On 31st July 2019, the Companies Amendment Act, 2019 was notified. The Companies Amendment Act, 2017 is still being implemented. Earlier, the Notification S.O. 2269 (E) dated 1st July 2019 appointed 15th August 2019 as the date on which the provisions of section 81 of the said Act shall come into force. Accordingly, on this 15th August 2019, Section 406 of the Companies Act, 2013 stand replaced by another old school enactment of the law. Brief Discussion on U-turns.
U-TURN OF THE NIDHI (SECTION)
Section 620A of the Companies Act, 1956 inserted by the Companies Amendment Act, 1960 in its sub-section (1) defines the “Nidhi” or “Mutual Benefit Society” as a company which the Central Government by notification in Official Gazette declares to be a Nidhi or Mutual Benefit Society, as the case may be.
The Companies Act, 2013 brought a significant change in the definition of 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.
We discussed the original definition of the Nidhi, earlier here.
Now the Companies Amendment Act, 2017 brings back earlier provision to Section 406(1) word by word:
In this section, “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.
What is its implication? No incorporation as Nidhi? No.
This is not a story of single U-turn. Newly introduced Rules bring back the 2013 definition. Effectively, there is change and no change. We will find out in this post later.
WHAT IS NIDHI?
RBI Communication DNBS (PD) CC. No. 12 /02.01/99-2000 dated 13th January 2000 is a good document. This suggests Nidhi as a “Mutual Benefit Financial Company (MBFC)” allowed to deal with their shareholders only, for the purpose of accepting deposits and making loans. Until notification as Nidhi, RBI called these companies as Mutual Benefit Companies (MBF).
RULE TURN OF THE NIDHI
I avoid a term repeated U-turn. The significant delay of implementation itself explains the executive thought. However, Executive in the Nidhi Amendment rules, 2019 respected the newly Parliamentary wisdom and kept earlier development intact.
Newly inserted Rule 3(da) picked definition before amendment and introduces a definition of Nidhi as under:
“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 the rules made by the Central Government for regulation of such class of companies.
NIDHI AMENDMENT RULES 2019
Apart from the definition, the Nidhi Amendment Rules 2019 brings a few significant changes in the Nidhi Rules with effect from 15th August 2019.
DECLARATION OF NIDHI
Newly introduced Rule 3A of Nidhi Rules, 2014 bring a harmonious solution in both definitions of the Nidhi. It permits fresh incorporation of companies as Nidhi and Declaration of existing companies as Nidhi.
1. EXISTING PUBLIC COMPANY AS NIDHI
A public company may make an application in Form NDH-4 for declaring it as Nidhi. The Central Government on being satisfied that the company meets the requirements under these rules shall notify the company as a Nidhi in the Official Gazette. [Rule 3A]
2. NIDHI TO BE INCORPORATED AS SUCH
A Nidhi incorporated under the Act shall file application Form NDH-4 within sixty days from the date of expiry of:
(a) one year from the date of its incorporation; or
(b) the period up to which extension of time has been granted by the Regional Director under sub-rule (3) of rule 5. [First Proviso Rule 3A]
This rule shall apply for the Nidhi incorporated on or after the commencement of the Nidhi (Amendment) Rules, 2019.
A Nidhi may also file Form NDH – 4 before completion of one year. [Second Proviso Rule 3A]
In case a company (Nidhi) does not comply with the requirements of this rule, it shall not be allowed to file Form SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment). [Third Proviso Rule 3A]
3. DECLARATION BY EXISTING NIDHI
Rule 23A Require a Declaration under Form NDH – 4 by Following two classes of companies:
- Every Nidhi incorporated as Nidhi under the Companies Act, 2013; and
- every other 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
These Companies shall also apply to got themselves declare as Nidhi within a period of one year from the date of its incorporation or within a period of six months from the date of commencement of Nidhi (Amendment) Rules, 2019, whichever is later.
The last date for application NHD – 4 shall be 14th February 2020.
4. RE-DECLARATION/UPDATION AS NIDHI
Rule 23B stipulates that every company referred in clause (a) of rule 2 shall file Form NDH – 4 updating its status. No Fee shall be charged in case of an application filed within 6 months from the date of incorporation of Nidhi (Amendment) Rules, 2019. The last date for application NHD – 4 without fee shall be 14th February 2020. Thereafter these companies may file NHD – 4 on payment of an applicable fee.
It seems to be an exercise of database management and compliance monitoring system. Every company to be operated or operating as Nidhi should file Form NHD – 4 either before 14th February 2020 or within one year of its incorporation as Nidhi under the Companies Act, 2013.
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Our Earlier Posts on NIDHI – Chapter XXVI
- NIDHI COMPANIES (Companies Act, 2013) January 21, 2014 Section 406
- EXEMPTION TO NIDHI COMPANIES June 9, 2015
- NIDHI COMPANIES September 4, 2014 Rule 2, 3, 5, 6, 7, 8,
- DEPOSITS BY NIDHI COMPANIES September 5, 2014 Rule 10, 11, 12, 13, 14,
- LOAN BY NIDHI COMPANIES September 8, 2014 Rule 15, 16,
- GOVERNANCE PROVISIONS FOR NIDHI COMPANIES September 9, 2014 Rule 17, 18, 19, 20,