Definitions of Nidhi
- Section 620A of Companies Act, 1956
“Nidhi” or “Mutual Benefit Society” means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be.
- Section 406 of Companies Act, 2013
“Nidhi” means 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, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies.
- Receiving deposits from, and lending to, its members only
(a) To receive money by way of Fixed, Recurring and Saving Deposits from members of the Company only.
(b) To grant loan to the members at favourable rate of interest on immovable properties, on deposits with Company and on gold, silver, jewellery or like nature.
- Provide locker facilities on rent to its members;
Rental income should not exceed 20% of the gross income at any point of time during a financial year
General Restrictions or Prohibitions (Rule 6)
- No Nidhi shall—
- carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate;
- issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;
- open any current account with its members;
- acquire or purchase securities of any other company or control the composition of the Board of Directors of any other company in any manner
- carry on any business other than the business of borrowing or lending in its own name.
- accept deposits from or lend to any person, other than its members;
- pledge any of the assets lodged by its members as security;
- take deposits from or lend money to any body corporate;
- enter into any partnership arrangement in its borrowing or lending activities;
- issue or cause to be issued any advertisement in any form for soliciting deposit:
- pay any brokerage or incentive for mobilising deposits from members or for deployment of funds or for granting loans.
- raise loans from banks or financial institutions or any other source for the purpose of advancing loans to members of Nidhi
Minimum Requirements (Rule 5)
Requirements for minimum number of members, net owned fund etc.—
- Every Nidhi shall, within a period of 1 year from the date of its incorporation”, ensure that it has
(a) not less than 200 members;
(b) Net Owned Funds of 10 lakh rupees or more;
(c) un-encumbered term deposits of not less than 10% of the outstanding deposits
(d) ratio of Net Owned Funds to deposits of not more than 1:20.
- Within 90 days from the close of the first financial year after its incorporation and where applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form NDH-1 along with such fee
- In case of non compliance, has to apply to Regional Director in form NDH-2 along with fee for extension of time
The provisions of this rule shall not be applicable for the companies incorporated as Nidhi
on or after the commencement of the Nidhi (Amendment) Rules, 2022 i.e 19th April, 2022.
Net Owned Funds (Rule 9)
- Every Nidhi shall maintain Net Owned Funds (excluding the proceeds of any preference share capital) of not less than 20 lakh rupees or such higher amount as the Central Government may specify from time to time.
Provided that every Nidhi existing as on the date of commencement of the Nidhi (Amendment)
Rules,2022 shall comply with this requirement within a period of 18 months from the date of such commencement
Declaration from Central Govt (Rule 3A, 3B and Rule 23A)
- 3A. Nidhi incorporated under the Act on or after the commencement of the Nidhi (Amendment) Rules, 2019 shall file Form NDH-4 within 60 days from the date of expiry of:-
(a) 1 year from the date of its incorporation; or (b) the period up to which extension of time has been granted by the Regional Director
- 23A. Every Nidhi incorporated under the Act, before the commencement of Nidhi (Amendment) Rules, 2019, shall also get itself declared as such in accordance with rule 3A within a period of 1 year from the date of its incorporation or within a period of 9 months from the date of commencement of Nidhi (Amendment) Rules, 2019, whichever is later:
- 3B: A public company shall apply, in Form NDH-4, within a period of 120 days of its incorporation for declaration as Nidhi, if:-
– it has not less than 200 members; and
– it has Net Owned Funds of 20 lakh rupees or more.
- The Central Government, shall examine the application filed in Form NDH-4 and convey its decision within a period of 45 days to the company; when no decision is taken it is deemed as approved.
- On being satisfied, the Central Government, shall notify in the Official Gazette, declaring it as a Nidhi or Mutual Benefit Society, as the case may be:
- Otherwise, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of allotment).
No company, which has not complied with the requirements of this rule on or after the commencement of the Nidhi (Amendment) Rules, 2022 shall raise any deposit from its members or provide any loan to its members from the date of such non-compliance, or from the date of the commencement of the above said rules, or the date of rejection of the application in Form NDH-4, whichever is later.
Incorporation and Incidental Matters (Rule 4)
- A Nidhi shall be a public company and shall have a minimum paid up equity share capital of 10 lakh rupees.
- On and after the commencement of the Act, no Nidhi shall issue preference shares.
- If preference shares had been issued by a Nidhi before the commencement of this Act, such preference shares shall be redeemed in accordance with the terms of issue of such shares.
- No Nidhi shall have any object in its Memorandum of Association other than 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.
- Every “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name.
Share Capital and Allotment (Rule 7)
- Every Nidhi shall issue fully paid up equity shares of the nominal value of not less than 10 rupees each:
Provided that this requirement shall not apply to a Nidhi company which was declared as such under Sec 602A of Companies Act,1956.
- No service charge shall be levied for issue of shares.
- Every Nidhi shall allot to each deposit holder at least a minimum of 10 equity shares or shares equivalent to 100 rupees:
Provided that a savings account holder and a recurring deposit account holder shall hold at least 1 equity share of rupees 10.
Membership (Rule 8)
- A Nidhi shall not admit a body corporate or trust as a member.
- Every Nidhi shall ensure that its membership is not reduced to less than 200 members at any time.
- A minor shall not be admitted as a member of Nidhi:
Provided that deposits may be accepted in the name of a minor, if they are made by the natural or legal guardian who is a member of Nidhi.
