Directors of a Nidhi Company

As per the provisions of 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’. Therefore, we can say that a person who wants to start a Company with a business model of collecting money from its members and giving away that money as secured loans to members only can opt for incorporation of a Nidhi Company. Under this, a person makes money from difference of rate of interest charged on loans vs. given on deposits.

After being incorporated as a Nidhi Company, it shall comply with all the provisions and restrictions applicable. Therefore, in this article, we shall specifically study about the provisions relating to Directors of a Nidhi Company.

It is pertinent to note that the duties, appointment and other provisions such as resignation, casual vacancy, etc. of Director of a normal public limited Company is mutandis-mutandis applicable to that of a Nidhi Company. However, Rule 19 of the Nidhi Rules, 2014 places some conditions on the eligibility for appointment and term for an individual to be the Director.

In Companies Act, 2013, Section 149 to 172 read with Companies (Appointment and Qualification of Director) Rules, 2014 deals with the appointment, removal, resignation, and other provisions relating to Directors as long as it is not contrary to anything given in Rule 19 of the Nidhi Rules. Now, we shall study about the provisions relating to the Director of a Nidhi Company as specifically mentioned in the Nidhi Rules:

1. The Director shall be a member of the Nidhi.

However, there is no maximum limit of ownership that can be held by a Director but he shall at least hold a minimum of ten equity shares or shares equivalent to Rs. 100/- in value in case he is a fixed deposit holder whereas a minimum of at least one equity share of rupees ten in case of savings/recurring account holder.

2. The Director of a Nidhi Company shall hold office for a term up to ten consecutive years on the Board except where tenure of any Director had already been extended by the Central Government, it shall terminate on expiry of such extended tenure.

3. The Director shall be eligible for re-appointment only after the expiration of two years of him ceasing to be a Director.

FREQUENTLY ASKED QUESTIONS:

1. Can a Director be appointed for a single term which may comprise of only five consecutive years?

Yes, as per the interpretation of the law, the focus is on a single term which may be up to ten consecutive years. Under this, the emphasis is given on the maximum number of years for which an individual can hold Directorship in a single term however, no minimum time limit is given.

(The author i.e., Kajal Goyal is a Company Secretary in Practice at M/s. Kajal Goyal and Associates and can be reached at (M) +91-9999952595 and (E) [email protected])