Section 406 of Companies Act 2013 and Companies (Nidhi Companies) Rules, 2014 governs The Law and Procedure for Nidhi Company.

What is Nidhi 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,

– receiving deposits from, and lending to, its members only, for their mutual benefit, and Which complies with rules of Chapter XXVI of Companies Rules, 2014.

♠  Nidhi in the Indian context / language means “TREASURE”. However, in the Indian financial sector it refers to anymutual benefit society notified by the Central / Union Government as a Nidhi Company. They are created mainly for cultivating the habit of thrift and savings amongst its members.

♠ The companies doing Nidhi business, viz. borrowing from members and lending to members only, are known under different names such as Nidhi, Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company.

♠ Nidhi’s are more popular in South India and are highly localized single office institutions. They are mutual benefit societies, because their dealings are restricted only to the members; and membership is limited to individuals. The principal source of funds is the contribution from the members. The loans are given to the members at relatively reasonable rates for purposes such as house construction or repairs and are generally secured. The deposits mobilized by Nidhi’s are not much when compared to the organized banking sector.

♠ Since Nidhi’s come under one class of NBFCs, RBI is empowered to issue directions to them in matters relating to their deposit acceptance activities. However, in recognition of the fact that these Nidhi’s deal with their shareholder-members only, RBI has exempted the notified Nidhi’s from the core provisions of the RBI Act and other directions applicable to NBFCs. As on date (February 2013) RBI does not have any specified regulatory framework for Nidhi’s.


The Central Government made ‘Nidhi Rules, 2014’ for the purpose of carrying out the objectives of ‘Nidhi’ companies. These rules shall be applicable to-

  • Every company which had been declared as a Nidhi or Mutual Benefits under Section 620A(1)of Companies Act, 1956;
  • 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 Section 620A(1)of Companies Act, 1956;
  • Every company incorporated as a Nidhi pursuant to the provisions of Section 406of the Companies Act, 2013.

Requirements for Nidhi Company

  • A Nidhi company to be incorporated under this Act shall be a Public Company;
  • It shall have a minimum paid up equity share capital of Rs.5,00,000/-;
  • No preference shares shall be issued.
  • If preference shares had already been issued by a Nidhi Company before commencement of this Act, such preference shares are to be redeemed in accordance with the terms of issue of such shares;
  • The object of the company shall be cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to its members only for their mutual benefits;
  • It shall have the words ‘Nidhi Limited’ as part of its name;

Requirement after Incorporation: Every Nidhi shall, within a period of one year from the commencement of these rules, ensure that it has—

  • Minimum number of members should be 200;
  • Net owned funds shall be Rs.10,00,000/- or more (‘Net owned funds’ means the aggregate of paid up equity share capital and free reserved as reduced by the accumulated and intangible assets appearing in the last audited balance sheet);
  • Ratio of net owned funds to deposit shall be not more than 1:20;
  • Unencumbered term deposits of not less than 10% of the outstanding deposits  as specified in Rule 14;

General restrictions

Rule 6 provides general restrictions.   According to this Rule no Nidhi shall-

Carry on the business of

  • Chit Fund,
  • Hire Purchase Finance,
  • Leasing Finance,
  • Insurance or Acquisition of Securities issued by anybody corporate;


  • Preference Shares,
  • Debentures or
  • Any Other Debt Instrument by any name or in any form whatsoever;

Open any Current Account with its members;

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 it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over Nidhi;

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;

Pledge any of the assets lodged by its members as security;

Take Deposits from or lend money to anybody corporate;

Enter into any Partnership Arrangement in its borrowing or lending activities;

Issue or cause to be issued any advertisement in any form for soliciting deposit;

Pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or the granting loans.


  • Nidhi’s 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 20% twenty per cent of the gross income of the Nidhi at any point of time during a financial year.


  • A Nidhi shall not submit a body corporate or trust as a member.
  • Except as otherwise permitted under these rules, every Nidhi shall ensure that its membership is not reduced to less than 200 members at any time.
  • A minor shall not be admitted as a member of Nidhi.
  • But 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.

Share capital and allotment

Rule 7 provides that every Nidhi shall issue equity shares of the nominal value of not less than Rs.10/- each.  This requirement shall not apply to a company which has been declared as a Nidhi company.

