Nidhi Companies under Companies Act, 2013

Nidhi Company is an NBFC (Non Banking Financial Company). ‘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. Such Companies receive deposits from and lend to its members only for their mutual benefit.

1. Regulatory Framework of Nidhi Companies:

• Nidhi Companies are registered and recognised under Section 406 of Companies Act, 2013 and are regulated by the Ministry of Corporate Affairs on MCA.
• These Companies are controlled by Nidhi Rules, 2014.
• There is no need to seek prior approval of RBI as RBI has specifically exempted this category of NBFC in India.

2. Requirements for Incorporation of Nidhi Companies

• A company to be incorporated shall be a Public company.
• Such company shall have minimum paid up equity share capital of ten lakh rupees.
• Every Nidhi Company shall have not less than Two hundred Members.
• Every Such Company shall have Net Owned Funds of Twenty Lakh Rupees or more.
• Such Company shall have an unencumbered term deposit of not less than 10% of the outstanding deposits.
• Ratio of Net Owned Funds to deposits of not more than  1:20

3. Restriction and prohibitions on Nidhi Companies

No Nidhi shall

• carry on the business of Chit Fund, Hire Purchase finance, Leasing finance, Insurance or Acquisition of securities issued by any Body Corporate.
• Shall issue Preference shares, debentures or any other instrument by any name or any form whatsoever.
• open a current account with its members.
• Carry on any business other than the business of borrowing or lending in its own name.
• accept deposits from or lend to any person, other than its members.
• Pledged any of the assets lodged by its members as security.
• Take deposits from and lend to any body corporate.
• Enter into any partnership agreement in its borrowing or lending activities.
• Issue or cause to be issued any advertisement in any form for soliciting deposit.
• Payany brokerage or incentives for mobilizing deposits from members or for deployment of funds or for granting loans.
• 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.
• raise loans from banks or financial institutions or any other source for the purpose of advancing loans to members of Nidhi.

4. Opening of Branches by Nidhi Companies

•  A Nidhi may open branches, only if it has earned net profits after tax continuously during the preceding three financial years.
• A Nidhi may open up to three branches within the district.
•  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.

5. Acceptance of deposits by Nidhi Companies

• A Nidhi shall not accept deposits exceeding twenty times of its Net Owned Funds (NOF) as per its last audited financial statements.
• The fixed deposits shall be accepted for a minimum period of six months and a maximum period of sixty months.
•  Recurring deposits shall be accepted for a minimum period of twelve months and a maximum period of sixty months.
• 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.
• The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees at any  time.
• The rate of interest shall not exceed two per cent above the rate of interest payable on savings bank accounts by nationalized banks.

6. Loans by Nidhi Companies

• A Nidhi shall 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).
•  A Nidhi shall give loans to its members only against the following securities:

1. gold, silver and jewelry

2. Immovable property.

3. fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies.

• The amount of deposits shall be calculated on the basis of the last audited annual financial statements.
• The loans given by a Nidhi to a member shall be subject to the following limits:

1. Two lakh rupees, where the total amount of deposits of such Nidhi from its members is less than two crore rupees;

2. 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;

3. 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

4. Fifteen lakh rupees, where the total amount of deposits of such Nidhi from its members is more than fifty crore rupees.

• 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.

7. Forms related  to Nidhi Company:

8. Penalty for Non-Compliance by Nidhi Companies

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.

9. Important Points related to Nidhi Companies

•  No Nidhi shall issue preference shares.
• No Nidhi shall have any object in its MOA 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.
• Every company incorporated as “Nidhi” shall have the last word “ Nidhi Limited “ as the part of its name.
• Every Nidhi shall issue equity shares of the nominal value of not less than ten rupees each.
• A Nidhi shall not admit a body corporate or trust as a member.
• A minor shall not be admitted as a member of Nidhi.
• 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.
• The Director of Nidhi shall be its member and shall hold office for a term up to ten consecutive years.
• The Director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a Director.
• A Nidhi shall not declare a dividend exceeding twenty five per cent in a financial year.
• No Nidhi shall appoint or re-appoint an individual as auditor for more than one term of five consecutive years.
• No Nidhi shall appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years.
• 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.