- A member shall not transfer more than 50% of his shareholding
Provided that the member shall retain the minimum number of shares required at all times
Acceptance of Deposits (Rule 11)
- A Nidhi shall not accept deposits exceeding 20 times of its Net Owned Funds (NOF) as per its last audited financial statements.
Deposits (Rule 13)
- The fixed deposits– minimum period of 6 months and a maximum of 60 months.
- Recurring deposits -minimum period of 12 months and a maximum of 60 months.
- In case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi.
- The maximum balance in a savings deposit account at any given time shall not exceed 1 lakh rupees at any point of time and the rate of interest shall not exceed 2% above the rate of interest payable on savings bank account by nationalised banks.
- A Nidhi may offer interest on fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the Reserve Bank of India which the Non-Banking Financial Companies can pay on their public deposits.A fixed deposit account or a recurring deposit account shall be foreclosed by the depositor subject to the following conditions, namely:—
(a) a Nidhi shall not repay any deposit within a period of three months from the date of its acceptance;
(b) where at the request of the depositor, a Nidhi 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;
(c) where at the request of the depositor, a Nidhi makes repayment of a deposit before the expiry of the period for which such deposit was accepted by Nidhi, the rate of interest payable by Nidhi on such deposit shall be reduced by two per cent from the rate which Nidhi would have ordinarily paid, had the deposit been accepted for the period for which such deposit had run:
Un-encumbered Term Deposits (Rule 14)
- Every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a
- Scheduled commercial bank (other than a co-operative bank or a regional rural bank), or
(b) post office deposits in its own name
an amount which shall not be less than 10% of the deposits outstanding at the close of business on the last working day of the second preceding month
Loans (Rule 15)
- A Nidhi shall provide loans only to its members.
- The loans given by a Nidhi to a member shall be subject to the following limits, namely:—
(a) 2 lakh rupees, where the total amount of deposits of such Nidhi from its members is less than 2 crore rupees;
(b) 7.5 lakh rupees, where the total amount of deposits of such Nidhi from its members is more than 2 crore rupees but less than twenty crore rupees;
(c) 12 lakh rupees, where the total amount of deposits of such Nidhi from its members is more than 20 crore rupees but less than fifty crore rupees; and
(d) 15 lakh rupees, where the total amount of deposits of such Nidhi from its members is more than 50 crore rupees:
Rate of Interest (Rule 16)
- The rate of interest to be charged on any loan given by a Nidhi shall not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method:
- Provided that Nidhi shall charge the same rate of interest on the borrowers in respect of the same class of loans and the rates of interest of all classes of loans shall be prominently displayed on the notice board at the registered office and each branch office of Nidhi.
Rules Relating to Directors (Rule 17)
- The Director shall be a member of Nidhi.
- The Director of a Nidhi shall hold office for a term up to 10 consecutive years on the Board of Nidhi.
- The Director shall be eligible for re-appointment only after the expiration of 2 years of ceasing to be a Director.
- Where the tenure of any Director in any case had already been extended by the Central Government, it shall terminate on expiry of such extended tenure.
- The person to be appointed as a Director shall comply with the requirements of sub-section (4) of Section 152 of the Act and shall not have been disqualified from appointment as provided in Section 164 of the Act.
Dividend (Rule 18)
- A Nidhi shall not declare dividend exceeding 25% in a financial year
Auditor (Rule 19)
- No Nidhi shall appoint or re-appoint an individual as auditor for more than 1 term of 5 consecutive years.
- No Nidhi shall appoint or re-appoint an audit firm as auditor for more than 2 terms of 5 consecutive years:
Prudential Norms (Rule 20)
- Income including interest or any other charges on non-performing assets shall be recognised only when it is actually realised and any such income recognised before the asset became non-performing and which remains unrealised in a year shall be reversed in the profit and loss account of the immediately succeeding year.
- In respect of mortgage loans, the classification of assets and the provisioning required shall be as under:
Provided that a Nidhi may make provision for exceeding the percentage specific herein.
Standard Asset : No provision
Sub-standard Asset : 10% of the aggregate outstanding amount
Doubtful Asset : 25% of the aggregate outstanding amount
Loss Asset : 100% of the aggregate outstanding amount
Filing of Half Yearly Return (Rule 21)
- Shall file half yearly return with the Registrar in Form NDH-3 along with such fee within 30 days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice or cost accountant in practice.
Auditor’s Certificate (Rule 20)
- The Auditor of the company shall furnish a certificate every year to the effect that the company has complied with all the provisions contained in the rules and such certificate shall be annexed to the audit report and in case of non-compliance, he shall specifically state the rules which have not been complied with
Power to Enforce Compliance (Rule 23)
- Every Nidhi incorporated under the Act, before the commencement of Nidhi (Amendment) Rules, 2019, shall also get itself declared by Central Government within a period of 1 year from the date of its incorporation or within a period of 9 months from the date of commencement of Nidhi (Amendment) Rules, 2019, whichever is later
Penalty for Non-Compliance (Rule 24)
In case of contravention of any of the provisions,
- The company and every officer of the company who is in default shall be punishable with fine which may extend to 5,000 rupees,
- and where the contravention is a continuing one, with a further fine which may extend to 500 rupees for every day after the first during which the contravention continues.
List of Forms
- Form NDH-1 :Return of Statutory Compliances
- Form NDH-2 :Application for extension of Time
- Form NDH-3 :Half Yearly Return
- Form NDH-4 :Form for filing application for declaration as Nidhi Company and for updation of status by Nidhis.