Pursuant to Sabanayagam Comm. Report on Nidhis - G.S.R. 555(E). - Companies Law

GOVERNMENT OF INDIA MINISTRY OF LAW, JUSTICE AND COMPANY AFFAIRS DEPARTMENT OF COMPANY AFFAIRS NOTIFICATION New Delhi, 26th July, 2001 Subject:- Pursuant to Sabanayagam Comm. Report on Nidhis G.S.R. 555(E).- In exercise of the powers conferred by sub-section (1) of section 637 A of the Companies Act, 1956 (1 of 1956), and in supersession of earlier Notification Nos. GSR 737(E) dated 1.11.1999, GSR 780(E) dated 19.11.1999 and GSR 347(E) dated 25.4.2000 except as respects things done or omitted to be done before said supersession the Central Government hereby directs that - 1. (a) no company declared as a Nidhi or Mutual Benefit Society under section 620A of the said Act, before or after 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 finance, leasing finance, insurance or acquisition of shares or debentures issued by any body corporate except the shares of another Nidhi, if specifically permitted by Central Government; (ii) open any new current account with its members; (iii) admit as member, any body corporate or trust; (iv) issue any equity share of nominal value less than Rs. 10/- : Provided that in the case of existing Nidhis having face value of shares of less than Rs. 10/- such companies shall increase the face value of the shares to Rs. 10/- within a period of one year from the date of this Notification. Provided further that no service charges shall be levied for issue of shares; Provided also that the Central Government may, if satisfied, grant exemption on merits in individual cases; (v) make any preferential allotment of shares to any persons or group of persons but shall make only rights issue of shares and the unsubscribed portion can be apportioned by the Board of Directors in terms of Section 81 of the Companies Act, 1956. (vi) acquire another company by purchase of shares or control of composition of Board of Directors otherwise than through amalgamation or merger under the Companies Act and subject to the regulations applicable to Nidhi companies in force; (vii) carry on any business other than the business of borrowing or lending in its own name and allow use of its name by any other body corporate whose main object is to earn profit by borrowing and lending; (viii) enter into any financial dealing with any person other than its members; (ix) pledge any type of security lodged with it by its members; (x) take further deposits from or lend further money to any body corporate ; (xi) enter into any partnership arrangement in its borrowing or lending activities; (xii) shall issue or cause to be issued any advertisement in any form for soliciting deposit ; Explanation : Private circulation of the details of fixed deposit schemes among the members shall not be considered to be "advertisement" inviting deposits; (xiii) pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or for granting loans; (xiv) issue prepaid interest warrant; (xv) 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; (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 five hundred 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 its Net Owned Fund (excluding the proceeds of preference share capital) is not less than ten lakh rupees or such amount as the Central Government may specify from time to time; Provided that the existing nidhis or Mutual Benefit Societies shall reach before 31st day of December 2002, the said minimum amount of ten lakh rupees; Provided further that the Central Government may for reasons to be recorded in writing extend the period of 31st day of December, 2002 in respect of any class or category of Nidhi or Mutual Benefit Society. C (i) a company declared as a Nidhi or Mutual Benefit Society under section 620A of the Companies Act, 1956 may after the publication of this notification, open branches only if it has earned profit for last three continuous years; (ii) a Nidhi or Mutual Benefit Society may open up to three branches, subject to the above condition, within the Revenue District; and beyond three branches outside the District, with the prior permission of the Regulatory Authority; (iii) no such company shall open branches or collection centres or offices or deposit centres, by whatever name called, outside the State of its Registered Office; (d) (i) a Nidhi or Mutual Benefit Society may accept deposits not exceeding twenty times of its Net Owned Funds (NOF) as per last audited balance sheet: Provided that in the case of existing Nidhis having deposits in excess of the aforesaid limits, the same shall be brought to the prescribed limit by increasing the Net Owned Fund position or alternatively by reducing the deposit within two years from the date of this notification; Provided further that the ratio will apply to incremental deposits immediately. Explanation : "Net Owned Funds" means the aggregate of the paid up equity capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet prior to issue of this notification. A reserve shall be considered as a 'free reserve' if it is available for distribution as dividend. Further, the