

(viii) such person has been declared a fugitive economic offender;

(ix) such person is a director in five or more companies incorporated or declared as Nidhi, or is a promoter of three or more companies incorporated or declared as Nidhi.

(4) The Central Government, shall examine the application filed in Form NDH-4 and convey its decision within a period of forty-five days to the company:

Provided that in case a decision on an application filed in form NDH-4 is not taken by the Central Government within the aforesaid period of receipt of such application, the same shall be deemed as approved.

(5) On being satisfied that the company meets the requirements under sub- rules (2) and (3), the Central Government, shall notify in the Official Gazette, declaring it as a Nidhi or Mutual Benefit Society, as the case may be:

Provided that the decision of the Central Government approving the application, shall be filed by the company with the Registrar alongwith Form 20A required under section 10A of the Act:

Provided further that such company shall commence its business only once the decision of the Central Government approving its application is obtained from the Central Government pursuant to the declaration given under rule 12 of the Companies (Incorporation) Rules, 2014.

(6) In case a company does not comply with the requirements of sub- rule (1) of this rule, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of allotment).

(7) The provisions of this rule shall not be applicable to a public company incorporated under the Act before the date of commencement of the Nidhi (Amendment) Rules, 2022.

As of now, Rule 3A was in operation for the purpose of complying with the provisions of form NDH-4, however, the same is now kept operational only for those Companies which are incorporated prior to the commencement of the amendment rules. Post to these amendment rules, Rule 3B shall be applicable instead of Rule 3A to those companies which are incorporated on or after the commencement of the amendment rules.

1. The first change is regarding the timeline of filing form NDH-4. In the existing scenario, the due date of filing NDH-4 was, within 60 days from the date of expiry of: –

(a) 1 year from the date of its incorporation, or

(b) the period up to which extension of time has been granted by the Regional Director under sub-rule (3) of rule 5.

However, now the due date is shortened, and the companies are required to file form NDH-4 within 120 days of its incorporation subject to fulfilment of the following conditions,

• it has not less than 200 members
• it has Net Owned Funds of 20 lakh rupees or more

This is again a very harsh step taken by the Ministry. In the existing provisions, to file NDH-4, the Companies were required to comply with the Nidhi Rules in general and Rule 5 in particular, which provides as under:

Every Nidhi shall, within a period of 1 year from the date of its incorporation, ensure that it has-

• not less than 200 members;
• Net Owned Funds of 10 lakh rupees or more;
• unencumbered term deposits of not less than 10% of the outstanding deposits as specified in rule 14; and
• ratio of Net Owned Funds to deposits of not more than 1:20.

Now, there’s a huge evident change in the conditions.

Earlier, a Nidhi had 365 days to comply with the conditions mentioned in Rule 5 which is now only 120 days and the Net Owned Funds of 10 lakh rupees or more was required which is now increased to 20 lakh rupees.

Practically, it is very difficult to arrange 200 members and Net Owned Funds of ₹20 lakhs in just 120 days.

2. The second change is about attaching a declaration with regard to fulfilment of fit and proper person criteria by all the promoters and directors of the company. This is also a very important amendment as the MCA has provided many conditions under sub-rule (3) which are needed to be fulfilled by the promoters and directors of the Nidhi. One of such conditions which in the author’s view is of utmost importance is, disqualification of a person if such person is a director in 5 or more companies incorporated or declared as Nidhi, or is a promoter of 3 or more companies incorporated or declared as Nidhi. This again, is a very restrictive step taken by the MCA.

3. One of the best decisions taken by the MCA is providing a specific timeline within which it shall convey approval/ rejection towards the NDH-4 filed by the Companies. In the existing provisions, no such time period is prescribed and many companies are awaiting response to the form filed by them more than 1-2 years ago but now a specific period of 45 days is prescribed to either accept or reject the application in form NDH-4. In case the MCA fails to convey its decision within the prescribed time period, the application shall be deemed to be accepted.

4. The link of the fourth amendment is with Companies (Incorporation) Amendment Rules, 2022 which was notified on 8^th April, 2022 vide Notification No. G.S.R. 291(E). Wherein, a proviso was inserted in rule 12 as follows:

Provided further that in case of a Company being incorporated as a Nidhi, the declaration by the Central Government under section 406 of the Act shall be obtained by the Nidhi before commencing the business and a declaration in this behalf shall be submitted at the stage of incorporation by the company.

5. In case a Nidhi is not complying with sub-rule (1) it shall not be allowed to file form SH-7 or PAS-3.

6. Rule 3B shall not be applicable to those companies which are incorporated under the Act before the date of commencement of the Nidhi (Amendment) Rules, 2022.

(a) for the words “five lakh rupees”, the words “ten lakh rupees” shall be substituted;

(b) the following proviso shall be inserted, namely:

“Provided that every Nidhi existing as on the date of commencement of the Nidhi Amendment Rules, 2022, shall comply with this requirement within a period of eighteen months from the date of such commencement”.

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.

It is pertinent to go through rule 5 to understand its importance.

5. Requirements for Minimum Number of Members, Net Owned Fund etc

(1) Every Nidhi shall, within a period of one year from the date of its incorporation, ensure that it has-

(a) not less than two hundred members;

(b) Net Owned Funds of ten lakh rupees or more;

(c) unencumbered term deposits of not less than ten per cent. of the outstanding deposits as specified in rule 14; and

(d) ratio of Net Owned Funds to deposits of not more than 1:20.

(2) Within ninety 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 along with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 with the Registrar duly certified by a company secretary in practice or a chartered accountant in practice or a cost accountant in practice.

