EXEMPTIONS TO NIDHI COMPANIES UNDER COMPANIES ACT, 2013

[Mr. M. GOVINDARAJAN]

Vide Notification No. 465(E), dated 05.06.2015, the Central Government directed that the Nidhi Companies are exempted from the provisions the Companies Act, 2013 (‘Act’ for short).

Service of documents

Section 20(2) of the Act provides that save as provided in this Act or the rules made there under for filing of documents with the Registrar in electronic mode, a document may be served on Registrar or any member by sending it to him by post or by registered post or by speed post or by courier or by delivering at his office or address, or by such electronic or other mode as may be prescribed.   a member may request for delivery of any document through a particular mode, for which he shall pay such fees as may be determined by the company in its annual general meeting.

The Notification provides that Section 20(2) of the Act shall apply subject to the modification that in the case of a Nidhi, the document may be served only on members who hold shares of more than Rs.1000/- in face value or more than 1% of the total paid-up share capital of the Nidhis whichever is less. For other shareholders, document may be  served  by  a  public  notice  in newspaper circulated  in  the District where the Registered Office of the Nidhi is situated; and publication of the same on the notice board of the Nidhi.

Issue of shares on private placement basis

Section 42 of the Act provides the procedure of issue of shares on private placement basis. The Notification provides that sub-sections (4), (6), (8), (9) and (10) of section 42 shall not apply to Nidhi companies.

Section 42(4) of the Act provides that every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to such person along with subscription money paid either by cheque or demand draft or other banking channel and not by cash. A company shall not utilize monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar in accordance with sub-section (8).

Section 42(6) of the Act provides that a company making an offer or invitation under this section shall allot its securities within 60 days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within 15 days from the expiry of 60 days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of 12% per annum from the expiry of the 60^th day. The monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilized for any purpose other than-

• for adjustment against allotment of securities; or
• for the repayment of monies where the company is unable to allot securities.

Section 42(8) of the Act provides that a company making any allotment of securities under this section, shall file with the Registrar a return of allotment within fifteen days from the date of the allotment in such manner as may be prescribed, including a complete list of all allottees, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed.

Section 42(9) of the Act provides that If a company defaults in filing the return of allotment within the period prescribed under sub-section (8), the company, its promoters and directors shall be liable to a penalty for each default of Rs.1000/- for each day during which such default continues but not exceeding Rs.25 lakhs.

Section 42(10) of the Act provides that if a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through the private placement or Rs.2 crores, whichever is lower, and the company shall also refund all monies with interest as specified in sub-section (6) to subscribers within a period of 30 days of the order imposing the penalty.

Voting rights

Section 47(1) of the Act provides that subject to the provisions of section 43, sub-section (2) of section 50 and sub-section (1) of section 188-

1. every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company; and
2. his voting right on a poll shall be in proportion to his share in the paid-up equity share capital of the company.

The Notification provides that Section 47(1)(b) of the Act shall apply, subject to the modification that no member shall exercise voting rights on poll in excess of 5% of  total voting rights of  equity shareholders.

Further issue of share capital

Section 62 of the Act provides the procedure for further issue of share capital. The Notification provides that Section 62 of the Act shall not apply to Nidhi companies.

Restrictions on purchase by company or giving of loans by it for purchase of its shares

Section 67(1) of the Act provides that no company limited by shares or by guarantee and having a share capital shall have power to buy its own shares unless the consequent reduction of share capital is effected under the provisions of this Act.

The Notification provides that Section 67 (1) shall not  apply,  when  shares  are purchased  by  the  company from a member on his ceasing to be a depositor or  borrower  and  it  shall  not  be considered as reduction of capital under section 66 of the Companies Act, 2013.

Declaration of dividend

Section 123 (5) of the Act provides that no dividend shall be paid by a company in respect of any share therein except to the registered shareholder of such share or to his order or to his banker and shall not be payable except in cash.  Nothing in this sub-section shall be deemed to prohibit the capitalization of profits or reserves of a company for the purpose of issuing fully paid-up bonus shares or paying up any amount for the time being unpaid on any shares held by the members of the company. Any dividend payable in cash may be paid by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend.

