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Nidhi Company along with recent amendments dated 19.04.2022 vide Nidhi (Amendment) Rules, 2022

Introduction: 

This Article contains detailed analysis of compliances applicable to Nidhi Company. MCA has recently came out with some amendments in the Nidhi Rules, 2014 vide Nidhi (Amendment) Rules, 2022 dated 19.04.2022 wherein more stringent norms have been prescribed by Central Government for the monitoring and regulation of Nidhi Companies. 

Relevant Provisions:

1. Sec. 406 of Companies Act, 2013: Power to Modify Act in its Application to Nidhis with Central Government.

2. Nidhi Rules, 2014 as amended by Nidhi (Amendment) Rules, 2022

These rules shall apply to-

(a) every company which had been declared as a Nidhi or Mutual Benefit Society under sub-section (1) of section 620A of the Companies Act, 1956;

(b) every company functioning on the lines of a Nidhi company or Mutual Benefit Society but has either not applied for or has applied for and is awaiting notification to be a Nidhi or Mutual Benefit Society under sub-section (1) of section 620A of the Companies Act, 1956; and

(c) every company incorporated as a Nidhi pursuant to the provisions of section 406 of the Act.

(d) every company declared as Nidhi or Mutual Benefit Society under sub-section (1) of section 406 of the Act.

Definitions: 

The term branch has been now defined under the rules which was previously not included.

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

Ques: What is Nidhi Company?

Rule 3(da) defines “Nidhi” as a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and saving 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.

DECLARATION OF NIDHI COMPANY BY CENTRAL GOVERNMENT

Rule 3A. -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-rule (3) of rule 5:

Provided further that nothing in the first proviso shall prevent a Nidhi from filing Form NDH-4 before the period referred therein:

Provided also that that in case a company does not comply with the requirements 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).

“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.

Rule 3B. (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, alongwith 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  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 along with 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.

Nidhi (Amendment) Rules, 2022 - Detailed analysis of compliances

Rule 4 Incorporation and Incidental Matters

(1) A Nidhi shall be a public company and shall have a minimum paid up equity share capital of ten lakh rupees.

“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”.

(2) On and after the commencement of the Act, no Nidhi shall issue preference shares.

(3) If preference shares had been issued by a Nidhi before the commencement of this Act, such preference shares shall be redeemed in accordance with the terms of issue of such shares.

(4) Except as provided under the proviso to sub-rule (e) to rule 6, no Nidhi shall have any object in its Memorandum of Association other than 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.

(5) Every “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name.

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 percent 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.

(5) 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.

Rule 6 General Restrictions or Prohibitions

No Nidhi shall-

(a) carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate;

(b) issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;

(c) open any current account with its members;

(d) 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;

Explanation.- For the purposes of this sub-rule, “control” shall have the same meaning assigned to it in clause (27) of section 2 of the Act;

(e) carry on any business other than the business of borrowing or lending in its own name:

Provided that Nidhis which have adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty per cent. of the gross income of the Nidhi at any point of time during a financial year.

(f) accept deposits from or lend to any person, other than its members;

(g) pledge any of the assets lodged by its members as security;

(h) take deposits from or lend money to any body corporate;

(i) enter into any partnership arrangement in its borrowing or lending activities;

(j) issue or cause to be issued any advertisement in any form for soliciting deposit:

Provided that private circulation of the details of fixed deposit schemes among the members of the Nidhi carrying the words “for private circulation to members only” shall not be considered to be an advertisement for soliciting deposits.

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

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

7 Share Capital and Allotment

(1) Every Nidhi shall issue fully paid up equity shares of the nominal value of not less than ten rupees each:

Provided that this requirement shall not apply to a company referred to in sub-rules (a) and (b) of rule 2.

(2) No service charge shall be levied for issue of shares.

(3) Every Nidhi shall allot to each deposit holder at least a minimum of ten equity shares or shares equivalent to one hundred rupees: Provided that a savings account holder and a recurring deposit account holder shall hold at least one equity share of rupees ten.

