Compliances of Nidhi Company

As per the provisions of the section 406(1) of the Companies Act, 2013, ‘Nidhi Company’ means a ‘company which 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’. After being incorporated as a Nidhi Company, it shall comply with all the provisions and restrictions applicable. Therefore, in this article, we shall study about the various do’s, don’t and compliances of Nidhi Company.

A. DO’S AFTER INCORPORATION FOR NIDHI COMPANIES: 

1. Open a current account with any scheduled bank in the name of the Company and file Form 20A accordingly before commencing its business operations.

2. Within a period of one year, ensure that it has-

(a)  not less than two hundred members;

(b) Net Owned Funds of Rupees Ten Lakh (Rs. 10,00,000) or more;

(c) Unencumbered (i.e. free from any kind of charges) term deposits of not less than ten per cent. of the outstanding deposits, and

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

In the event the Company is not complying with (a) or (d) above, it shall within thirty days from the closure of the first financial year, apply to the Regional Director in Form NDH-2 for extension of time.

3. Comply with the contents of the application form as prescribed.

4. For the purpose of identification, take proof of identity and address as prescribed (not older than two months) from depositors.

5. Adhere to prudential norms as prescribed under Rule 20 of the Nidhi Rules, 2014.

B. DONT’S AFTER INCORPORATION FOR NIDHI COMPANIES: 

1. carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any Body corporate;

2. issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;

3. open any current account with its members;

4. 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 special resolution has been passed and obtained prior approval from Regional Director;

5. carry on any business other than the business of borrowing or lending in its own name. Provided that the Nidhi Company may provide locker facilities and earn rental income thereof but such income shall not exceed 20% of the gross income.

6. accept deposits from or lend to any person, other than its members;

7. pledge any of the assets lodged by its members as security;

8. take deposits from or lend money to any body corporate or trust or minor;

9. enter into any partnership arrangement in its borrowing or lending activities;

10. issue or cause to be issued any advertisement in any form for soliciting deposit:

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

12. Levy service charge for issue of shares.

C. SHARE CAPITAL AND ALLOTMENT BY NIDHI COMPANIES:  

1. Allot to each deposit holder at least a minimum of ten equity shares or shares equivalent to one hundred rupees:

2. A savings account holder and a recurring deposit account holder shall hold at least one equity share of rupees ten.

D. LOAN BY NIDHI COMPANIES:  

1. Loan shall be provided only to members of the Company and further, subject to the following limits:

TOTAL AMOUNT OF DEPOSITS	LOAN AMOUNT (In Lacs)
< 2 crores	2
2 crores > 20 crores	7.50
20 crores > 50 crores	12
>50 crores	15

* In case the Company has not made profits continuously in the three preceding years, it shall not make fresh loans exceeding 50% of the aforementioned amount.

2. The loan shall be given only against the following, namely:

• gold, silver and jewellery;
• immovable property, and
• fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies.

E. RATE OF INTEREST:

1. The rate of interest to be charged on any loan given by a Nidhishall not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method.

2. The maximum interest on savings account shall not exceed 2% above of what is being by the nationalized banks.

3. The rate of interest being offered on fixed and recurring deposits shall not exceed the rate of interest prescribed by the Reserve Bank of India which the Non-Banking Financial Companies can pay on their public deposits.

F. UN-NUMBERED TERM DEPOSITS:

The Nidhi Company shall keep invested an unnumbered term deposits with a scheduled commercial bank or post office, which shall be not less than 10% of the deposits outstanding at the close of business on the last working day of the second preceding month.

G. DIRECTORS OF NIDHI COMPANIES:  

The director shall be the member of Nidhi and shall hold office for a term up to ten consecutive years on the Board of Nidhi.

H. FILING OF REQUISITE ANNUAL FORMS WITH ROC BY NIDHI COMPANIES:  :

• Form NDH-1 within 90 from the close of financial year;
• Form NDH-3 within 30 days from the conclusion of each half year;
• Form AOC-4 within 30 days of annual general meeting;
• Form MGT-7 within 60 days of annual general meeting.

I. OPENING OF BRANCHES BY NIDHI COMPANIES:

1. It may open branches, within the state, only if it has earned net profits after tax continuously during the preceding three years.

2. No Nidhi shall open branches outside the State where its registered office is situated.

3. No Nidhi shall open branches unless financial statement and annual return (up to date) are filed with the Registrar.

4. A Nidhi shall not close any branch unless it publishes advertisement, fixes a copy of such advertisement on the notice board of Nidhi Company and gives intimation of such closure to the Registrar thereof.

J. ACCEPTANCE OF DEPOSITS BY NIDHI COMPANIES:

1. It shall not accept deposits exceeding twenty times of its Net Owned Funds as per its last audited financial statements.

2. Fixed Deposits shall be accepted for minimum 6 months and maximum 60 months.

3. Recurring Deposits shall be accepted for minimum 12 months and maximum 60 months.

4. The maximum balance in a saving account qualifying for interest shall not exceed Rupees One Lacs at any point and the rate of interest on the same shall not exceed 2% above what being paid by nationalized banks.

{The author  i.e. Kajal Goyal is a Company Secretary in Practice at Kajal Goyal and Associates and can be reached at (M) 9999952595 and (E) cskajalgoyal@gmail.com}