(3) If a Nidhi is not complying with clauses (a) or (d) of sub-rule (1) above, it shall within thirty days from the close of the first financial year, apply to the Regional Director in Form NDH-2 along with fee specified in Companies (Registration Offices and Fees) Rules, 2014 for extension of time and the Regional Director may consider the application and pass orders within thirty days of receipt of the application.

Provided that the Regional Director may extend the period upto one year from the date of receipt of application.

Explanation.- For the purpose of this rule “Regional Director” means the person appointed by the Central Government in the Ministry of Corporate Affairs as a Regional Director;

(4) If the failure to comply with sub-rule (1) 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 contained in sub-rule (1) and gets itself declared under sub-section (1) of section 406, besides being liable for penal consequences as provided in the Act.

Author’s observation regarding form NDH-1

Under Rule 5(2) every Nidhi is required to file form NDH-1 which is a return of statutory compliances within 90 days from the close of the first financial year after its incorporation and where applicable, the second financial year. However, it can be well noted that Rule 5 is made inapplicable for the companies incorporated as Nidhi on or after the commencement of the Nidhi (Amendment) Rules, 2022. This clearly means that form NDH-1 is no more relevant for newly incorporated entities and it will remain in force for only those companies which were incorporated before 19^th April, 2022.

acquire or purchase securities of any other company 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.

Vide this amendment, the option of passing an SR and taking prior approval of RD is done away and this restriction is now a prohibition in its entirety.

(l) raise loans from banks or financial institutions or any other source for the purpose of advancing loans to members of Nidhi.

A member shall not transfer more than fifty percent 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.

(a) for the words “ten lakh”, the words “twenty lakh” shall be substituted;

(b) the following proviso shall be inserted, namely: –

“Provided that every Nidhi existing as on the date of commencement of the Nidhi (Amendment) Rules, 2022 shall comply with this requirement within a period of eighteen months from the date of such commencement”.

Further, every Nidhi existing as on the date of commencement of the Nidhi (Amendment) Rules, 2022 shall comply with this requirement within a period of 18 months from the date of such commencement which is a very difficult task for those Nidhis which got incorporated in recent 3 years period.

after the words, “Regional Director”, the words “by applying in Form NDH-2 along with fee specified in the Companies (the Registration Offices and Fees) Rules, 2014”, shall be inserted.

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 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 thirty days of such opening.

Form NDH-2 was earlier used for applying for extension of time under Rule 5 but now its purpose is changed.

 (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.

This is a welcoming change as now Nidhis can open collection centres or offices or deposit centres outside the State where its registered office is situated and also without filing financial statement and annual return (up to date).

(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.

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.

Although, the word “gold” is not present in sub-rule (1), however the same is there in Rule 12(1)(l)(v)(c), accordingly, assuming that the amendment is intended to be made in the latter, the amended provision shall be,

(1) Every application form for placing a deposit with a Nidhi shall contain the following particulars, namely: –

(a)….(k)

(l) A summary of the financials of the company as per the latest two audited financial statements as given below:

(i)….(iv)

(v) Loans disbursed against-

(a) immovable property;

(b) deposits; and

(c) gold silver and jewellery

Provided that in case of joint shareholders, the loan shall be provided to the member whose name appears first in the Register of members.

Secondly, the conditions subject to which a Nidhi was allowed to declare dividend are now removed. Those conditions are,

(a) an equal amount is transferred to General Reserve;

(b) there has been no default in repayment of matured deposits and interest; and

(c) it has complied with all the rules as applicable to Nidhis.

Provided further that no company which has not complied with the requirements of this rule, or fails to comply with such requirement on or after the date of 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 the date of commencement of the said rules, or the date of rejection of the application in Form NDH-4, whichever is later.

Provided also that 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 second 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.

4. Application filed for:

(i) for extension of time under sub-rule (3) of rule 5 (ii) for permission of Regional Director for opening of branch under sub- rule (3) of rule 10

(iii) for permission of Regional Director for closing of branch under clause (a) of sub-rule 6 of rule 10

(iv) for intimation to Registrar for opening or closing of branch under rule 10

(v) for intimation to Registrar for closure of collection centres etc. under rule 10

(vi) for permission of Regional Director for withdrawal of unencumbered deposits under rule 14

6. ‘Reasons for the application’

(vii) Net Owned Fund: _____

(i) serial no. 9(a) shall be renumbered as 9(b) thereafter, and before serial number 9(b) as so renumbered, the following shall be inserted, namely: –

9(a) Net Owned Fund: _________

 (ii) under heading Attachments, for serial number 5, the following shall be substituted, namely:

5. Declaration with regard to fulfilment of fit and proper person criteria, as per sub-rule (3) of rule 3B, by all the Promoters and Directors of the company.

6. Optional attachment, if any

NDH-5

Format of advertisement to be given while closing branch

[Pursuant to sub-rule (6) of rule 10 of the Nidhi Rules,2014]

Notice is hereby given that M/s __________ (Nidhi) having its CIN Number _______________ has obtained, the prior approval of the Regional Director at ________ (concerned region) [vide Approval Number ————- dated ————] for closure of branch(es)/ collection centre(s)/ collection office(s)/ deposit centre(s) of the Nidhi located at following places:-

1.

2.

3.

Accordingly, it is informed to all concerned that above mentioned branch(es)/ collection centre(s)/ collection office(s)/ deposit centre(s) of the Nidhi shall stand closed with effect from ________.

Signed by authorised signatory of Nidhi

[For __________ (Nidhi)]

Address of Nidhi_____________________________” .