Rule 8: Membership

(1) A Nidhi shall not admit a body corporate or trust as a member.

(2) Except as otherwise permitted under these rules, every Nidhi shall ensure that its membership is not reduced to less than two hundred members at any time.

(3) A minor shall not be admitted as a member of Nidhi

Provided that deposits may be accepted in the name of a minor, if they are made by the natural or legal guardian who is a member of Nidhi.

(4) 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 sub rule (3) of rule 7 at all times.

Rule 9: Net Owned Funds

Every Nidhi shall maintain Net Owned Funds (excluding the proceeds of any preference share capital) of not less than twenty lakh or such higher amount as the Central Government may specify from time to time.

“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”.

Rule 10: Branches

(1) A Nidhi may open branches, only if it has earned net profits after tax continuously during the preceding three financial years.

(2) Subject to the provisions contained in sub-rule (1), a Nidhi may open up to three branches within the district.’

(3) 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.

(4) No Nidhi shall open branches outside the State where its registered office is situated.

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

(6) (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”.

(7) 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.

Rule 11: Acceptance of Deposits by Nidhi

(1) A Nidhi shall not accept deposits exceeding twenty times of its Net Owned Funds (NOF) as per its last audited financial statements.

(2) In the case of companies covered under clauses (a) and (b) of rule 2 and existing on or before 26th July, 2001 and which have accepted deposits in excess of the aforesaid limits, the same shall be restored to the prescribed limit by increasing the Net Owned Funds position or alternatively by reducing the deposit according to the table given below:

Ratio of Net Owned Funds to Deposits (as on 31.3. 2013) Date by which the company has to achieve prescribed ceiling of 1:20
a) More than 1:20 but upto 1:35 By 31.3. 2015
b) More than 1:35 but upto 1:45 By 31.3. 2016
c) More than 1:45 By 31.3. 2017

(3) The companies which are covered under the Table in sub-rule (2) above shall not accept fresh deposits or renew existing deposits if such acceptance or renewal leads to violation of the prescribed ratio.

(4) The ratio specified in sub-rule (2) above shall also apply to incremental deposits.

12 Application Form for Deposit

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

(a) Name of Nidhi;

(b) Date of incorporation of Nidhi;

(ba) The date of declaration or notification as Nidhi

(c) The business carried on by Nidhi with details of branches, if any;

(d) Brief particulars of the management of Nidhi (name, addresses and occupation of the directors, including DIN);

(e) Net profits of Nidhi before and after making provision for tax for the preceding three financial years;

(f) Dividend declared by Nidhi during the preceding three financial years;

(g) Mode of repayment of the deposit;

(h) Maturity period of the deposit;

(i) Interest payable on the deposit;

(j) The rate of interest payable to the depositor in case the depositor withdraws the deposit prematurely;

(k) The terms and conditions subject to which the deposit may be accepted or renewed;

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

(i) Net Owned Funds

(ii) Deposits accepted

(iii) Deposits repaid

(iv) Deposits claimed but remaining unpaid

(v) Loans disbursed against-

(a) immovable property;

(b) deposits; and

(c) gold silver and jewellery

(vi) Profit before tax

(vii) Provision for tax

(viii) Profit after tax

(ix) Dividend per share

(m) any other special features or terms and conditions subject to which the deposit is accepted or renewed.

(2) The application form shall also contain the following statements, namely:-

(a) in case of non- payment of the deposit or part thereof as per the terms and conditions of such deposit, the depositor may approach the Bench of the National Company law Tribunal having jurisdiction over Nidhi;

(b) in case of any deficiency of Nidhi in servicing its depositors, the depositor may approach the National Consumers Disputes Redressal Forum, the State Consumers Disputes Redressal Forum or District Consumers Disputes Redressal Forum, as the case may be, for redressal of his relief;

(c) a declaration by the Board of Directors to the effect that the financial position of Nidhi as disclosed and the representations made in the application form are true and correct and that Nidhi has complied with all the applicable rules

(d) a statement to the effect that the Central Government does not undertake any responsibility for the financial soundness of Nidhi or for the correctness of any of the statement or the representations made or opinions expressed by Nidhi;

(e) the deposits accepted by Nidhi are not insured and the repayment of deposits is not guaranteed by either the Central Government or the Reserve Bank of India; and

(f) a verification clause by the depositor stating that he had read and understood the financial and other particulars furnished and representations made by Nidhi in his application form and after careful consideration he is making the deposit with Nidhi at his own risk and volition.

