Nidhi Company as per Companies Act- 2013
Nidhi” refers to a company which has been incorporated as a Nidhi with the below purposes:
- 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 any mutual 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 mutually 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 of 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 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 406 of 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 5,00,000/-;
- 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 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 Incorporation, 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);
- The 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;
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 the deployment of funds or the granting loans.