Nidhi Company – Provisions

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.

APPLICABILITY

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 Benefit Society under sub-section (1) of section 620A of the 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 sub-section (1) of section 620A of the Companies Act, 1956; and
• every company incorporated as a Nidhi pursuant to the provisions of section 406 of the Act.
• every company declared as Nidhi or Mutual Benefit Society under sub-section (1) of section 406 of the Act.

REQUIREMENT FOR NIDHI COMPANY

• A Nidhi shall be a public company & shall have a minimum paid up equity share capital of Rs. 5,00,000.
• No Nidhi shall issues preference shares after the commencement of this act (i.e. 01/04/2014)

Note: 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.  

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

Post Incorporation Compliances

• Every Nidhi shall, within a period of one year from the date of its incorporation, ensure that it has

1. Not less than two hundred members;

2. Net Owned Funds of ten lakh rupees or more;

3. Unencumbered term deposits of not less than ten per cent. of the outstanding deposits as specified in rule 14; and

4. Ratio of Net Owned Funds to deposits of not more than 1:20.

Note:

If a Nidhi is not complying with  above requirement then, it shall within 30 days from the close of the first financial year, apply to the Regional Director in Form NDH-2 for extension of time and the Regional Director may consider the application and pass orders within thirty days of receipt of the application.

If failure to comply with the above rule continues beyond the second F.Y., then Nidhi shall not accept any further deposit from the commencement of the second financial year till it complies with the above requirement.

• 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 10% of the deposits outstanding at the close of business on the last working day of the second preceding month.

RESTRICTIONS FOR NIDHI COMPANY

No Nidhi shall

1. Carry on the business of Chit Fund, Hire Purchase Finance, Leasing Finance, Insurance or Acquisition of Securities issued by anybody corporate;

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

3. Open any Current Account with its members;

4. 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

5. 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;

6. Carry on any business other than the business of borrowing or lending in its own name;

7. Accept Deposits from or lend to any person, other than its members;

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

9. Take Deposits from or lend money to anybody corporate;

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

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

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

Note:  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.

SHARE CAPITAL & MEMBERSHIP

• Every Nidhi shall issue fully paid up equity shares of the nominal value of not less than ten rupees each.
• 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 hold at least 1 equity share of Rs. 10.
• A Nidhi shall not admit a body corporate or trust as a member.
• Every Nidhi shall ensure that its membership is not reduced to less than 200 members at any time.
• Minor shall not be admitted as a member of Nidhi.

Note: 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.

BRANCHES

1. Nidhi may open branchesonly if it has earned net profits after tax continuously during the preceding 3 financial years.

2. The company may open up to 3 branchesonly within the district.

3. If it proposes to open more than 3 brancheswithin 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.

4. 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.

5. Further branches or collection centers or offices or deposit centers shall be opened unless financial statement and annual return are filed with the Registrar.

Close of Branches

A Nidhi shall not close any branch unless:

1. 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.

2. 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.

DEPOSIT

• 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.

LOAN

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

Amount Available for Loan	Total Amount of Deposit
Rs. 2 Lakh	Less than 2 Crore
Rs. 7.5 Lakh	More than 2 crore but less than 20 Crore
Rs. 12 Lakh	More than 20Crore but less than 50 Crore
Rs. 15 Lakh	More than 50 Crore

Note: 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.

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

1. Loans to the members shall be given against the securities of gold, silver and jewellery and immovable property.

2. Repayment period of such loan shall not exceed one year in case of gold, silver and jewellery.

3. 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.

4. Loan may be given against the fixed deposit receipts, National Savings Certificates and other Government securities and insurance policies.

Note: Interest Rate

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.

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.

RETURN FILLING

Within 90 days from the close of F.Y. after its incorporation and where applicable, the second financial year, Nidhi shall file a return of statutory compliances in NDH-1 with the Registrar duly certified by a PCA, PCS, PCWA.

DIRECTOR

• 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 of Section 152(4) of the Act and shall not have been disqualified as provided in Section 164 of the Act.

DIVIDEND

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

AUDITOR

• The tenure of Individual Auditor is five consecutive years.
• No auditor or audit firm as auditor shall be appointed for more than two terms of five consecutive years.

Note: Cooling Period of 2 years is applicable for re- appointment of auditor.

• 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.

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.

PENALTY:

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.