The Notification provides that Section 123 (5) shall apply, subject to the modification that any dividend payable in cash may be paid by crediting the same to the account of the member, if the dividend is not claimed within 30 days from the date of declaration of the dividend.

Punishment for failure to distribute dividends

Section 127 of the Act provides punishment for failure to distribute dividends. Where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within 30 days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to 2 years and with fine which shall not be less than Rs.1000/- for every day during which such default continues and the company shall be liable to pay simple interest at the rate of 18% per annum during the period for which such default continues.

The Notification provides that Section 127 of the Act shall apply, subject to the modification that where the dividend payable to a member is Rs.100/- or less, it shall be sufficient compliance of the provisions of  the  section, if the declaration of dividend is announced in the  local language  in one  local newspaper  of  wide  circulation  and announcement of the said declaration is also displayed on the notice board of the Nidhis for at least 3 months.

Copies of audited Financial Statement

Section 136(1) of the Act provides that a copy of the financial statements, including consolidated financial statements, if any, auditor's report and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting, shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by the company, and to all persons other than such member or trustee, being the person so entitled, not less than 21 days before the date of the meeting.

The Notification provides that Section 136 (1) shall apply, subject to the modification that, in the case of members who do not individually or jointly hold shares of more than Rs.1000/- in face value or more than 1% of the total paid-up share capital whichever is less, it shall be sufficient compliance with the provisions of the section if an intimation is sent by public notice in newspaper circulated in the district in which the Registered Office of the Nidhi is situated stating the date, time and venue of Annual General Meeting and the financial statement  with  its enclosures can be inspected at the registered office of the company, and the financial statement with enclosures are affixed in the Notice Board of the company and a member is entitled to vote either in person or through proxy.

Right of persons other than retiring directors to stand for directorship

Section 160(1) of the Act provides that A person who is not a retiring director in terms of section 152 shall, subject to the provisions of this Act, be eligible for appointment to the office of a director at any general meeting, if he, or some member intending to propose him as a director, has, not less than fourteen days before the meeting, left at the registered office of the company, a notice in writing under his hand signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office, along with the deposit of Rs.1 lakh or such higher amount as may be prescribed which shall be refunded to such person or, as the case may be, to the member, if the person proposed gets elected as a director or gets more than twenty-five per cent of total valid votes cast either on show of hands or on poll on such resolution.

The Notification provides that for Nidhi companies the amount will be Rs.10,000/- instead of Rs.1 lakh.

Loans to Directors

The Notification provides that Section 185 of the Act shall not apply, provided the loan is given to a director or his relative in their capacity as members  and  such transaction is disclosed in the annual accounts by a note.

Managerial remuneration

The Notification provides that second proviso to Section 197 (1) shall apply with the modification that the remuneration of a director who is neither Managing Director nor Whole-time Director or Manager for performing special services to the Nidhis specified in the articles of association may be paid by way of monthly payment subject to the approval of the company in general meeting  and also to the provisions of section 197.

 No  approval  of the company in general meeting  shall be required where,-

• a Nidhi does not have a Managing Director or a Whole-time director or a Manager;
• the remuneration payable during a financial year to all the directors of the Nidhi does not exceed 10% of the net profits of such Nidhi or Rs.15 lakhs, whichever is less; and
• a remuneration payable is approved by a special resolution passed in this behalf by the Nidhi.

Fees

The Notification provides that Section 403 of the Act shall apply, with the modification that the filing fees in respect of every return of allotment under sub-section (9) of section 42 shall be calculated at the rate of Rs.1/- for every one hundred rupees or parts thereof on the face value of the shares included in the return but shall not exceed the amount of normal filing fee payable.

Conclusion

The Nidhis, while complying with such exceptions, modifications and adaptations, as specified above shall ensure that the interests of their shareholders are protected.