Provided that this requirement shall not apply to a company referred below:

  • Every company which had been declared as a Nidhi or Mutual Benefits under Section 620A(1)of Companies Act, 1956;
  • 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 Section 620A(1)of Companies Act, 1956;


  • No service charge shall be levied for issue of shares.
  • Every Nidhi shall allot to each deposit holder at least a minimum of 10 equity shares or shares equivalent to Rs.100/-.
  • A savings account holder and a recurring deposit account holder shall at least 10 equity shares of Rs.10/-.

Acceptance of deposits:

  • A Nidhi shall not accept deposits exceeding 20 times of its Net Owned Assets as per last audited financial statements.
  • The fixed deposits shall be accepted for a minimum period of 6 months and a maximum period of 60 months.
  • Recurring deposits shall be accepted for a minimum period of 12 months and a maximum period of 60 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 Rs.1,00,000/- and the interest shall not exceed 2% above the rate of interest payable to savings bank account by nationalized banks.
  • Interest for fixed and recurring deposits shall be at a rate not exceeding the maximum rate of interest prescribed by RBI which the NBFC can pay on their public deposits.

Every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a scheduled commercial bank or post office deposits in its own name an amount which shall not be less than 10% of the deposits outstanding at the close of the business on the last working day of the second preceding month.

In case of unforeseen commitments, temporary withdrawal may be permitted with the prior approval of the Regional Director 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 10%


A Nidhi shall provide loans only to its members.  The loans given to a member shall be subject to the following limits:

  • Rs.2,00,000/- where the total amount of deposits from members is less than Rs.2 crores;
  • Rs.7,50,000/- where the total amount of deposits from its members more than Rs.2 crores but less than Rs.20 crores;
  • Rs.12,00,000/- where the total amount of deposits from its members is more than Rs.25 crores but less than Rs.50 crores;
  • Rs.15,00,000/- where the total amount of deposits from its members is more than Rs.50 crores.

NOTE: A Nidhi shall give loans to its members only against the following securities, namely:—

  • Loans to the members shall be given against the securities of gold, silver and jewellery and immovable property.
  • Repayment period of such loan shall not exceed one year in case of gold, silver and jewellery.
  • In case of immovable property the loan shall not exceed 50% of the value of the property offered as security and the period of repayment of such loan shall not exceed 7 years.
  • Loan may be given against the fixed deposit receipts, National Savings Certificates and other Government securities and insurance policies.

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

(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


  • A Nidhi shall not declare dividend exceeding 25% or
  • Such higher amount as may be specifically approved by the Regional Director for reasons to be recorded in writing and further subject to the following conditions-
    • An equal amount is transferred to General Reserve;
    • There has been no default in repayment of matured deposits and interest; and
    • It has completed with all the rules as applicable to Nidhis.


  • The director shall be a MEMBER of Nidhi.
  • He shall hold office for a term up to 10 consecutive years on the Board.
  • He shall be eligible for re-appointment only after the expiration of 2 years ceasing to be a director.
  • 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.
  • The person to be appointed as a Director shall comply with the requirements ofSection 152(4) of the Act and shall not have been disqualified as provided in Section 164 of the Act.


  • The tenure of Auditor is five consecutive years.
  • No auditor or audit firm as auditor shall be appointed for more than two terms of five consecutive years. 
  • The auditor shall be eligible for subsequent appointment after the expiration of two years from the completion of his term.
  • The Auditor of the company shall furnish a Certificate every year to the effect that the company has complied with all the provision contained in the rules and such certificates 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.


  • A Nidhi may open branches only if it has earned net profits after tax continuously during the preceding three financial years.
  • The company may open up to 3 branches only within the district.
  • If it proposes to open more than 3 branches within the district or any branch outside the district, it shall obtain prior permission of the Regional Director and intimation is to be given to the Registrar about opening of every branch within 30 days of such opening.
  • No Nidhi shall open branches or collection centers or offices or deposit centers, or by whatever name called outside the State where its registered office is situated.
  • Further branches or collection centers or offices or deposit centers shall be opened unless financial statement and annual return are filed with the Registrar.

