A Nidhi company refers to a type of entity in the non-banking finance sector, recognized under Section 406 of the Companies Act, 2013. Their primary business is borrowing as well as lending funds between their members. They are also regarded as Benefit funds, permanent funds, Mutual benefits and Mutual Benefit Funds companies. The Ministry of Corporate Affairs governs these entities in India and reserves the right to issue directions related to deposit acceptance activities. The core object of these entities is to foster the habit of thrift and reserve funds amongst its serving members. The concept of Nidhi Company is quite popular in the southern region of India.
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No RBI consent is required to form the Nidhi company in India. Therefore, it can be incorporated very easily.
Nidhi Companies are incorporated as Public Companies.
They must affix "Nidhi Limited" at the end of their name.
Nidhi Companies' undertakings are quite similar to NBFCs, and so they fall under the ambit of the Reserve Bank of India.
The core objective of Nidhi Company essentially revolves around in-house lending and borrowing activities with no third-party intervention whatsoever.
Nidhi Rules, 2014 permits Nidhi to facilitate locker facilities to its members on rent. The rental income should not surpass 20% of the Company's overall income at any instance during the financial year.
The Governing Authority sets the following Conditions for Incorporating Nidhi Company in India:
Minimum number of members: 7 (3 members should be the designated directors)
minimum equity share capital: Rs. 5 lakhs
Must have limited company status under Company Act, 2013
Mandatory inclusion of the Company's object in MOA reflects its intention to foster the habit of thrift and savings among the members.
The followings are the major benefits of the Nidhi Company Registration in India:
The formation of a Nidhi Company is done through a very simple process. For the formation of Nidhi Company, there are certain requirements such as a minimum of seven members, out of which three will be appointed as directors and an easy and hassle-free documentation process.
A Nidhi Company does not require to comply with any of the Reserve Bank of India guidelines. So, the Nidhi Company is free to inculcate its own rules.
The lending, borrowing or depositing of transactions are done by the members only, decreasing the risk of any financial issues in the Nidhi Company.
The registration of a Nidhi Company is not heavy on the Director's pocket as it is very simple than other NBFCs registration process, so it does not affect the Director's finances. It also helps the Nidhi Company in getting business loans whenever required for the growth of the Company.
The concept and objective of a Nidhi Company are to promote the saving among Indian people.
A Nidhi Company follows the Net owned funding system, which means the transaction where an invest an amount in the business to raise funds for the same. This feature makes a Nidhi Company cost-effective for owners and helps in the growth of the business.
The following are the limits to the loan set against deposit made:
| Deposit Made (Rs) | Loan Granted (Rs) |
|---|---|
| Less than 2 crores | 2 lakh |
| Greater than 2 crores but less than 20 crores | 7.5 lakh |
| Greater than 20 crores less than 50 crores | 12 lakh |
| 50 crores or more | 15 lakh |
A Nidhi company that has not made profits continuously in the three preceding financial years, shall not make any fresh loans exceeding 50% of the maximum amounts of loans specified above. A member shall not be eligible for any loan if he has defaulted on any prior loan repayment. The loans can be granted only against the following security
Gold/Jewellery
Property
Fixed Deposit
Insurance Policy
Nidhi Companies cannot grant a personal loan, vehicle loan, hire purchase, or microfinance. Nidhi companies are formed for the purpose of inculcating the habit of saving among their members and is governed by the Companies Act. Although Nidhi companies are non-banking finance companies they are excluded from the core provisions of the RBI Act and other directions applicable to NBFCs.
The followings are the detailed steps for the procedure of Nidhi Company registration:
Following is the List of Documents required for registering a Nidhi Company in India:
Directors Identification Number, i.e., DIN
PAN number of the proposed directors and members
Residential proof and address proof of the proposed directors and members
Photographs of the proposed directors and members
Identification Documents like Aadhar card
Registered business place proof such as lease or rent agreement
Ownership proof of the business place in case the premises are owned
NOC if required
MOA i.e., Memorandum of Association
AOA, i.e., Article of Association
Nidhi Companies Are Not Permitted to Engage with the Following Undertakings:
Business of Chit fund, lease finance, hires purchase finance, & acquisition of securities issued by anybody corporate.
