Nidhi
Section 406 of the Companies Act, 2013 (‘Act’ for short) provides that ‘Nidhi’ or ‘Mutual Benefit Society’ means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be. The Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act specified in the notification-
- shall not apply to any Nidhi or Mutual Benefit Society; or
- shall apply to any Nidhi or Mutual Benefit Society with such exceptions, modifications and adaptations as may be specified in the notification.
For the purpose of section 406 the Central Government made Nidhi Rules, 2014.
The term ‘Nidhi’ is defined under Rule 3(1)(da) as 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 the rules made by the Central Government for regulation of such class of companies.
Applicability of Rules
Rule 2 provides that the provisions of Rules are applicable to-
Share capital
- Nidhi Company is a public limited company.
- The company shall have a minimum paid up share capital of ₹ 5 lakhs.
- It shall issue equity shares of the nominal value of not less than ₹ 10/- except declared Nidhi under section 620A and every company functioning on the lines of a Nidhi Company or Mutual Benefit Society.
- No service charge shall be levied for issue of shares.
- It shall allot to each deposit holder at least a minimum of 10 shares or shares equivalent to ₹ 100/-.
- Savings Bank and Recurring Deposit holder shall hold at least one equity share of ₹ 10/-
- No preference shares shall be issued.
Incorporation
- Every Nidhi shall have the last words as ‘Nidhi Limited’ as part of its name.
- The object of the Nidhi is for cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.
- The Nidhi company shall be incorporated complying with the provisions relating to incorporation of a public company.
Declaration of ‘Nidhi’
- The Central Government, on receipt of application (in Form NDH-4 along with fee thereon) of a public company for declaring it as Nidhi and on being satisfied that the company meets the requirements under these rules, shall notify the company as a Nidhi in the Official Gazette.
- In case a company does not comply with the requirements of this rule, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment).
Requirements
- Within one year from the date of incorporation the Nidhi shall comply with the following-
- the total number of members shall not be less than 200;
- net owned funds of ₹ 10 lakhs or more;
- unencumbered deposits of not less than 10% of the outstanding deposits in nationalized banks or in post offices;
- ratio of net owned funds to deposits shall not exceed 1:20.
Net owned funds
- Rule 3(1)(d) defines the expression ‘net owned funds’ as the aggregate of paid up equity share capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet.
- If any amount is representing the proceeds of issue of preference shares shall not be included for calculating Net Owned Funds.
- Nidhi shall maintain Net Owned Funds of not less than ₹ 10 lakhs or such higher amount the Central Government may specify from time to time.
Extension of time
- If Nidhi is unable to comply with the requirements of minimum number of members and the ratio of net owned funds to deposits, the company shall apply to Regional Director in Form No. NDH – 2, along with the required fees for extension of time to comply with the above requirements.
- The Regional Director may consider the application and pass orders within 30 days from the date of receipt of application.
- The Regional Director may extend the period up to one year from the date of receipt of application.
- If the failure continues beyond the second year, the company shall not accept further deposits from the commencement of second year till the same is complied with and get declared under section 406(1) of the Act.
- Penal consequences are there for non compliance.
Restrictions
Restricted businesses
- To carry on business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate;
- To open current account with its members;
- To issue preference shares, debentures or any other debt instrument by name in any form whatsoever;
- To acquire another company by purchase of securities or control of the composition of the Board of Directors of any other company 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;
- To pledge any of the assets lodged by the members as security;
- To take deposits or lend money to any body corporate;
- Not to carry on the business other than business of borrowing or lending in its own name (except locker facilities);
- To accept deposits from or lend to any person other than members;
- To pay any brokerage or incentive for mobilizing deposits/granting loans;
- To enter into any partnership arrangement in its borrowing or lending activities;
- To issue or cause to be issued any advertisement in any form soliciting deposit;
- To pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or for granting loans.
Private circulation
- Private circulation of the details of fixed deposit schemes among the members of the Nidhi carrying the words ‘for private circulation to members only’ shall not be considered to be an advertisement for soliciting deposits.
Membership
- A body corporate or trust shall not be admitted as a member.
- A minor shall not be admitted as a member.
- The total number of membership shall be more than 200. It shall not be reduced below 200 at any time.
Deposits
- A Nidhi shall not accept deposits exceeding 20 times of its Net Owned Funds as per its last audited financial statements.
- Deposits may be obtained in the name of a minor if they are made by the natural or legal guardian who is the member of Nidhi Company.