(3) Every Nidhi shall obtain proper introduction of new depositors before opening their accounts or accepting their deposits and keep on its record the evidence on which it has relied upon for the purpose of such introduction.

(4) For the purposes of introduction of depositors, a Nidhi shall obtain documentary evidence of the depositor in the form of proof of identity and address as

(a) Proof of Identity (any one of the following)

(i) Passport

(ii) Unique Identification Number

(iii) Income-tax PAN card

(iv) Elector Photo Identity Card

(v) Driving licence

(vi) Ration card

(b) Proof of address (any one of the following)

(i) Passport

(ii) Unique Identification Number

(iii) Elector Photo Identity Card

(iv) Driving licence

(v) Ration card

(vi) Telephone bill

(vii) Bank account statement

(viii) Electricity bill

(documents referred to serial numbers (vi), (vii) and (viii) above shall not be more than two months old)

Rule 13: Deposits 

(1) The fixed deposits shall be accepted for a minimum period of six months and a maximum period of sixty months.

(2) Recurring deposits shall be accepted for a minimum period of twelve months and a maximum period of sixty months.

(3) In case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi.

(4) The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees at any point of time and the rate of interest shall not exceed two per cent. above the rate of interest payable on savings bank account by nationalised banks.

(5) A Nidhi may offer interest on fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the Reserve Bank of India which the Non-Banking Financial Companies can pay on their public deposits.

(6) A fixed deposit account or a recurring deposit account shall be foreclosed by the depositor subject to the following conditions, namely:-

(a) a Nidhi shall not repay any deposit within a period of three months from the date of its acceptance;

(b )where at the request of the depositor, a Nidhi repays any deposit after a period of three months, the depositor shall not be entitled to any interest up to six months from the date of deposit;

(c) where at the request of the depositor, a Nidhi makes repayment of a deposit before the expiry of the period for which such deposit was accepted by Nidhi, the rate of interest payable by Nidhi on such deposit shall be reduced by two per cent. from the rate which Nidhi would have ordinarily paid, had the deposit been accepted for the period for which such deposit had run:

Provided that in the event of death of a depositor, the deposit may be repaid prematurely to the surviving depositor or depositors in the case of joint holding with survivor clause, or to the nominee or to legal heir with interest up to the date of repayment at the rate which the company would have ordinarily paid, had such deposit been accepted for the period for which such deposit had run.

Rule 14: Un-encumbered Term Deposits

Every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a scheduled commercial bank (other than a co-operative bank or a regional rural bank), or post office deposits in its own name an amount which shall not be less than ten per cent. of the deposits outstanding at the close of business on the last working day of the second preceding month:

Provided that in cases of unforeseen commitments, temporary withdrawal may be permitted with the prior approval of the Regional Director by making application in Form NDH- 2 alongwith fee specified in the Companies (the Registration Offices and Fees) Rules, 2014 for the purpose of repayment to depositors, subject to such conditions and time limit which may be specified by the Regional Director to ensure restoration of the prescribed limit of ten per cent.

Rule 15: Loans

(1) A Nidhishall provide loans only to its members.

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

(2) The loans given by a Nidhi to a member shall be subject to the following limits, namely:-

(a) two lakh rupees, where the total amount of deposits of such Nidhi from its members is less than two crore rupees;

(b) seven lakh fifty thousand rupees, where the total amount of deposits of such Nidhi from its members is more than two crore rupees but less than twenty crore rupees;

(c) twelve lakh rupees, where the total amount of deposits of such Nidhi from its members is more than twenty crore rupees but less than fifty crore rupees; and

(d) fifteen lakh rupees, where the total amount of deposits of such Nidhi from its members is more than fifty crore rupees:

Provided that where a Nidhi has not made profits continuously in the three preceding financial years, it shall not make any fresh loans exceeding fifty per cent. of the maximum amounts of loans specified in clauses (a), (b), (c) or (d).

