Guidelines & Compliances for a Nidhi Company in India

Points Covered in this Video:

1. What is Nidhi Company?
2. Benefits of Nidhi Company
3. Pre-Requisites for Nidhi Company
4. Registration Process of Nidhi Company
5. Requirements for Registration of Nidhi Company
6. Compliances for a Nidhi Company
7. Loan Rules for Nidhi Company
8. FAQ’s on Nidhi Company

What is a Nidhi Company?

Nidhi Company is a type of Non-Banking Financial Company (NBFC) that has the principal object of borrowing and lending money between its members. This Mutual Benefit Company needs to file little Annual compliance and it is famously known as Nidhi Company Compliances. The legal compliances associated with Nidhi Company are prescribed in Nidhi Rules 2014 and the Companies Act 2013. The present article briefs the Compliance Requirements under Nidhi Companies.

Definition of Nidhi Company as per Companies Act, 2013

As per the provisions of Section 406(1) of the Companies Act, 2013, the Nidhi Company is ‘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.”

Nidhi Company is the perfect type of company for those who want to start a business with minimum capital investment.

Benefits of Establishing a Nidhi Business

• Directors and stockholders of a Nidhi Company have limited liability. Suppose the company incurs losses or experiences financial difficulties due to its operations. In that case, the members’ or directors’ holdings are not at risk of being confiscated by banks, creditors, or the government.
• Requirements for Nidhi enterprises are limited to those outlined in the Nidhi Rules, 2014. The Federal Government is the supreme regulatory body responsible for overseeing all of its operations. Nidhi’s is subject to minimal regulations from the Reserve Bank of India.
• When compared to other member-based organisations like Trusts, Cooperative Societies, and NGOs, Nidhi businesses have a higher level of credibility.
• A Nidhi Company is a better option for saving because its primary purpose is to encourage saving among the Company’s members. This also helps the Nidhi firm achieve the other reason for its formation: to be mutually beneficial to its members. In addition, the Nidhi Companies would be set up to lend and borrow money exclusively amongst its owners and members.
• Simpler Availability of Public Resources: Nidhi Company Loans Are More Affordable Than Those From Banks And Other NBFCs (Non-Banking Financial Institution). Accessing loans and specialised services is simplified, streamlined, and expedited for its stockholders.
• Nidhi firms have fewer regulatory hurdles because the RBI does not actively participate in their operations. However, they must follow the rules outlined in the Nidhi Rules, 2014, and the Companies Act, 2013. Serious consequences may result from noncompliance. Since the compliance process can be challenging for some, the best counsel typically suggests seeking the assistance of specialists.
• The Nidhi Company’s Ease of Funds is the most reliable and inexpensive option for soliciting savings from the public. They need only be accepted as registered members by the relevant firm.
• Since many Indians still live in rural or outlying areas, they may not have access to traditional banking services like those offered by Nidhi. This company specialises in “micro banking,” or banking on a small scale.
• A credit co-operative society alternative, Nidhi Company, is quite similar to the credit co-operative society. As a result, it has more excellent favour amongst micro-financiers. Additionally, once a Nidhi firm is registered, its members entirely access the credit cooperative society’s services.
• Borrowing and lending amongst friends or people in the same social circle are more accessible than dealing with a bank, where everything is rigid and impersonal.
• When compared to other options, registering a Nidhi Company is a breeze due to the straightforward process. Because the relevant firm does not necessitate a permit from the Reserve Bank of India. Concerned parties should only register their businesses with the Ministry of Corporate Affairs as public limited companies.

To establish a Nidhi Company, the following criteria must be met:

• The company must have the suffix “Nidhi Limited” in its name
• The company must be a Public Company.
• Minor, Body Corporate and a Trust cannot be admitted as members to Nidhi.
• The minimum paid-up share capital must be Rs. 10 lakh.
• The company cannot issue preference shares, in the case where such shares have been issued by the company prior to the commencement of the Act, the same shall be redeemed.
• The primary objective of the company must be to inculcate the habit of savings in its members.

Nidhi Company Registration in India

Nidhi Company is registered under the provisions prescribed in the Companies Act, 2013. The only objective of forming a Nidhi Company is to cultivate the habit of thrift and savings amongst its members. The minimum capital requirement to start a Nidhi Company is Rs.10 lakh (Increased via Nidhi (Amendment) Rules, 2022. Since Nidhi Company is registered as a Public Limited Company and must have “Nidhi Limited” as the last words of its name.

