Legal Framework- And Regulations Governing Nidhi Companies

Nidhi means “treasure” which means finance or fund. Nidhi Company is a company that has been incorporated with the sole purpose of serving a habit of savings and reserve funds amongst the members, receiving and lending to its members only for their mutual benefits.

It is a Non-Finance banking Company which works on the principle of mutuality. This company doesn’t require any license from Reserve Bank of India to operate. Any individual who is a member of Nidhi Company can deposit or receive fund when need be.

Nidhi Company signifies ‘Mutual Fund Societies’ or ‘Mutual Fund Companies’ these terms are used to distinguish Nidhi Company from the other co-operative societies and banks which may engage in a similar activity. The major objective of the Nidhi Company to utilize the funds by its members and to safeguard the financial conditions of its members.

Legal Framework and Regulatory Bodies Regulating the Functioning of Nidhi Companies:

Nidhi’s are the companies registered under Section 406 of the Companies Act, 2013. This company is regulated by the Ministry of Corporate Affairs. It has no connection with RBI in reference to the matter relating to deposit and lending fund amongst its members.

Unlike Section 620A of the 1956 Act, the 2013 Act under Section 406 finally defines Nidhi Companies. This company is incorporated under the Act shall be a public company. But, that doesn’t mean Nidhi Company can make any receiving and lending fund connection with the general people. Only fund operational process is done between amongst its members.

The Nidhi Cater to the requirements of the small and middle-class people and it most popular in the southern part of India. This company doesn’t include itself to engage in shares, chit funds, debentures, and insurance.

Nidhi Rules, 2014:

In exercise of the power conferred under the sub-section of the section 406 read (1), (2) of 469 companies Act, 2013, the Central Government has made rules for the Nidhi Company and that are listed below;

• Application: These rules shall apply to-

(an) Each organization which had been announced as a Nidhi or Mutual Benefit Society under sub-segment (1) of area 620A of the Companies Act, 1956;

(b) Each organization working on the lines of a Nidhi organization or Mutual Benefit Society yet has either not connected for or has connected for and is anticipating notice to be a Nidhi or Mutual Benefit Society under sub-area (1) of segment 620A of the Companies Act, 1956; and

• Incorporation and Incidental Matters: A Nidhi Company to be incorporated under the Act Shall be a public company and shall have a minimum paid up equity share capital of five lakh Rupees.

- On and after the commencement of the Act, no Nidhi shall be issue preference shares.

- If preference shares have been issued by Nidhi under the commencement of this Act, such preference shares shall be redeemed in accordance with the terms of issues such shares.

- Every company incorporates Nidhi Company shall contain “Nidhi limited” at the end of the company name.

• Documents required for the incorporation of Nidhi Company Registration:

- Following are the documents required for Nidhi Company Registration:

- Digital Signature Certificate of all the Directors.

- Directors Identification of all the Directors.

- Copy of a PAN Card.

- Copy of Identity Proof (i.e. Voters ID Card, Driving License, Aadhar Card).

- 2 Passport size photograph.

- Registered Office Address Proof (Electricity Bill, Telephone Bill).

- If the registered address is a rented premise then rent agreement with rent receipt

• Nidhi Company Registration:

For Nidhi Company Registration one needs to follow some criteria that are listed below;

- Needs at least 7 members to start this company.

- Out of seven members, three members shall be directors of the Nidhi Company.

- 5 Lakh minimum capital is required to operate the function of the Nidhi Company.

- The name of the Nidhi Company shall be contained “Nidhi Limited” at the end.

- Need to have minimum documentation for Nidhi Company Registration like PAN, Passport size photos and registered office address proof.

- Appoint at least 200 members.

- Net owned funds of 10 Lakh more.

- The net owned fund ratio to deposit is not greater than 1:20

In the event, if the company is failed to comply above-mentioned criteria, then the same needs to apply for an extension with regional director inform NDH-2.

General Restriction On Nidhi Company:

- No Nidhi company shall carry a business like chit fund, hire purchase, securities, and insurance.

- No Nidhi company receive and lend money to the general people. This can be done only between their members.

- No Nidhi Company open the current account with its members.

- No Nidhi Company shall pledge any of the assets lodged by its members as security.

- No Nidhi Company shall issue or caused to be issued any advertisement in any form of soliciting deposits.

• Shares and Capital Allotment:

- Every Nidhi Company issue equity shares of the nominal value of not less than 10 Lakhs.

- No service charged levied for issue of shares.

- Every Nidhi Company allots to each deposit holder at least a minimum of 10 equity shares.

• Definitions:

- Act means the company Act 2013.

- Doubtful assets mean a borrowable account which has remained a non-performing act for more than 2 years.

- Loan assets mean borrowal account which remained a non-performing for than three years.

- Net owned funds mean the aggregate of paid-up equity share capital and free reserve as reduced by accumulated losses and intangible assets appearing in the last audit balance sheet.

- Non-performing assets mean a borrowed account in respect of which interest income or installment of a loan towards repayment of the principal amount has remained unreleased for twelve months.

- Sub-standard assets mean a borrowed account which is a nonperforming assets.