Provided further that a member shall not be eligible for any further loan if he has borrowed any earlier loan from the Nidhi and has defaulted in repayment of such loan.

(3) For the purposes of sub-rule (2), the amount of deposits shall be calculated on the basis of the last audited annual financial statements.

(4) A Nidhi shall give loans to its members only against the following securities, namely:-

(a) gold, silver and jewellery:

Provided that the repayment period of such loan shall not exceed one year.

(b) immovable property:

Provided that the total loans against immovable property [excluding mortgage loans granted on the security of property by registered mortgage, being a registered mortgage under section 69 of the Transfer of Property Act, 1882 (IV of 1882)] shall not exceed fifty per cent. of the overall loan outstanding on the date of approval by the board, the individual loan shall not exceed fifty per cent. of the value of property offered as security and the period of repayment of such loan shall not exceed seven years.

(c) fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies:

Provided that such securities duly discharged shall be pledged with Nidhi and the maturity date of such securities shall not fall beyond the loan period or one year whichever is earlier:

Provided further that in the case of loan against fixed deposits, the period of loan shall not exceed the unexpired period of the fixed deposits.

Rule 16: Rate of Interest

The rate of interest to be charged on any loan given by a Nidhi shall not exceed seven and half per cent. above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method:

Provided that Nidhi shall charge the same rate of interest on the borrowers in respect of the same class of loans and the rates of interest of all classes of loans shall be prominently displayed on the notice board at the registered office and each branch office of Nidhi.

Rule 17:  Rules Relating to Directors

(1) The Director shall be a member of Nidhi.

(2) The Director of a Nidhi shall hold office for a term up to ten consecutive years on the Board of Nidhi.

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

(4) Where the tenure of any Director in any case had already been extended by the Central Government, it shall terminate on expiry of such extended tenure.

(5) The person to be appointed as a Director shall comply with the requirements of sub-section (4) of section152 of the Act and shall not have been disqualified from appointment as provided in section 164 of the Act.

Rule 18: Dividend 

A Nidhi shall not declare dividend exceeding twenty five per cent in a financial year.

Rule 19: Auditor

(1) No Nidhi shall appoint or re-appoint an individual as auditor for more than one term of five consecutive years.

(2) No Nidhi shall appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years;

Provided that an auditor (whether an individual or an audit firm) shall be eligible for subsequent appointment after the expiration of two years from the completion of his or its term.

Explanation: For the purposes of this proviso:

(i) in case of an auditor (whether an individual or audit firm), the period for which he or it has been holding office as auditor prior to the commencement of these rules shall be taken into account in calculating the period of five consecutive years or ten consecutive years, as the case may be;

(ii) appointment includes re-appointment.

Rule 20: Prudential Norms

(1) Every Nidhi shall adhere to the prudential norms for revenue recognition and classification of assets in respect of mortgage loans or jewel loans as contained hereunder.

(2) Income including interest or any other charges on non-performing assets shall be recognised only when it is actually realised and any such income recognised before the asset became non-performing and which remains unrealised in a year shall be reversed in the profit and loss account of the immediately succeeding year.

(3) (a) In respect of mortgage loans, the classification of assets and the provisioning required shall be as under:

Nature of Asset Provision Required
Standard Asset No provision
Sub-Standard Asset 10% of the aggregate outstanding amount
Doubtful Asset 25% of the aggregate outstanding amount
Loss Asset 100% of the aggregate outstanding amount

Provided that a Nidhi may make provision for exceeding the percentage specific herein.

(b) The estimated realisable value of the collateral security to which a Nidhi has valid recourse may be reduced from the aggregate outstanding amount, if the proceedings for the sale of the mortgaged property have been initiated in a court of law within the previous two years of the interest, income or instalment remaining unrealised.