Registration Process of a Nidhi Company

To apply for registration the Nidhi Company must have a minimum of 7 members and 3 Directors. On fulfilling this condition the Nidhi Company can follow the below-mentioned process:

• Apply for Director Identification Number (DIN) and Digital Signature Certificate.
• Go for Name Approval by using Reserve Unique Name (RUN) Service of MCA.
• Prepare the Articles of Association and Memorandum of association according to the objects of the company and all other documents.
• File for Incorporation Form SPICe+.
• Apply for PAN and TAN.

For obtaining incorporation the following documents will be required:

• Copy of PAN Card of Directors and Shareholders.
• Identity proof for Directors and Shareholders like Voters ID, Passport, Driving License.
• Address proof of Directors and Shareholders like Bank statements, utility bills.
• Passport size photographs.
• Registered office – property proof. a) If the property is owned then – Utility Bill + Ownership document + NOC. b) If the property is rented – Utility bill + Rent Agreement +NOC.

Restrictions on Nidhi Companies

As per Rule 6 of Nidhi rules 2014, a Nidhi Company cannot perform the following activities:

• Conduct the business of chit fund, leasing finance, and hire purchase. It cannot acquire securities issued by a body corporate.
• Issue preference shares, debentures, or any debt instrument by any name or in any form whatsoever.
• Open any current account with its members.
• Make any acquisitions or arrangements or concessions until the same is adopted in the General Meeting by a special resolution and is approved by the Regional Director.
• Perform any business other than borrowing/ lending in its own name.
• Lend to or accept funds from anyone other than its members.
• Lend to or accept funds from body corporate.
• Enter into any partnership arrangement in their borrowing or lending operation.
• Act of publicity for seeking any deposits in any form.
• Pledge any of its assets lodged by its members as security.
• Pay any brokerage or incentive for granting loans or deployment of funds or mobilise deposits from its members.

Note:

• If the company adheres to all the provisions of the rules mentioned, it can provide locker facilities to its members provided the income from locker rent does not exceed 20 % of the gross income of the Nidhi at any point of time during the Financial year.
• Private circulation of the details of fixed deposit schemes among members bearing the words “for private circulation to members only” will not be taken as an advertisement.

Compliances of a Nidhi Company

Compliance Requirements under Nidhi Companies are divided into three parts:

• First is pre-incorporation Compliances,
• The second is Post –Incorporation compliance
• The third is Event-based Compliances.

Pre-Incorporation compliances of Nidhi Company

Every Nidhi Company has to follow some mandatory compliance to obtain Nidhi Company Registration. The necessary compliances to be followed are mentioned below:

• A minimum of seven members is needed to start a Nidhi Company, out of which three members must be the Directors of the Company.
• The company must have the suffix “Nidhi Limited” in its name and the company must be a Public Company.
• Minor, Body Corporate and a Trust cannot be admitted as members of Nidhi.
• The minimum paid-up share capital must be Rs. 10 lakh.
• Nidhi Company cannot open branches if it has not earned any profit after tax for consecutive three financial years. 
• The rate of interest on the loan shall not exceed 7.5% above the highest rate of interest offered on deposits.
• The company cannot issue preference shares, in the case where such shares have been issued by the company before the commencement of the Act, the same shall be redeemed.
• The primary objective of the company must be to inculcate the habit of savings in its members.

Post –Incorporation Compliances of Nidhi Company

Post Incorporation of Nidhi Company compliance is divided into two:

• General Compliance
• Annual Compliance

General Compliance

Within one year of incorporation, a Nidhi company must satisfy the following conditions:

• The number of members should increase to at least 200 within one year of its incorporation.
• The Net owned funds must be Rs. 20 lakhs (Modified via Nidhi (Amendment) Rules, 2022
• The net owned funds and the deposits shall be in a ratio not exceeding 1: 20 that is Net Owned Funds: Deposits = 1:20.
• Unencumbered term deposits should be not less than 10 % of the outstanding deposits as specified in Rule 14 of Nidhi Rules 2014.
• The Nidhi Company needs to Maintain Books of Accounts, the statutory Registers.
• The Nidhi Company needs to Convene Statutory Meetings.

Note: Net owned funds are the aggregate of paid-up capital and free reserves reduced by the accumulated and intangible assets as appearing in the last balance sheet

Annual Compliance of a Nidhi Company

Annual compliance is followed to keep the Government updated on the activities and functional divisions of the company.

