Recent rejections of Nidhi company incorporation applications have raised concerns among stakeholders. We dissect the rejection reasons, analyze discrepancies, and seek clarity on regulatory amendments for better understanding.
As per Rule 3 of Nidhi Rules, 2014, “Nidhi” means a company that 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 the rules made by the Central Government for regulation of such class of companies.
The concept of Nidhi Company is very well accepted in the Companies Act, 1956, and Companies Act, 2013 under Section 206.
1. Recent Rejection:
We have recently seen that our respected authority has rejected Incorporation Applications made by stakeholders seeking to incorporate Nidhi Companies. Extracts from some of the rejections are shown below: Due to confidentiality, I am not mentioning SRN of any such form.
REJECTION 1:
It is informed your application has been rejected for reasons indicated below:
Word “NIDHI LIMITED” is not permitted as per directions issued by the Ministry vide its letter dated 12-04-2024 for new incorporation (Kindly go through Circular on MCA Website). Such suffix “NIDHI COMPANY” will be allowed only after filing of Application under NDH-4 for being declared as NIDHI Company and its approval.
REJECTION 2:
With reference to your application vide SRN Dated 18/04/2024, for the incorporation of, it is informed that the application is required to be resubmitted for rectification of defects as stated below:- Word “NIDHI LIMITED” is not permitted as per directions issued by the Ministry vide its letter dated 12-04-2024 for new incorporation (Kindly go through Circular on MCA Website). Such suffix “NIDHI COMPANY” will be allowed only after filing of Application under NDH-4 for being declared as NIDHI Company and its approval.
REJECTION 3:
It is informed that your application has been rejected for reasons indicated below: Word “NIDHI LIMITED” is not permitted till filing of necessary application in NDH-4 for being declared as a Nidhi company and its approval (i.e., being declared as a Nidhi company). (Ministry’s directions vide letter dated 12-04-2024).
You are requested to file a new application again.
2. Discussion on Rejection Reasons:
Points for Discussion:
i. As per the Rejection letter, MCA has issued a circular on 12th April 2024 regarding such amendment in the Nidhi Rules. However, as per the MCA website, there is no such circular available as of 18th April 2024 regarding the same. (Screenshot of the same is given below)
NOTE: Proposed companies are being rejected based on the Nidhi Rules change, despite the lack of a circular on the MCA’s website. I would like to request that the respected authorities publish the circular so that all stakeholders are aware of the most recent modifications.
Further, such a circular should be effective on the Proposed Companies getting filed on or after 12 April 2024.
ii. As per the Rejection letter, it is mentioned that the “suffix of Nidhi Company will be allowed only after filing of application under NDH-4 for being declared as a Nidhi Company.
However, as per Rule 3 of Nidhi Rules, Extract given below
Declaration of Nidhis. – 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 sixty days from the date of expiry of:-
a. one 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-ruIe (3) of rule 5:
NOTE: As per the above rule, the Company needs to file NDH 4 within 60 days of one year from the date of its incorporation. Therefore, there is confusion between the rules and the rejection given by our respected department.
iii. if our respected authority has issued a circular on Nidhi Company’s non-incorporation, as specified in the rejection letter. Then, our respected CRC department should be directed not to approve any Name application form for the formation of a Nidhi Company or to allow the filing of Spice Part B for the incorporation of a Nidhi Company.
The stakeholders have spent their money on the Name Application and Spice Part B. They are losing money unnecessarily because their incorporation was rejected due to a circular which may have been passed by filing of the applications.
Our respected authority should give effect to the circular as mentioned in the rejection letter from the prospective date instead of the retrospective date.
Conclusion:
After going over the provisions of the Companies Act, 2013, pertaining to Nidhi Incorporation and the present rejection letters given by the respected authority, the stakeholders should have the following clarity:
a) As per law, NDH -4 required to file after incorporation and as per the rejection letter suffix “Nidhi Company” shall be allowed only after filing of NDH-4.
b) As per Spice Part A, stakeholders can’t file the application of Name approval without the affixation of the suffix Nidhi Company.
There seems contradiction in the language of rejection letter and the law.
c) As the stakeholders have spent money for Name approval Application and Spice Part B for Incorporation of LLP. Therefore, the circular should not implement from the retrospective effect and the stakeholders who have filed their application before that date should be allowed for Incorporation.
d) As per the rejection letter stakeholders are not allowed to incorporate the Nidhi Company, our respected authority should amend the forms in such a manner that stakeholders will not be able to file the application for incorporation of a Nidhi Company.
Finally, I would want to emphasize that as professionals, we always respect the law, the authorities. We have always assisted professionals and stakeholders whenever the law has been amended or when the MCA v3 portal was created. We, as professionals, always serve as a link between the Ministry and stakeholders. We are writing this post with the aim of helping stakeholders.
The goal of producing this post is just to provide clarification for the fraternity and stakeholders. As professionals, we received inquiries from numerous stakeholders to which we were unable to respond. That is why we are seeking clarification on the matter from our respected authority.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
Author Bio
what is the solution to the issue as we cannot file name application without adding Nidhi as it getting an error and if add it is getting rejected