(4) In case of companies which were incorporated on or before 26-07-2001, such companies shall make provisions in respect of loans disbursed and outstanding as on 31-03-2002 for income reversal and non-performing assets as per table given below:

|For the year ended| Extent of provision
31-03- 2015 Un-provided balance on equal basis over the three years as specified in the preceding column.
31-03- 2016
31-03- 2017

(5) (a) The Notes on the financial statements of a year shall disclose-

(i) the total amount of provisions, if any, to be made on account of income reversal and non-performing assets remaining unrealised;

(ii) the cumulative amount provided till the previous year;

(iii) the amount provided in the current year; and

(iv) the balance amount to be provided.

(b) Such disclosure shall continue to be made until the entire amount to be provided has been provided for.

(6) In respect of loans against gold silver or jewellery-

(a) the aggregate amount of loan outstanding against the security of gold silver or jewellery shall either be recovered or renewed within three months from the due date of repayment;

(b) if the loan is not recovered or renewed and the security is not sold within the aforesaid period of three months, the company shall make provision in the current year’s financial statements to the extent of unrealised amount or the aggregate outstanding amount of loan including interest as applicable;

(c) no income shall be recognised on such loans outstanding after the expiry of the three months period specified in (a) above or sale of gold silver or jewellery, whichever is earlier; and

(d) the loan to value ratio shall not exceed 80 percent.

Explanation.- For the purposes of this rule, the term ‘loan to value ratio’ means the ratio between the amount of loan given and the value of gold silver or jewellery against which such loan is given.

Rule 21: Filing of Half Yearly Return

Every company covered under rule 2 shall file half yearly return with the Registrar in 1[Form NDH-3] along with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 within thirty days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice or cost accountant in practice.

Rule 22: Auditor’s Certificate

The Auditor of the company shall furnish a certificate every year to the effect that the company has complied with all the provisions contained in the rules and such certificate shall be annexed to the audit report and in case of non-compliance, he shall specifically state the rules which have not been complied with.

Rule 23: Power to Enforce Compliance

(1) For the purposes of enforcing compliance with these rules, the Registrar of companies may call for such information or returns from Nidhi as he deems necessary and may engage the services of chartered accountants, company secretaries in practice, cost accountants, or any firm thereof from time to time for assisting him in the discharge of his duties.

(2) In respect of any Nidhi which has violated these rules or has failed to function in terms of the Memorandum and Articles of Association, the Central Government may appoint a Special Officer to take over the management of Nidhi and such Special Officer shall function as per the guidelines given by Central Government:

Provided that an opportunity of being heard shall be given to the concerned Nidhi by the Central Government before appointing any Special Officer.

Rule 23A: Compliance with rule 3A by certain Nidhi

Every company referred to in clause (b) of rule 2 and every Nidhi incorporated under the Act, before the commencement of Nidhi (Amendment) Rules, 2019, shall also get itself declared as such in accordance with rule 3A within a period of one year from the date of its incorporation or within a period of nine months from the date of commencement of Nidhi (Amendment) Rules, 2019, whichever is later:

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.

Provided that in case a company does not comply with the requirements 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).

Rule 23B: Companies declared as Nidhi under previous company law to file Form NDH-4

Every company referred in clause (a) of rule 2 shall file Form NDH-4 alongwith fees as per the Companies (Registration Offices and Fees) Rules, 2014 for updating its status:

Provided that no fees shall be charged under this rule for filing Form NDH-4, in case it is filed within nine months of the commencement of Nidhi (Amendment) Rules, 2019:

Provided further that, in case a company does not comply with the requirements 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).

Rule 24: Penalty for Non-compliance

If a company falling under rule 2 contravenes any of the provisions of the rules prescribed herein, the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees, and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which the contravention continues.

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One Comment

  1. Sai Teja P says:

    Good Information
    I have some practical doubts while incorporating Nidhi Limited.
    Without Filing NDH 4 we cannont commence business. Then is it better to show paid up capital atleast 20 Lakhs at the time of incorporation only ? Without commencing business how net owned funds can become 20Lakhs ?

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