Nidhi Company- A Profound Insight

Nidhi represents a company that has been incorporated as a Nidhi with the OBJECT of-

-Cultivating the habit of thrift and savings amongst its members,

-Accepting deposits from, and Lending to, its members only, for their mutual benefit, 

-and Which complies with rules of Chapter XXVI of Companies Rules, 2014.

The expression Nidhi Company directs to a kind of NBFC (Non-Banking Financial Corporation) which is controlled and governed by the provisions of the Companies Act, 2013.

Nidhi Company is outside the peek of the Reserve Bank of India. It does not require RBI’s license for operating a loan business in India.

Also, section 406 of the Companies Act, 2013, deals with the procedure of Nidhi Company Registration.

The Prime Motive-

The significant ground for incorporating this business format is to foster and boost its members to save for smooth and uncomplicated handling of their monetary requirements.

Hence, Mutual Benefits is the exclusive headliner of this class of business.

The blessings of a Nidhi Company registration can be seen as-

• Manageable;
• Less External Involvement;
• Comparatively low capital requirement;
• Significantly lesser compliances;
• Exemptions under the Companies Act, 2013;
• Tiniest RBI involvement;
• Secured investment with a lower rate of interest;
• Low level of risk;
• More suitable savings option;
• Assistance in channelizing small savings
• Relief of formation –

Prerequisites for a Nidhi Company 

• It shall have a minimum paid-up equity share capital of 5,00,000/-;
• A Nidhi company to be incorporated under this Act shall be a Public Company;
• No preference shares shall be issued. If preference shares had already been issued by a Nidhi Company before the commencement of this Act, such preference shares are to be redeemed by 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;

Requirements for a minimum number of members, net owned fund, etc. (Rule 5 of Nidhi Rules, 2014): –

Every Nidhi shall Within one year from the date of incorporation, ensure that it maintains:

a) Not less than 200 members

b) Net owned funds of Rs 10 lakhs or more

c) Unencumbered deposits of not less than 10% of the outstanding deposits as specified in Rule 14; and

d) The ratio of net owned funds to deposits of not more than 1:20

Known restrictions or prohibitions (As per Rule 6 of Nidhi Rules, 2014): –

Nidhi shall not:

a) Continue the business of hire purchase finance, chit fund, insurance, leasing finance, or acquisition of securities allotted by any corporate entity;

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

c) Open a current account with its members;

d) Acquire another company by purchase of securities or control the composition of the Board of Directors of any other company in any way whatsoever or enter into any practice for the alteration of its management, unless it has consented to a special resolution in its general meeting and also reached the Previous approval of the Regional Director holding command over such Nidhi;

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

Given that Nidhi is which has pursued all the provisions of these rules may offer locker facilities on rent to its members subject to the rental income from such facilities not more than 20% of the gross income of the Nidhi at any point of time during a financial year.

f. Accept deposits from or lend to any individual, other than its members;

g. Assurance of any of the assets installed by its members as security;

h. Accept deposits from or lend money to anybody corporate;

(i) Enter into any partnership arrangement in its lending or borrowing tasks;

j) Provide or cause to provide an advertisement in any form for accepting deposits:

Only if the private circulation of the details of the fixed deposits system among the members of the Nidhi delivering the words “for private circulation to members only” shall not be taken to be an advertisement for accepting deposits.

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

Branches (As per Rule 10 of Nidhi Rules, 2014): –

District level operations are conducted for the first 3 years. Once the approval is obtained from Regulator Director, it is possible to make 3 branch offices in the district or outside the area.

Others: 

1. Share value shall not be less than Rs.10

2. Maximum interest on a loan of 20% p.a. can be charged under the reducing balance method.

3. A Nidhi company can offer loans against securities. Securities include property, gold, LIC, and FD.

4. Rate of Interest: Maximum 7.5% above NBFC rate for loans (reducing Balance method)

Savings Bank Interest shall not exceed 2% of the Bank Rate.

FD & RD Interest – As per RBI rate

e) Period of Deposits

PARTICULARS PERIOD

Fixed Deposits Minimum 6 months & maximum 60 months

Recurring Deposits Minimum 12 months & maximum 60 months

The essential documents for Nidhi company registration are as follows-

• Documents required from the Directors and Shareholders:

• • Digital Signature Certificate;
  • DIN (Director Identification Number) of the Directors.
  • Photographs of the Directors and Members;
  • PAN Card of the Members;
  • Aadhar Card or Voter ID of the Members;
  • Address Proof of the Directors;

• Other documents for Registered Office:

• • No-Objection Certificate (NOC) inscribed by the genuine proprietor of the Property.
  • Rent Agreement or the Lease Deed or the Sale Deed of the place to be used as the Registered Office; or,
  • Address Proof of the Registered Office;

Other documents-

• MOA of the Company;
• AOA of the Company;
• MCA (Ministry of Corporate Affairs) form attestation.