Nidhi Companies must follow the annual compliances mentioned below:

Form No	Compliance	Due Date
Form NDH-1 Return of Statutory Compliance	Form NDH-1 contains all the details regarding members, deposits, loans, reserves, etc. for the full financial year e-Form GNL-2 is used for submission of the documents with the Registrar.	Within 90 days from the close of the financial year along with fees. (30th June)
Form NDH-2 Application for Extension of Time.	This form is filled in case : The company fails to add at least 200 members within one year of incorporation. Failure to maintain the Net owned Fund to deposit ratio of 1:20	NDH-2 must be filed with the Regional Director within 30 days from the closure of the financial year along with the prescribed fees. 30th April
Form NDH 3 Half-yearly return	Form NDH 3 to be filed with the ROC (Registrar of Companies).	Within 30 days from the conclusion of half a year. It must be duly certified by a practicing professional. 30th April & 30th October
Form NDH -4	For filing an application for a declaration as Nidhi Company and updating of status	For New Nidhi Company – Within 120 days after the expiry of 1 year from the date of its incorporation. For existing Nidhi Company – Within 1 year from its date of incorporation OR within 6 months from the date of commencement of Nidhi Rules 2019, whichever is later
Form AOC-4	For filing financial documents and other supporting documents to the Registrar of Companies.	Within 30 days of the annual general meeting.
ITR-6	Income Tax Return	By 30th September
Form MGT-7	Annual Return	Within 60 days of the Annual General Meeting.

Penalties for Non-Compliance

Timely filing of compliances is mandatory for every Nidhi company. Non- Compliance attracts penalties for the Nidhi Companies.

• If the company does not meet the compliance, the organization and the concerned officers will be fined an amount up to Rs. 5,000.
• In the case of continuation of infringement, the company will be charged a further fine of Rs.500 per day.

Hence it is important to hire professionals to help in the compliance procedures.

Event-Based Compliances of a Nidhi Company

Generally, event-based compliances are required to file only once during the company registration process. Furthermore, these compliances must be followed when there is any change also in the Nidhi company’s structure which is non-periodical.

Below is the list of event-based compliances:

• Any change in the company’s name.
• Change in Registered office address.
• Appointment or Resignation or Removal of Director.
• Appointment or Resignation or Removal of Auditor.
• Any amendment in the company’s objective.
• Transfer of shares.
• Increase in the authorized capital of the company.
• Appointment of the Key Managerial Personnel.
• Any other changes that are event-based.
  

New Compliance Rules for Nidhi Companies

MCA tightens compliance rules for Nidhi companies vide the Nidhi (Amendment) Rules, 2022

• Any public company incorporated as Nidhi with a share capital of Rs 10 lakh will have to submit an NDH-4 form and apply with the central government to be notified as a Nidhi company within 120 days of its incorporation.
• The company needs to have at least 200 members and should have a net-owned fund (NOF) of Rs 20 lakh.
• Nidhi Company to obtain consent from the central government to operate within 14 months from their incorporation.
• If a company doesn’t receive any intimation from the Central government within 45 days of submitting the NDH-4 form, the approval would be deemed to be granted.

What are the Loan Rules for a Nidhi Company?

Services:-

All the facilities and services of Nidhi Company are restricted only to lending and borrowing only, these services can only be availed by the members who are also the equity shareholder of such company.

The company, after its incorporation, must have at least 200 members within a period of one year, failure to do so, the company shall make representation to the regional director who is appointed by the central government under the Ministry of Corporate Affairs in the appropriate form NDH2 for extension of time

Limitation

There is a certain compulsive restriction of Nidhi Company, and under no circumstances shall it carry on any business activity related to insurance, chit fund, hire purchase, lease financing, and acquisition of securities by any Body Corporate. Nidhi Company Loan Rules  is prohibited from issuing any kind of preference rights shares, debentures, or any kind of instrument, whether convertible, non-convertible, irredeemable, or redeemable. Nidhi Company cannot operate on the current account of its members.

Nidhi Company cannot become a holding or subsidiary company by acquiring securities of other companies, nor can it influence control in the composition of the Board of Directors without seeking prior approval of the regional director along with a special resolution passed in the Annual General Meeting (AGM). Nidhi Company cannot engage in any kind of business other than lending and borrowing to its members under the purview of Nidhi Company Loan Rules, 2014. Not It can enter into any partnership for lending and borrowing business neither it can advertise for soliciting such deposit schemes.

Deposits

Members of Nidhi Company are only eligible to open an account and deposit by way of saving, recurring, and fixed deposits. Members can opt for a fixed deposit for a minimum period of six months, and such a deposit can be accepted for a maximum period of sixty months that is 5 years.

In the case of a recurring deposit, a minimum period is twelve months, whereas the maximum period is sixty months. The company shall allot a minimum of ten equity shares having a nominal value of ten each to the deposit holder having a value of ₹100. In the case of recurring and saving account holders, at least one equity share of Rs. 10 each.

The maximum amount to qualify for interest on a savings account shall not exceed more than Rs. 1 lakh. The rate of interest on deposits shall not exceed the maximum rate prescribed by the Reserve Bank of India for NBFC on the public deposit.

