Nidhi Companies, as defined in Section 406 of the companies Act 2013 was discussed earlier here.
“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. [Section 406 of the Companies Act 2013]
Law relating to Nidhi Companies is the Nidhi Rules 2014. These rules apply to –
- every company which had been declared as a Nidhi or Mutual Benefit Society under sub-section (1) of Section 620A of the Companies Act, 1956;
- every company functioning on the lines of a Nidhi company or Mutual Benefit Society but has either not applied for or has applied for and is awaiting notification to be a Nidhi or Mutual Benefit Society under sub – Section (1) of Section 620A of the Companies Act, 1956; and
- every company incorporated as a Nidhi pursuant to the provisions of Section 406 of the Act. [Rule 2 of the Nidhi Rules 2014]
Incorporation of Nidhi
A Nidhi 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 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. Nidhis which have adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty per cent of the gross income of the Nidhi at any point of time during a financial year. Every Company incorporated as a Nidhi shall have the last words “Nidhi Limited” as part of its name. [Rule 4 read with proviso to Rule 6(e)]
“Net Owned Funds” means the aggregate of paid up equity share capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet. The amount representing the proceeds of issue of preference shares shall not be included for calculating Net Owned Funds. [Rule 3(d)]
“Standard Asset” means the asset in respect of which no default in re-payment of principal or payment of interest has occurred or is perceived and which has neither shown signs of any problem relating to re-payment of principal sum or interest nor does it carry more than normal risk attached to the business. [Rule 3(e)]
“Non-Performing Asset” means a borrowal account in respect of which interest income or instalment of loan towards re payment of principal amount has remained unrealised for twelve months. [Rule 3(e)]
“Sub – Standard Asset” means a borrowal account which is a Non-performing asset. Reschedulement or renegotiation or rephasement of the loan instalment or interest payment shall not change the classification of an asset unless the borrowal account has satisfactorily performed for at least twelve months after such reschedulement or renegotiation or rephasement. [Rule 3(f)]
“Doubtful Asset” means a borrowal account which has remained a Non-performing asset for more than two years but less than three years. [Rule 3(b)]
“Loss Asset” means a borrowal account which has remained a Non-performing asset for more than three years or where in the opinion of the Board, a shortfall in the recovery of the loan account is expected because the documents executed may become invalid if subjected to legal process or for any other reason. [Rule 3(c)]
Every Nidhi shall, within a period of one year from the commencement of these rules, ensure that it has
- not less than two hundred members;
- Net Owned Funds of ten lakh rupees or more;
- unencumbered term deposits of not less than ten per cent of the outstanding deposits as specified in rule 14; and
- ratio of Net Owned Funds to deposits of not more than 1:20. [Rule 5(1)]
Within ninety 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 as provided in Companies (Registration Offices and Fees) Rules, 2014 with the Registrar duly certified by a company secretary in practice or a chartered accountant in practice or a cost accountant in practice. [Rule 5(2)]
If a Nidhi is not complying with clauses (a) or (d) of sub-rule (1) above, it shall within thirty days from the close of the first financial year, apply to the Regional Director in Form NDH – 2 along with fee specified in Companies (Registration Offices and Fees) Rules, 2014 for extension of time and the Regional Director may consider the application and pass orders within thirty days of receipt of the application. [Rule 5(3)]
If the failure to comply with sub-rule (1) of this rule extends beyond the second financial year, Nidhi shall not accept any further deposits from the commencement of the second financial year till it complies with the provisions contained in sub-rule (1), besides being liable for penal consequences as provided in the Act. [Rule 5(4)]
General restrictions or prohibitions
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 another company by purchase of securities or control the composition of the Board of Directors of any other company in any manner whatsoever or enter into any arrangement for the change of its management, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over such Nidhi.
- carry on any business other than the business of borrowing or lending in its own name. Nidhis which have adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty per cent of the gross income of the Nidhi at any point of time during a financial year.
- 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. Private circulation of the details of fixed deposit Schemes among the members of the Nidhi carrying the words ”for private circulation to members only” shall not be considered to be an advertisement for soliciting deposits.
- pay any brokerage or incentive for mobilising deposits from members or for deployment of funds or for granting loans. [Rule 6]
Share capital and allotment
Every Nidhi shall issue equity shares of the nominal value of not less than ten rupees each.
This requirement shall not apply to a company referred to in sub-rules (a) and (b) of rule 2.
No service charge shall be levied for issue of shares. Every Nidhi shall allot to each deposit holder at least a minimum of ten equity shares or shares equivalent to one hundred rupees. A savings account holder and a recurring deposit account holder shall hold at least one equity share of rupees ten. [Rule 7]
A Nidhi shall not admit a body corporate or trust as a member.
Except as otherwise permitted under these rules, every Nidhi shall ensure that its membership is not reduced to less than two hundred members at any time.
A minor shall not be admitted as a member of Nidhi. 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. [Rule 8]
Net owned funds
Every Nidhi shall maintain Net Owned Funds (excluding the proceeds of any preference share capital) of not less than ten lakh rupees or such higher amount as the Central Government may specify from time to time.
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