About Nidhi Company

In this article, we will be discussing the procedure of the Incorporation of Nidhi Company. Nidhi Company is a non-banking financial business.

Nidhi Company performs lending and borrowing of money job with its members themselves do all the work. This is done for the mutual benefits of all the members of the Nidhicompany. It promotes saving and utilization of its funds within its members.

Nidhi Companies governed with the provisions of Section 406 of the Companies Act, 2013 (“CA, 2013”) and ruled by the Ministry of Corporative Affairs (hereinafter “MCA”). It is solely formed to create a habit of saving and benefits for each and every members of the Nidhi Company.

Functioning of Nidhi Company:

  • Funds are induced by the members in the form of contribution.
  • Nidhi Company after aggregating all the contribution, lent it to the members in need at a reasonable rate of interest.

Applicability of Nidhi Rules, 2014

Ministry of Corporate affairs notified Nidhi Rules, 2014, in order to carry out the purposes of Nidhi Companies.

The Rules as aforesaid provides that it is applicable on:

  • Every Company which is being declared as Nidhi company under the Companies Act
  • Company working in accordance with the objectives of Nidhi company ie., working for the mutual benefit of society.

Pre-requisites For Incorporating a Nidhi Company

  • There must be a minimum of 3 Directors;
  • There must be a minimum of 7 Members;
  • There is no Minimum Capital Requirement;
  • Nidhi company are not allowed to issue Preference Shares;
  • Objects must be limited to receiving of funds only from its members and lending to its members for mutual benefits.

What to do after Registration of Nidhi Company

Raise minimum members to 200 within 12 months of registration of Nidhi company. If any time during the business of Nidhi company the aggregate of total members falls below 200 then it will be considered as a default. However in that case the Nidhi Company can request for more time to get the total number. The request shall be raise in form NDH 2 and shall be filed to Regional Director, MCA.

Raise net owned fund to minimum 10 lakhs ie., (Paid Up Share Capital + Free Reserves).

Procedure of registration of Nidhi Company:

1. Obtain Digital Signature Certificate (DSC) of proposed Directors 

This will be the first step of registration of Nidhicompany, the proposed directors are required to obtain the DSC. It is optional to have DIN prior to registration of Nidhi Company. 

2. Application for Name Reservation using ‘RUN’ facility

After having DSC application for name availability in RUN facility of MCA portal is to be filed. It is to be noted that the word Nidhi Limited must be there at the end of the name of the proposed Company.

Every Company desirous to be registered as a “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name. Now, one doesn’t require digital signature of applicant for name availability.

3. File Form SPICe 32

After the name approval, Form SPICe 32 shall be prepared and filed with the ministry with following attachments.

  • MOA & AOA;
  • PAN Card of all subscribers;
  • Identity Proof & Address Proof of First Directors;
  • Address Proof of Registered premises;
  • Latest Utility Bill;
  • NOC of Owner of Registered Office, if premises is rented;
  • Consent and Declaration of first Directors;
  • Self-Declaration from First Directors and Subscribers in Nidhi Company.

4. RBI Guidelines on Nidhi Companies

Since a Nidhi company falls under one class of Non-Banking Financial Companies, the RBI is authorized to issue directions in relation to deposit acceptance activities. However, since the Nidhi Company deals with its shareholder-members only, exemption has been provided by RBI from the core provisions of the RBI Act and other directions as are applicable to NBFCs.

5. Certificate of registration of Nidhi Company 

After being satisfying with the submission of documents and information the Registrar of Company will issue a Certificate of Incorporation.

6. Important Compliance after obtaining Certificate of Registration Related to Nidhi Company:

In order to make regulatory regime for Nidhi Companies more effective and also to accomplish the objectives of transparency & investor friendliness in corporate environment of the country, the Central Government has amended the provisions related to NIDHI under the Companies Act and the Rules (effective from 15.08.2019).

As per Amendment, the Nidhi companies have to apply to the Central government for updation of their status/ declaration as Nidhi Company in Form NDH-4.

The time-frame for applying to Central Government in form NDH-4 is as under:-

  1. Companies incorporated as Nidhi before Nidhi Amendment Rules, 2019 i.e. 15.08.2019 have to apply within a period of one year from the date of its incorporation or within 9 months of the Nidhi Amendment Rules i.e. 15.08.2019 whichever is later.
  2. Companies incorporated as Nidhi on or after Nidhi Amendment Rules, 2019 i.e. 15.08.2019 have to apply within 60 days of expiry of one year from the date of incorporation or extended period (as granted by concerned Regional Director).

Please note that in case a company does not comply with the above requirements, it shall not be allowed to file Form No. SH–7(Notice to Registrar for any alteration of share capital) and Form PAS–3 (Return of Allotment).

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About Author:  Praveen Singh is a Founder and Managing Partner of TRIJURIS (Legal & Taxation Service Provider in Delhi). The head office of the firm is based in Delhi. The firm inter-alia engaged in providing services related to Corporate and Commercial laws advisory, Indirect taxation, Setting up industries in India as well as outside India, Legal recovery services and other regulatory matters. The firm has actively participated in assisting MSMEs in India and small businesses to scale there business and closing working with them in respect of recovery of their legitimate dues.

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Praveen Singh is a Founder and Managing Partner of TRIJURIS (Legal & Taxation Service Provider in Delhi). The head office of the firm is based in Delhi. The firm inter-alia engaged in providing services related to Corporate and Commercial laws advisory, Indirect taxation, Setting up industries in In View Full Profile

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4 Comments

  1. Guru Advocate says:

    This article is misleading. I am a Director of a Nidhi company in Chennai. I am an Advocate practising in Madras High Court. First we can float a company as a Nidhi company. A company should be floated and Nidhi status has to be obtained from the Central Government after complying with the criteria. So this Article shows a wrong approach. Please note these features and rewrite the Article with correct legal position.

  2. Gurunarayana Rao says:

    I think a Nidhi company’s formation is wrongly described in this article. A company should be first floated as an NBFC and then Nidhi status has to be obtained from the Central Government after complying with the criteria imposed on the company, which applies for Nidhi status. As I am a Director of a Nidhi company and a practising lawyer in Chennai, I am taking this opportunity to inform this. So please withdraw this article and write correctly. Thanks.

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