- In the event of death of a depositor, the deposit may be repaid prematurely to the surviving depositor or depositors in the case of joint holding with survivor clause, or to the nominee or to legal heir with interest up to the date of repayment at the rate which the company would have ordinarily paid, had such deposit been accepted for the period for which such deposit had run.
Fixed deposits
- The minimum period for fixed deposit is 6 months and maximum period of 60 months.
- The deposits shall not be repaid within 3 months from the date of deposit.
- After 3 months and before 6 months no interest shall be paid for repayment.
- After 6 months and before maturity period the interest is to be reduced 2% from the rate of interest.
- A Nidhi may offer interest on fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the Reserve Bank of India which the Non-Banking Financial Companies can pay on their public deposits.
Recurring Deposits
- 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 deposits shall not be repaid within 3 months from the date of deposit.
- After 3 months and before 6 months no interest shall be paid for repayment.
- After 6 months and before maturity period the interest is to be reduced 2% from the rate of interest.
Savings deposit
- The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed Re.1 lakh at any point of time.
- The rate of interest shall not exceed 2% above the rate of interest payable on savings bank account by nationalized banks.
Application for deposit
- The application for deposit with the Nidhi shall contain the following details-
- Name of Nidhi;
- Date of incorporation;
- The date of declaration or notification as Nidhi;
- The business carried on by Nidhi with details of branches, if any;
- Brief particulars of Management of Nidhi (names, addresses and occupations of the Directors including DIN);
- Net profits of Nidhi before and after making provision for tax for the preceding three financial years;
- Dividend declared by Nidhi during the preceding three financial years;
- Mode of repayment of the deposit;
- Maturity period of the deposit;
- Interest payable on deposit;
- The rate of interest payable on depositor in case the depositors withdraws the deposits prematurely;
- The terms and conditions subject to which the deposit may be accepted or renewed;
- A summary of the financials of the company as per the last two audited financial statements as given below-
- Net owned funds;
- Deposits accepted;
- Deposits repaid;
- Deposits claimed but remaining unpaid;
- Loans disbursed against-
- Immovable property;
- Deposits; and
- Gold and jewellery;
- Profit before tax;
- Provision for tax;
- Profit after tax;
- Dividend per share;
- Any other special features or terms and conditions subject to which the deposit is accepted or renewed.
The application form shall also contain the following-
- In case of nonpayment of deposit either in full or in part, the depositor may approach the Bench of the National Company Law Tribunal having jurisdiction over Nidhi;
- In case of any deficiency of service by Nidhi to its depositors, the depositor may approach the Consumer Forum for redressal of relief;
- A declaration by the Director to the effect that the financial position of Nidhi as disclosed and the representations made in the application form are true and correct and that Nidhi has complied with all the applicable rules;
- A statement to the effect that the Central Government does not undertake any responsibility for the financial soundness of Nidhi or for the correctness of any of the statement or the representations made or opinions expressed by Nidhi;
- The deposits accepted by Nidhi are not insured and the repayment of deposits is not guaranteed by either the Central Government or the Reserve Bank of India;
- A verification clause by the depositor stating that he had read and understood the financial and other particulars furnished and representations made by Nidhi in his application form and after careful consideration he is making the deposit with Nidhi at his own risk and volition.
Every Nidhi shall obtain proper introduction of new depositors before opening their accounts. A Nidhi shall obtain documentary evidence of the depositor in the form of proof of identity and address.
Loans
- A Nidhi shall provide loans only to its members.
- The limit for grant of loan is as detailed below-
- ₹ 2 lakhs where the total deposits is less than ₹ 2 crores;
- ₹ 7.5 lakhs where the total deposits is more than 2 crores but less than ₹ 20 crores;
- ₹ 12 lakhs where the total deposits is more than ₹ 20 crores but less than ₹ 50 crores;
- ₹ 50 lakhs where the total deposit is more than ₹ 50 crores.
- In respect of loans against gold or jewellery-
- the aggregate amount of loan outstanding against the security of gold or jewellery shall either be recovered or renewed within 3 months from the due date of repayment;
- if the loan is not recovered or renewed and the security is not sold within the aforesaid period of 3 months, the company shall make provision in the current year’s financial statements to the extent of unrealized amount or the aggregate outstanding amount of loan including interest as applicable;
- no income shall be recognized on such loans outstanding after the expiry of the 3 months period or sale of gold or jewellery, whichever is earlier; and
- the loan to value ratio shall not exceed 80 %.