Closure of Branch:

A Nidhi shall not close any branch unless:

  • It publishes an advertisement in a newspaper in vernacular language in the place where it carries on business at least 30 days prior to such closure.
  • Informing the public about such closure; fixes a copy of such advertisement or a notice informing such closure of the branch on the notice board of Nidhi for a period of at least 30 days from the date on which advertisement was published and
  • Gives intimation to the Registrar within 30 days of such closure.


  • Within 90 days from the closure 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 prescribed with the Registrar duly certified by a Company Secretary in practice or a Chartered Accountant in practice or a Cost Accountant in practice.
  • If the company is not complying with the above it shall within90 days from the close of the first financial year, apply to the Regional Director in Form NDH -2 along with fee for extension of time and
  • The Regional Director may consider the application and pass orders within 30 days of the receipt of the application.

If there is failure the Nidhi shall not accept any further deposits from the commencement of the second financial year till it complies with the provisions besides being liable for penal consequences provided in the Act.


In 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.

Companies Covered under Rule -2 are following:

  • Every company which had been declared as a Nidhi or Mutual Benefits under Section 620A(1)of Companies Act, 1956;
  • 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 Section 620A(1)of Companies Act, 1956;
  • Every company incorporated as a Nidhi pursuant to the provisions of Section 406of the Companies Act, 2013.

Power to enforce compliance

  • The REGISTRAR OF COMPANIES may call for such information or returns from Nidhi as he deems necessary and may engage in 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.
  • The REGIONAL DIRECTOR may appoint a Special Officer to take over the management of Nidhi in case the Nidhi has violated these rules or has failed to function in terms of the Memorandum and Articles of Association.
  • The SPECIAL OFFICER shall function as per the guidelines given by such Regional Director.  An opportunity of being heard shall be given to the concerned Nidhi by the Regional Director before appointing any Special Officer.


  • If a company contravenes any of the provisions of the rules the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs.5,000/- and where the contravention is a continuing one, with a further fine which may extend to Rs.500/- for every day after the first during which the contravention continues.


Rule 9 -Every Nidhi shall maintain Net Owned Funds (excluding the proceeds of any preference share capital) of not less than ten lakh rupees or such higher amount as the Central Government may specify from time to time.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at

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18 responses to “Nidhi Company- Companies Act- 2013”

  1. vishal says:

    Sir whether the nidhi company is required to get registration under money laundering act

  2. Anirudh Ganguly says:

    Sir, Please let me know whether TDS
    is applicable after maturity in nidhi company. Regards. Anirudh Ganguly

  3. Krishna Bhavsar says:

    Nice Article sir…can you please share what is the procedure for transfer of shares in Nidhi company? what all forms are required to be filed for that with ROC or RBI

  4. Tarin Rawat says:

    sir i want to talk to you for nidhi company compliance. please mail me your contact number


    Dear sir please mail me your mobile no. i want to talking with you

  6. SURENDRAN says:


    loan rate of interest maximum please mention.

  7. Lakshmi Rajasekhar says:

    Can you pls share the process for Share allotment in case of Nidhi Companies? Also share the Forms to be filed with ROC.

  8. Dimple Malik says:

    Such a valuable article Sir. Thanks for the sharing

  9. CA Kapil Goel says:

    Thanks for sharing such a wonderful article about Nidhi Companies.

  10. Ashok yadav says:

    dear sir i want to know that my diposit money is safe &sequre in BIP INDIA NIDHI LIMITED

  11. Nikhil Srivastava says:

    Such a valuable and precise information, very helpful Sir.

  12. P DAS says:


  13. Anirudh says:

    Nice Article… there any approval from RBI or any other autority required for incorporation of a Nidhi company

  14. vinod kumar says:

    Thanks sir Please mention the incorporation procedure with applicable form also

  15. N.Vijaygopalan says:

    Highly valuable information. Boundless thanks to the brains behind this.

  16. Narinder Singh says:

    Very nicely drafted information on Nidhi company.


    Thanks Shri Divesh ji for such a nice article.

  18. Nem Singh says:

    Nice, Thanks for valuable knowledge for the people or the young professional.

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