amount representing the proceeds of issue of preference shares shall not be included for calculating net owned funds. (ii) within the aforesaid limit a Nidhi or Mutual Benefit Society can open the following kinds of deposit accounts, subject to the conditions stipulated therein: (A) FIXED DEPOSIT ACCOUNT : Fixed deposit account can be opened for a minimum period of 12 months and a maximum period of 60 months; (B) RECURRING DEPOSIT ACCOUNT : Recurring deposit account can be opened for a minimum period of 12 months and maximum period of 60 months; (C) SAVING DEPOSIT ACCOUNT : The maximum balance at any given time qualifying for interest shall not exceed Rs. 20,000/- and the rate of interest shall not be more than 2% above the rate of interest payable on savings bank account by nationalised banks; (e) (A) every application for deposit should contain the particulars as stipulated below: (i) name of the Nidhi or Mutual Benefit Society. (ii) date of incorporation of the Nidhi or Mutual Benefit Society. (iii) the business carried out by the Nidhi with details of branches, if any. (iv) brief particulars of the management of the Nidhi (name, addresses and occupation of the directors). (v) profits of the Nidhi before and after making provision for tax for the last three financial years. (vi) dividend declared by the Nidhi as per latest three balance sheets. (vii) mode of repayment of deposit. (viii) maturity period of deposit. (ix) interest payable on deposit. (x) the rate of interest which shall be payable to the depositor in case depositor withdraws the deposit prematurely. (xi) the terms and conditions subject to which a deposit shall be accepted / renewed. (xii) any other special features relating to terms and conditions subject to which the deposit is accepted / renewed. (B) the application form shall also contain the following : (i) in case of non payment of the deposit or part thereof as per the terms and conditions of such deposit, the depositor may approach the Bench of Company Law Board having jurisdiction over the company. (ii) in case of any deficiency of the Nidhi or Mutual Benefit Society in servicing its deposit, the depositor may approach the National Consumers Disputes Redressal Forum, the State Level Consumers Disputes Redressal Forum or District Level Consumers Disputes Redressal Forum for relief; (iii) a statement that the financial position of the Nidhi or Mutual Benefit Society as disclosed and the representations made in the application form are true and correct and that the Nidhi and the Board of Directors are responsible for the correctness and veracity thereof; (iv) the financial activities of the Nidhi or Mutual Benefit Society are regulated by the Department of Company Affairs. It must, however, be distinctly understood that the Department of Company Affairs does not undertake any responsibility for the financial soundness of the Nidhi or for the correctness of any of the statement or the representations made or opinions expressed by the Nidhi and for repayment of deposit / discharge of liabilities by the Nidhi; (v) at the end of application form but before the signature of the depositor, the following verification clause by the depositor shall be appended namely : "I have gone through the financial and other statements / particulars / representations furnished / made by the Nidhi and after careful consideration I am making the deposit with the Nidhi at my own risk and volition"; (C) Every Nidhi or Mutual Benefit Society shall obtain proper introduction of the new depositors before opening their accounts and accepting the deposits and keep on its record the evidence on which it has relied upon for the purpose of such introduction; (f) (i) every Nidhi or Mutual Benefit Society shall, - (A) allot to every deposit holder at least a minimum of ten equity shares or shares equivalent to Rs. 100/- whichever is higher; (B) offer interest on fixed and recurring deposits as determined by the Regulatory Authority, subject to other conditions; (C) permit Fixed Deposit Account to be foreclosed by the depositor subject to the following conditions: (ii) a Nidhi or Mutual Benefit Society shall not repay any deposit within a period of three months from the date of its acceptance; (iii) where a Nidhi or Mutual Benefit Society at the request of the depositor repays any deposit after a period of three months, the depositor shall not be entitled to any interest up to six months from the date of deposit; (iv) where a Nidhi or Mutual Benefit Society at the request of the depositor makes repayment of a deposit before the expiry of the period for which such deposit was accepted by the Nidhi or Mutual Benefit Society, the rate of interest payable by the Nidhi or Mutual Benefit Society on such deposit shall be reduced by two percent from the rate which the Nidhi or Mutual Benefit Society would have ordinarily paid, had the deposit been accepted for the period for which such deposit had run; Provided that in the event of death of a depositor, the deposit may be repaid prematurely to the surviving depositor/s in the case of joint