Exemptions To Nidhi Company

In accordance with the section 406(1) of the Companies Act, 2013, a “Nidhi” 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 the business model of collecting money from its members and giving away that money as loans with security 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.

We have recently discussed a lot about the incorporation, post incorporation and the requisite compliances of a Nidhi Company but in this article, we shall study about the exemptions available to Nidhi Companies from compliance of various sections of the Act and the impact of such exemptions.

The Ministry of Corporate Affairs came up with a notification on June 5, 2015 specifying explicitly the exemptions available to Nidhi Companies and the same is explained herein below point wise.

• SERVICE OF DOCUMENTS TO MEMBERS (SECTION 20(2))

A Company may serve any document such as notice of EOGM, AGM, etc. to its members by post or by registered post or by speed post or by courier or by delivering it to its address or office or electronic mode but for a Nidhi Company, it is required to serve notice only to those members who hold shares of more than Rs. 1000 in face value or more than 1% of the total paid-up share capital of the Nidhi, whichever is less.

For the other shareholders, the document may be served by a public notice in newspaper circulated in the district where the Registered Office of the Company is situated and publication of the same on the Board of the Nidhi.

A similar exemption is given to Nidhi Company under Section 136(1) of the Companies Act, 2013 wherein notice can be published in the newspaper as aforesaid and the financial statements, instead of sending it to each member holding shares of not less than Rs. 1000/- in face value or less than 1% of the total paid-up share capital, whichever is more, keep the financial statements at the registered office along with its enclosures.

•  PRIVATE PLACEMENT BY NIDHI COMPANIES [SECTION 42]:

For all the Companies, the entire section 42 of the Companies Act, 2013 is obviously applicable but for Nidhi Companies, except sub – section (1), Explanation II to Sub-section (2), sub–sections (4), (6), (8), (9) and (10) of Section 42, the other provisions of Section 42 are not applicable. In short, the Nidhi Companies has following benefits:

• Nidhi Company can invite any number of persons for private placement and no restriction for maximum number of persons is there.
• Nidhi Companies may accept subscription money in cash.
• Nidhi Company may issue private placement to any person without issuing offer letter and without recording name as well.
• It can come up with multiple private placements at the same time.

• VOTING RIGHTS [SECTION 47(1)]: 

Every member of a Company holding equity share capital shall have a right to vote on every resolution placed before the Company and his voting right on a poll shall be in proportion to his share in the paid-up equity share capital of the company but in Nidhi Company, no member of a Nidhi Company shall exercise his voting right on poll in excess of five percent of total voting rights of equity shareholders.

• FURTHER ISSUE OF SHARE CAPITAL [SECTION 62]:

This entire section is not applicable to Nidhi Companies. This enables Nidhi Companies to make new members without complying with issuing rights to present members and without seeking authorization from its existing members.

• PURCHASE OF OWN SHARES [SECTION 67(1)]:

No Company can purchase its own shares however, a Nidhi Company can purchase shares from a member on his ceasing to be a depositor or borrower and it shall be considered as reduction of capital.

• DECLARATION OF DIVIDEND [SECTION 123(5)]:

The entire provisions of the Section 123 are applicable to Nidhi Companies subject to a modification in sub section 5 of Section 123 of the Companies Act, 2013 that the dividend can be paid in cash by crediting the same to the account of the member, if the dividend is not claimed within 30 days from the date of declaration of the dividend.

• RIGHT OF PERSONS OTHER THAN RETIRING DIRECTORS TO STAND FOR DIRECTORSHIP [SECTION 160(1)]:

The deposit along with the proposal of candidature shall be Rs. 10,000/- in case of Nidhi companies whereas for other Companies, the deposit amount is Rs. 1,00,000/-.

• LOAN TO DIRECTORS [SECTION 185]:

The provisions of Section 185 shall not apply to a Nidhi Company provided that the loan is given to a Director or his relative in their capacity as members and such transaction is disclosed in the annual accounts by a note.

Therefore, we can conclude that if any Director is not a member, Section 185 shall apply.

• MANAGERIAL REMUNERATION [SECOND PROVISO TO SECTION 197(1)]:

In Case of Nidhi Companies, the provisions of the entire Section 197 are applicable subject to the modification that the remuneration of a Director who is neither managing director nor whole – time director nor manager for performing special services to the Nidhis may be paid by way of monthly payment subject to the approval of the Company in general meeting and also in compliance to the provisions of section 197.

Further, that no approval of the company in general meeting shall be required where-

(a) a Nidhi does not have a managing director or a whole-time director or a manager;

(b) the remuneration payable during a financial year to all the directors of the Nidhi does not exceed 10% of the net profits of such Nidhi or Rs. 15 lacs, whichever is less; and

(c) a remuneration payable under clause (b) is approved by a special resolution passed in this behalf by the Nidhi.

This exemption is very important as for other Companies, the renumeration payable to Directors who are neither managing Director nor whole time Director shall not exceed 1% of the net profits of the Company if there is a managing or whole time Director or manager and 3% in any other case.

• FEE FOR FILING (SECTION 403):

The entire Section is applicable subject to the modification for filing fees with respect to filing of eForm PAS-3 pursuant to Section 42 wherein the fees shall be calculated at the rate of one rupee for every one hundred rupees or parts thereof on the face value of the shares included in the return but shall not exceed the amount of normal filing fee payable.

(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) cskajalgoyal@gmail.com)