Loans

We can provide Nidhi Company Loan Rules only to its members. Loans sanctioned by Nidhi to its members are subject to certain terms and conditions.

1. ₹2 Lakh, if the total amount of deposits of Nidhi is less than Rs. 2 crore.

• Seven Lakh Fifty Thousand rupees, if the total deposits from its members are more than Rs. 2 crore but less than ₹20 crores.
• ₹12 lakhs if the total deposits from its members are more than Rs. 20 crore but less than Rs. 50 crore.
• ₹15 lakhs if the total deposits from its members are more than Rs. 50 crore.

In case Nidhi has not made continuous profits for the last three financial years, Nidhi shall not sanction any further with Nidhi Company Loan Rules exceeding fifty per cent of maximum loans.

Calculation of total deposits shall be based on the last audited annual financial statement.

Tenure of Loan and Securities

A loan to its member can be passed against securities, provided that only a limited asset is considered as security in Nidhi. Here as follows:

• Jeweler of gold or silver: The repayment period cannot be more than one year. If the delay in payment goes beyond 3 months, Nidhi can sell off the security.
• Immovable property: A loan against immovable property cannot exceed more than 50% of its value. Repayment of such loan shall exceed 7 years.
• National saving certificate, insurance policy, fixed deposits, and other government securities: Provided that the maturity date of such securities must be beyond the loan period or one year, whichever is earlier.

Interest Rates

The rate of interest on loans in Nidhi shall not exceed more than 7.5 % beyond the highest rate offered on deposits by Nidhi Company. It must be calculated on the reducing balance method.

E.g., if XYZ Nidhi Ltd. Gives 8% interest p.a. on the savings account, which is the highest interest rate provided by XYZ Nidhi Ltd. Then the interest rate on loan cannot exceed more than 15.5% p.a. (Saving interest 8% [highest interest rate] + 7.5% [maximum interest on loan])

The rate of interest in the same class of loan must be the same for all the members. Apart from that, as per rule16, Nidhi Company must list all the classes of loans and their interest rates on the notice board, which is accessible and available to all the members.

There are certain benefits of procuring loans from reports in the above-said circumstances. The idea of savings and deposits promoting transparency is an added advantage.

Due to its limited activity, the only source of income for Nidhi is to get as many members as possible due to transactions of loans and deposits that can coincide with each other, and with the rise in member’s equity share capital will also increase.

Frequently Asked Questions

Can a Nidhi company have different branches?

Yes. A Nidhi company can have branches up to 3 within the district. However, the Nidhi company can open more than 3 branches by obtaining the prior permission of the Regional Director within the district or outside the district but within the state.

It must also give an intimation to the Registrar of Companies about the opening of the fourth branch within 30 days of such opening. Nidhi companies cannot open collection centres, branches, deposit centres or offices by other names outside the boundaries of the state where the registered office is located. 

Can a Nidhi company close its branch?

Yes. It can close its branch after publishing a newspaper advertisement in the local language in the place where it performs its business operations before 30 prior to the closure. It should also inform the public with respect to such closure. It needs to fix the advertisement copy or a notice specifying about the branch closing on the company’s notice board for 30 days from the date on which the advertisement got published in the newspaper. Within 30 days of closure, the Nidhi companies must inform the Registrar of Companies.

Can Nidhi company advance loans against the immovable property?

Yes, a Nidhi company can advance loans against immovable properties. The repayment period for such a loan must not be beyond seven years and the repayment must not exceed 50% of the entire loan.

Can Nidhi company grant loans against securities?

Yes. A Nidhi company can grant loans against securities like Fixed Deposits Receipts, National Saving Certificate (NSC), Insurance Policies and other government securities. However, such securities must get pledged with Nidhi, and they should not witness lows beyond the loan period or one year, whichever is earlier. In regard to a loan against Fixed Deposits (FD), the loan period should be below the FD unexpired period.

What is the rate of interest for loans granted by Nidhi companies?

The rate of interest against any loan granted by a Nidhi Company must not exceed 7.5% above the highest rate of interest offered by the Nidhi company on deposits. It will be calculated on reducing the balancing method.

Is RBI approval required for incorporation of Nidhi company?

Though a Nidhi company comes under the category of NBFC due to the nature of the activity, it does not require RBI approval. Nidhi companies generate funds through borrowing and lending activities. A Nidhi company must be incorporated as per the Nidhi Rules, 2014 created by the Central Government of India.

Conclusion

People set up Nidhi Companies to encourage its shareholders to put money away for rainy days. Prudent planning would help them become financially independent, allowing them to care for unexpected costs. A firm with a Nidhi registration number enjoys additional advantages. If you need help registering or any other process, you can contact TAXAJ at 8961228919 or visit www.taxaj.com.