holding with survivor clause, or to the nominee or to legal heir/s with interest at the rate which the company would have ordinarily paid, had such deposit been accepted for the period for which such deposit had run, up to the date of repayment; (g) every Nidhi or Mutual Benefit Society shall invest and continue to invest, with effect from the 1st September, 2001, in unencumbered term deposits with a scheduled commercial bank, other than a co-operative bank or a regional rural bank, an amount which shall not be less than ten per cent of the deposits outstanding at the close of business on the last working day of the second preceding month; (h) every Nidhi or Mutual Benefit Society shall, - (i) give loan to its shareholders or members against the following securities:- (A) gold, silver and jewellery; Provided that the period of such loan shall not exceed one year (B) immovable property; Provided that the loan against immovable property shall not exceed fifty percent of the overall loan outstanding on the date of approval by the board and the individual loan shall not exceed fifty percent of the value of property offered as security. The period of such loan shall not exceed five years. Explanation : Existing Nidhi companies shall bring down the ratio of loan against immovable property to fifty percent of the overall loan outstanding within two years from the date of this notification; (C) fixed deposit, Kisan Vikas Patra/National Savings Certificate Scheme/insurance policies and other Government Securities; Provided that such securities shall be pledged with the company duly discharged and the lock-in period of such securities shall not fall beyond the loan period or one year whichever is earlier. (ii) The rate of interest charged on loan given by every such company shall not exceed five percent above the highest rate of interest offered on deposits by the Nidhi and shall be based on reducing balance method; (iii) give loan to any member/shareholder subject to the following ceiling on each loan: (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 percent of the total deposits or seven lakh 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 crore 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 such Nidhi or Mutual Benefit Society shall give to any member/shareholder 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; (h) (i) no company declared as Nidhi or Mutual Benefit Society, after the publication of this notification, shall, - (A) have any person as director for a continuous period of more than ten years except with the approval of the Regulatory Authority; Explanation : any break in continuous service as director of less than six months would be construed as holding office continuously. (B) have a person as director who is convicted by a court of law for a criminal offence; (ii) every Nidhi or Mutual Benefit Society having membership of ten thousand and above or rupees two crore deposits as at the end of each financial year shall publish the audited accounts in two dailies (one in English and one in vernacular language) within six months from the close of the financial year) (iii) every such Nidhi or Mutual Benefit Society shall not declare dividend exceeding twenty five percent and further subject to the condition that an equal amount is transferred in General Reserve Provided that no dividend can be declared if there is default in repayment of deposits or interest thereon. (iv) dividend declared by a Nidhi or Mutual Benefit Society shall be disbursed to the members in terms of section 205/207 of the Companies Act, 1956; (v) any dividend remaining unclaimed for a period beyond seven years shall be transferred to the Central Government account in terms of section 205C of the Companies Act, 1956; (vi) in respect of every such Nidhi or Mutual Benefit Society which has violated the notifications or regulations framed by the Regulatory Authority with the approval of Central Government or failed to function in terms of the Memorandum and Articles of Association, the Regulatory Authority shall be entitled to appoint a Special Officer to take over the management of the Nidhi and such Special officer shall function as per the guidelines stipulated by the Regulatory Authority ; Explanation : Regulatory Authority denotes the concerned Regional Directors of Department of Company Affairs where the Registered Office of the Nidhi is located. 2. The directions specified herein above 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 before or after the publication of this notification and to potential Nidhi companies desiring to get Nidhi status under the said Act. 3. The Central Government, if satisfied that the circumstances have arisen and if found in public interest, after recording the reasons in writing, may relax any of the directions mentioned above either generally or for any specified period, subject to such terms and conditions, as the Central Government may specify, for avoiding any hardship to any Nidhi or a class of Nidhis for proper working of nidhis. [F.No. 5/7/2000-CL.V] A.RAMASWAMY, Joint Secretary