Regarding company declared as Nidhi or Mutual Benefit Society under section 620A - G.S.R. 737(E). - Companies Law

MINISTRY OF LAW, JUSTICE AND COMPANY AFFAIRS (Department of Company Affairs) NOTIFICATION New Delhi, the 1 st November, 1999 Subject:- Regarding company declared as Nidhi or Mutual Benefit Society under section 620A G.S.R. 737(E).- In exercise of the powers conferred by sub-section (1) of section 637A of the Companies Act, 1956 (1 of 1956), the Central Government hereby directs that ( a ) No company declared as a Nidhi or Mutual Benefit Society under section 620A of the said Act, before the date of this notification (hereinafter referred to as such Nidhi or Mutual Benefit Society) shall, after the publication of this notification, ( i ) carry on the business of chit fund, hire purchase, insurance or any business in shares or debentures; ( ii ) open any new branch in any place outside the local limits of the district wherein its Registered Office is located; ( iii ) open any new current account with its members; ( iv ) admit as member any body corporate or trust; ( v ) issue any new equity shares of nominal value exceeding rupees ten; ( vi ) issue any new shares to any select group of persons other than bona fide depositors; ( vii ) acquire control of any other company by way of acquisition of shares, or by composition of the Board of Directors of such company; ( viii ) allow use of its name by any other body corporate whose main object is to earn profit by borrowing and lending; ( ix ) enter into any financial dealing with any person other than its members; ( x ) take further deposits from or lend further money to any body corporate; ( xi ) carry on any business other than the business of borrowing or lending in its own name; ( xii ) enter into any new partnership arrangement in its borrowing or lending activities; ( xiii ) give any new loans or advances without the security in the form of fixed deposits or recurring deposits with the said Nidhi or Mutual Benefit Society or gold, silver, jewellery or immovable property; ( xiv ) pledge any type of security lodged with it by its members; ( xv ) give to any borrower loans or advances exceeding ( A ) two lakh rupees, where the total amount of deposits of such Nidhi or Mutual Benefit Society from its members are two crore rupees or less; ( B ) one per cent of the total deposits or seven lakhs fifty thousand rupees, whichever is less, where deposits of such Nidhi or Mutual Benefit Society from its members are more than two crore rupees but are twenty crore rupees or less; ( C ) twelve lakh rupees, where the deposits of such Nidhi or Mutual Benefit Society from its members are more than twenty crores rupees but are fifty crore rupees or less; ( D ) fifteen lakh rupees, where the deposits of such Nidhi or Mutual Benefit Society from its members are more than fifty crore rupees : Provided that no Nidhi or Mutual Benefit Society shall give to any borrower loans and advances exceeding seven lakh fifty thousand rupees if such Nidhi or Mutual Benefit Society had not made profits in the three preceding years. ( xvi ) be allowed to raise deposits beyond 20 crore of rupees but in the case of Nidhis having deposits beyond this limit on the date of this notification shall not accept further deposit from such date : Provided that where the deposits exceed the above limits (rupees twenty crore or the deposits as on 30-9-1999 as the case may be) such company shall; ( A ) cease to be such Nidhi or Mutual Benefit Society, under the Companies Act, 1956 (1 of 1956); ( B ) be deemed to be a non-banking financial company under clause ( f ) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934); ( xvii ) have branches outside the States in which its Registered Office is situated : Provided that such Nidhi or Mutual Benefit Society, having branches outside the State in which its Registered Office is situated, shall close before the 30th September, 2002, its branches situated outside such State; ( xviii ) have not more than three branches in a State in which its Registered Office is situated; ( xix ) have not more than three branches in a District in which its Registered Office is situated : Provided that where such Nidhi or Mutual Benefit Society is having more than three branches in a State or District, as the case may be, in which its Registered Office is situated, it shall close before the 30th September, 2004, all branches other than its three branches in such State or District; ( xx ) enter into any arrangement for the change of its management without a special resolution passed in its general meeting and approval of the Central Government; ( xxi ) accept deposit for a period of less than six months; ( xxii ) grant loan to a director for an amount exceeding fifteen lakh rupees as per the existing limits : Provided that in a case where a director had been given a loan for an amount exceeding fifteen lakh rupees by any such Nidhi or Mutual Benefit Society, such Nidhi or Mutual Benefit Society shall recall the loan to bring the aggregate amount of loan to fifteen lakh rupees within a period of one year; ( b ) every such Nidhi or Mutual Benefit Society shall, after the publication of this notification ( i ) ensure that its membership is not reduced to less than two thousand members at any time; ( ii ) obtain certificate every year from the statutory auditors certifying that it has complied with the directions specified in this notification and has maintained its books of account according to recognised principles of accounting; ( iii ) ensure that the total of its net owned fund and its preference share capital is not less than twenty-five lakh rupees or such higher amount as the Central Government, may specify from time to time : Provided that the existing Nidhis or Mutual Benefit Societies shall reach before the 31st day of December, 2002, the said minimum amount of twenty-five lakh rupees : Provided further that the Central Government may, after recording the reasons in writing for so doing, extend the said period; ( iv ) ensure that interest rates on deposits accepted by and loans given by such Nidhis or Mutual Benefit Society are in conformity with such regulations that may be issued by the Reserve Bank of India, from time to time. Explanation. Net owned fund shall have the same meaning as assigned to it in the Reserve Bank of India Act, 1934 (2 of 1934); ( v ) ensure that a person does not hold a post of a director in such Nidhi or Mutual Benefit Society for a continuous period of more than ten years : Provided that such director shall be eligible for re-appointment after the period of two years of ceasing to hold the post of director : Provided further that in case more than three directors vacate their office in the current year, then, two-thirds of such directors shall vacate their office in the same current year and one-third in the successive year; ( vi ) maintain a contingent fund by transferring half per cent of each deposit to such fund; ( vii ) keep the entire amount in the contingent fund referred to in sub-clause ( vi ) of this clause, in any nationalised bank; ( viii ) in case of default in making refund of deposit to more than ten depositors, allow to monitor its working by a special officer appointed by the Central Government; ( ix ) comply with the directions given by such special officer appointed under sub-clause ( viii ) of this clause; ( x ) allow special audit to be conducted by the auditors appointed by the Central Government and such auditors shall furnish to that Government (A) a certificate regarding compliance of all the requirements specified in this notification; (B) a certificate complying with the provisions of sub-section (4A) of section 227 of the Companies Act, 1956 (1 of 1956) : Provided that every auditor shall send a detailed report to the Reserve Bank of India and the Central Government for non-compliance of any of the requirements mentioned in this notification and provisions of sub-section (4A) of section 227 of the Companies Act, 1956 (1 of 1956). 2. The directions specified in sub-clauses ( i ) to ( xxii ) of clause ( a ) and sub-clauses ( i ) to ( x ) of clause ( b ) of this Notification shall, as far as may be, apply to every company declared as a Nidhi or Mutual Benefit Society under section 620A of the said Act on or after the publication of this notification. 3. The Central Government if satisfied that the circumstances have arisen it is necessary in public interest and after recording the reasons in writing, may relax any of the directions for proper working of Nidhis or Mutual Benefit Societies. [File No. 5/3/99-CL-V] R.D. JOSHI, Jt. Secy.