Issuance of preference shares, debentures, or debt instruments by any name or Form
Opening Current account with its serving members
Acquisition of another entity via the purchase of securities or control of the composition of BODs of any other company in any way whatsoever.
Entering into a legal arrangement for altering its management in the absence of the board approved special resolution and consent of the Regional Director functioning in the respective jurisdiction.
Conducting activities that deviate from the object of the Company.
Accepting or lending deposits to non-members.
Pledging member's assets as security
Taking deposits or granting funds to anybody from corporate
Entering into any partnership arrangement for borrowing or lending activities
Leveraging any form of advertisement for soliciting deposit
Paying incentives or for mobilizing deposits from serving members or for the fund deployment or issuing loans.
In the new rules, it has been stated that the Nidhi Company shall not raise loans from the banks or any financial institutions or any other source to advance the loans of its members.
Another restriction given is on acquiring or purchasing securities or controlling the composition of the Board of Directors of any other company or from entering into an arrangement for the change of its management.
The followings are the said amendments related to the registration of Nidhi Company made under the Nidhi Company (Amendment) Rules, 2022:
No company shall raise the deposit for any member or gives a loan to any of its members if:
it does not comply with the rules or requirements of Nidhi Company New Rules,
the central government has rejected the application in Form NDH -4,
However, not anything written under these rules shall apply to the Company incorporated on or after the commencement of these Nidhi Company New Rules.
Any public company wanting to be declared as a Nidhi company shall apply in Form NDH-4 within a period of 120 days from the date of its incorporation for declaration as a Nidhi company after fulfilling the following conditions:
it has not less than 200 members;
it has Net owned Funds of Rs. 20 lacs or more
However, the Company shall commence its business only if the central government approves its application.
The Company shall attach a declaration with regard to the fulfilment of fit and proper person by all of its directors and promotors with the Form NDH-4.
The following criteria should be looked upon to determine that any promoter or Director is a fit and proper person:
Integrity, honesty, ethical behaviour, fairness, reputation and character
Not incurring any of the following disqualifications:
(i) Any complaint or information under section 154 of CrPC has been filed or is pending against him
(ii) Chargesheet filed against him in the matter of economic offences
(iii) Restraining, prohibition or department order has been passed against him in any matter related to company law, securities law or financial market in force
(iv) Conviction order passed against him involving moral turpitude
(v) Declared involvement and not been discharged
(vi) Unsound mind
(vii) Wilful defaulter
(viii) Fugitive economic offender
(ix) Director of five or more companies
(x) Such person is the Director in five or more than five; or promoter in three or more than three Nidi Companies
The minimum paid-up share capital has been raised from 5 lakhs to 10 lakhs.
Nidhi company existing on the date of enforcement of Nidhi Company New Rules shall comply with all the requirements within a period of 18 months from the date of such enforcement.
The requirement of filing the application in Form NDH 1 within 90 days from the Company's incorporation shall not be applicable to the companies incorporated on or after the enforcement of Nidhi Company New Rules.
The requirement of Net owned funds for Nidhi company has been changed from 10 lakhs to 20 lakhs.
In case a Nidhi company wants to open more than three branches outside the district or any branch outside the district, then it shall now have to apply in Form NDH 2 along with the 4fee as required under the Companies (Registration Offices and Fee) Rules, 2014 and intimate about such opening to the Registrar within 30 days from the opening. However, it cannot open branches unless it has filed its financial statement or annual return to the Registrar. And, it shall not open its Branch outside the state where its registered office is situated.
In the Annexure, an amendment has been madein the Forms (NDH 2 Form: heading, serial no. 4, serial no. 6, in Form NDH 3 and NDH, also, after NDH 4, another Form of\ NDH 5 is inserted)