Nidhi is a special class of companies under the Companies Act 2013. Sub – Section (1) of Section 406 define Nidhi. “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.

A Nidhi must be –

  • A company,
  • Incorporated as a Nidhi,
  • With the object of cultivating the habit of thrift and saving amongst its members,
  • Receiving deposit from and lending to its members only,
  • For their mutual benefit,
  • Complies with such rules.

The term company defined in clause (20) of Section 2 of the Companies Act, as a company incorporated under this Act or under any previous company law. A company under this Act may be formed in accordance with Section 3 and incorporated in accordance with section 7 of the Act. Sub – Rule (1) of Rule 4 of the Nidhi Rules 2014 says, 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.

The essential condition from the definition of Nidhi is, a Nidhi shall be incorporated as a Nidhi. To be incorporated as Nidhi, a company shall fulfil requirements of Section 406 and for that matter of Rule 4 of the Nidhi Rules 2014. A Nidhi shall be incorporated with the object of cultivating the habit of thrift and saving amongst its members and receiving deposits form and lending to its members only for their mutual benefit. Sub – rule (4) of Rule 4 repeat the command of Section 406 but with an exception. 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. This is another question, whether a Rule may relax a command of a provision of an Act. Certainly, the intention of executive is just to clarify that providing locker facilities on rent to its members will not be deemed to be a violation of the command of Section 406.

To be incorporated as Nidhi, sub – rule (5) of Rule 4 requires that every company incorporated as a “Nidhi” shall have the last words “Nidhi Limited” as a part of its name. This rule may be read with provision of clause (a) of Section 4(1) of the Act, which state that the memorandum of a company shall state the name of the company with the last word “Limited” in the case of a public limited company. Further rule, 8(2)(b)(ii) of the companies (Incorporation) Rules 2014 state that the name of a company shall be considered as undesirable, if it is not in  it is not in consonance with the principal objects of the company as set out in the memorandum of association. Every name need not be necessarily indicative of the objects of the company, but when there is some indication of objects in the name, it shall be in conformity with the objects mentioned in the memorandum. Where the proposed name include words such as ‘Insurance’, ‘Bank’, ‘Stock Exchange’, ‘Venture Capital’, ‘Asset Management’, ‘Nidhi’, ‘Mutual fund’ etc., the name of a company shall be considered as undesirable, in term of Rule 8(2)(b)(xiii) of the Companies (Incorporation) Rules 2014 unless a declaration is submitted by the applicant that the requirements mandated by the respective regulator, such as IRDA, RBI, SEBI, MCA etc. have been complied with by the applicant. For the purpose of this sub rule, MCA is regulator in respect of a Nidhi.

An essential restriction placed on Nidhi under sub – rule (2) and (3) of Rule 4 is on issue of preference shares. According to these rules, 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.

After incorporation as Nidhi, according to Rule 5 of Nidhi Rules 2014 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)]

The net owned fund has been defined in clause (d) of Rule 3 as “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. Issue of preference shares has already prohibited under these Rules for a Nidhi. For a Nidhi incorporated under any previous law, the amount representing the proceeds of issue of preference shares shall not be included for calculating Net Owned Funds.

Rule 5(2) cast a duty on Nidhi that 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 with the Registrar duly certified by a company secretary in practice or a chartered accountant in practice or a cost accountant in practice.

If a Nidhi is not complying with clauses (a) or (d) of sub-rule 5(1), it shall within thirty days from the close of the first financial year, apply according to Rule 5(3), 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.

If the failure to comply with sub-rule (1) of this rule extends beyond the second financial year, Rule 5(4) mandate that 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.

General restrictions or prohibitions

Rule 6 list out 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.

Share capital and allotment

According to Rule 7, 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 2of the Nidhi rules 2014. 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 8 restrict membership of a Nidhi to individuals. A Nidhi shall not admit a body corporate or trust as a member. A minor shall also 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.  A minor may not be a member but a depositor if its guardian is member of Nidhi.

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.


Nidhi is a special class of company with certain restrictions related to its object, membership, share capital, net owned fund and deposit. It must have word Nidhi Limited in its name. This must be incorporated under the Nidhi Rules 2014

[Slightly different version of this post was published last year on which is a venture of Corporate Professional  Corporate Professionals eSolutions Pvt Ltd (CPES), the IT arm of the Corporate Professionals Group. Original post is available here.]

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  1. Dr. G K Varshney

    Dear Mohan, you always involve your heart, soul and mind while preparing a writ-up for your website. I think you leave no stone upturned to make it ‘perfect’ from all angles: contents, source, authenticity, and tenor. Keep up your commendable efforts to spread good knowledge of law among its aspirants. You are doing a great service to the society. I wish you all the best. God bless you.

    Liked by 1 person



  3. Hello mai ek mutual benefit company me work karts noon sir mujeh information chahiye kya is company ko bank I license milsakta hai sir plieas ap hamko is cheek me bare me bataiye thank you


  4. Good Mrng sir,
    I have a query w.r.t. half yearly return of nidhi co., does the half year return which is mentioned under rule 21 of the above mentioned rules is starts from the year of incorporation for eg. date of incorporation is 15th may 2016 then we have to submit its first half year return .i.e. for the period upto 30 sept.2016 in NDH-3 in NDH-1 we need to submit it compliances made since incorporation after closing of the first f.y.

    Thanks in advance

    Liked by 1 person

  5. Sorry sir, for inconvenience.
    The query is do we need to submit half year return in NDH-3 from the first half year of completion (meaning thereby is a co. vich is incorporated in one month back and the first half is sooner completed on 30 sept.. what is the compliance in this regard w.r.t. half year return and does this NDH-3 will go as an attachment to GNL-2 with MCA)


  6. sir mene nidhi copnni shuru ki he sir jankhari chhiye


  7. Sir , I want to know the process of wind up of nidhi company




  9. Sir can you please tell me the detail process for incorporation of Nidhi Company. Whose in principle approval is needed and what is the process of taking the same.


  10. Sir
    the query is
    According to rule 4 of Nidhi Rules,2014 ; a Nidhi company shall be a public company and must have a mimimum paid up equity share capital of 5 lakh rupees. But Companies (amendment)act,2015 has ommitted the requirement for minimum paidup share capital for private and public companies. So considering that Nidhi co. shall be a public company, whether omission of minimum paidup share capital will be applicable to nidhi co. or it will continue to have min.5 lakh as its paidup equity share capital ???


  11. सर मैं माइक्रो फाइनेंस कम्प्नी रजिस्टर्ड कराना चाह्ता हू एन बी एफ सी हेतु 200 लाख किसी बैंक एकाउंट मे दिखाने होंगे आर बी आइ को या फिर शेयर धारको की आइ टी आर से हि कार्य हो जायेगा
    धन्य्वाद सहित


  12. Sir i want to know that can a Nidhi do Vehicle finance to its members..
    And Nidhi can take Bank loan or not?


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