Securities for loan
- A Nidhi shall give loans to its members only against the following securities-
- Gold, silver and jewelers – repayment period not exceeding 1 year;
- Immovable property – the loan shall not exceed 50% of the overall loan outstanding on the date of approval by the board, the individual loan shall not exceed 50% of the value of property offered as security and the period of repayment of such loan shall not exceed 7 years.
- Fixed Deposits – the period of loan shall not exceed the unexpired period of the fixed deposits.
- National Savings Certificates other Government securities and insurance policies- the period of loan shall not fall beyond the loan period or 1 year whichever is earlier.
Rate of interest
- The rate of interest to be charged on any loan given by a Nidhi shall not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi.
- The interest shall be calculated on reducing balance method.
Directors
- The Director shall be a member of Nidhi.
- The Director of a Nidhi shall hold office for a term up to 10 consecutive years on the Board of Nidhi.
- The Director shall be eligible for re-appointment only after the expiration of 2 years of 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 Director shall comply with the requirements of section 152 (4) of the Act and shall not have been disqualified from appointment as provided in section 164 of the Act.
Declaration of dividend
- Divided shall not declared by a Nidhi exceeding 25%.
- If the dividend is more than 25% then the approval of Regional Director shall be obtained.
- The Regional Director may give approval subject to the conditions as mentioned below-
- an equal amount is transferred to General Reserve;
- there has been no default in repayment of matured deposits and interest; and
- it has complied with all the rules as applicable to Nidhis.
Auditor
- An audit firm may be appointed as auditor for a Nidhi Company only for 2 terms of five consecutive years.
- The audit is eligible to be appointed after expiry of two years from the completion of its earlier term.
- The Auditor of the company shall furnish a certificate every year to the effect that the company has complied with all the provisions contained in the rules and such certificate 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.
Revenue recognition
- Income including interest or any other charges on non-performing assets shall be recognized only when it is actually realized.
- Any such income recognized before the asset became non-performing and which remains unrealized in a year shall be reversed in the profit and loss account of the immediately succeeding year.
Financial statements
- The Notes on the financial statements of a year shall disclose-
- the total amount of provisions, if any, to be made on account of income reversal and non-performing assets remaining unrealized;
- the cumulative amount provided till the previous year;
- the amount provided in the current year; and
- the balance amount to be provided.
Returns
- NDH – 1- to be filed under Rule 5(2) – Within 90 days from the close of the first financial year after its incorporation and where applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form NDH-1 along with such fee with the Registrar duly certified by a company secretary in practice or a chartered accountant in practice or a cost accountant in practice.
- NDH – 2 – to be filed under Rule 5(3) - If a Nidhi is not complying with the minimum number of members and net owned funds, it shall within 30 days from the close of the first financial year, apply to the Regional Director in Form NDH-2 along with fee for extension of time and the Regional Director may consider the application and pass orders within thirty days of receipt of the application.
- NDH – 3 – Rule 21 - Every company shall file half yearly return with the Registrar in Form NDH-3 along with such fee within 30 days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice or cost accountant in practice.
- NDH – 4 – Rule 3A, 23A, 23B – Form for filing application for declaration of Nidhi Company and updation of status by Nidhi companies.
Powers or RoC
- For the purposes of enforcing compliance with these rules, the Registrar of companies may call for such information or returns from Nidhi as he deems necessary and may engage 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.
Powers of Central Government
- If any Nidhi which has violated these rules or has failed to function in terms of the Memorandum and Articles of Association, the Central Government may appoint a Special Officer to take over the management of Nidhi and such Special Officer shall function as per the guidelines given by Central Government.
- An opportunity of being heard shall be given to the concerned Nidhi by the Central Government before appointing any Special Officer.
Branches
- Nidhi can open branches only if it has earned net profits after tax continuously during the preceding three financial years.
- Nidhi can open 3 branches within the District where it has registered office.
- If Nidhi intends to open more than three branches within the District or outside the District, the same may be opened with the prior permission of the Regional Director.
- Intimation is to be given to the Registrar within 30 days from the date of opening every branch.
- The Nidhi cannot open branches or collection centers or offices or deposit centers or by whatever name called, outside the State in which its registered office is situated.
Closure of a branch
- A Nidhi shall not closed any branch unless 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, 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 an intimation to the Registrar within 30 days of such closure.
Penalty
- If a company falling under rule 2 contravenes any of the provisions of the rules prescribed herein, the company and every officer of the company who is in default shall be punishable with fine which may extend to ₹ 5000/-
- Where the contravention is a continuing one, with a further fine which may extend to ₹ 500/- for every day after the first during which the contravention continues.
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