Information about Nidhi Company In India

Nidhi Company in India is formed to provide a facility to borrow and lend money to its members. It inculcates the habit of saving among its members and works on the principle of mutual profit.

Nidhi Company isn’t needed to receive the license from the banking concern of the Reserve Bank of India (RBI), thus it’s simple to form. It is registered as a public company and should have mentioned “Nidhi Limited” as the last word of its name.

The Central Government made ‘Nidhi Rules, 2014’ for the purpose to give norms and rules that support the objectives of ‘Nidhi’ company in India. 

These rules shall be applicable to-

(a) Every company that had been declared as a Nidhi or Mutual Benefits Society under sub-section (1) of section 620A of the Companies Act, 1956;

(b) Every company engaged on the business lines of a Nidhi company or Mutual Benefits Society however has either not applied for or has applied for and is awaiting notification to be a Nidhi or Mutual Benefits Society under sub-section (1) of section 620A of the Companies Act, 1956; and

(c) Every company incorporated as a Nidhi is consistent with the provisions of section 406 of the Companies Act 2013.

Basics of Nidhi Company in India:

• Nidhi Company is additionally called a Mutual Benefit Company. It promotes the habit of saving and effective utilization of all that funds among its members.

• Anybody can register a Nidhi Company In India; As there are fewer compliances and legal formalities that must be taken care of.

• Apart from its members, A Nidhi Company cannot deal with anybody else who isn’t a member of the corporation.

Share capital and allotment Rule 7 of Nidhi Rules, 2014

(1) Every Nidhi shall issue fully paid-up equity shares of the nominal value of not less than 10 rupees each

(2) No charge shall be levied for the issue of shares.

(3) Every Nidhi shall allot to every Deposit holder 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 a minimum of one equity share of rupees 10/-.

Director of the Nidhi company in India: Rule 17 of Nidhi Rules, 2014

• The director is always a member of Nidhi.

• He shall hold office for a term of up to ten consecutive years on the Board. He shall be eligible for re-appointment only after the expiration of two 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 the ending of such extended tenure.

• The person to be appointed as a Director shall go with the necessities of Section 152(4) of the Act and shall not be disqualified as provided in Section 164 of the Act.

General Restrictions For Nidhi Company in India:

  A Nidhi Company shall not:

(1) Carry on the business of chit fund, hire purchase finance, leasing finance, insurance, or acquisition of securities issued by anybody corporate;

(2) Issue preference shares, debentures, or the debt instrument by any name or in any type whatsoever;

(3) Open any current account including its members;

(4) Acquire or purchase securities of the other company or control the composition of the Board of Directors of the other company in any manner whatever or enter into any arrangement for the modification of its management;

(5) Carry on any business apart from the business of borrowing or lending in its name:

(6) Settle for deposits from or lend to somebody, apart from its members;

(7) pledge any of the assets lodged by its members to any other entity as security;

(8) take deposits from or Loan money to anybody corporate;

(9) enter into any partnership procedure in its ending activities;

(9) Issue or cause to be issued any advertising in any type for soliciting deposit:

Provided that 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 thought-about to be an advertisement for soliciting deposits.

(10) Pay any brokerage or incentive for mobilizing deposits from members or for the deployment of funds or for granting loans.

(11) Raise loans from banks or financial institutions or another source for the aim of advancing loans to members of Nidhi.

Regulatory framework on Nidhi Company in India:

Nidhi Companies is registered under section 406 of the Companies Act, 2013, and Nidhi Companies are regulated by the Ministry of Corporate Affairs or MCA. Nidhi Companies are controlled by Nidhi Rules, 2014. they’re incorporated as a Public Ltd. and so, they need to abide by 2 sets of rules, about the Public limited company as per the Companies Act, 2013 and Nidhi rules, 2014. There’s no need to seek  RBI approval to register the corporation, as RBI has specifically exempted this class of NBFC in India.

Every Nidhi shall be within one year from the date of its incorporation

(a) not less than two hundred members;

(b) Net Owned Funds of Rs. 20 Lakh rupees or more;

(c) unencumbered term deposits of not less than 10 percent of the outstanding deposits as per rule 14; and

(d) the ratio of Net Owned Funds to deposits of not more than 1:20.

Minimum Nidhi Company Registration Requirement:

• Minimum seven shareholders

• Minimum three administrators

• Minimum Capital of Rs. 10 Lakhs

• DIN for all directors

• Minimum number of two hundred Shareholders

• Net owned Fund shall not be less than Rupees Twenty Lakhs

• Unencumbered deposits of not less than  10% of the outstanding deposits

• Net owned funds to deposits ratio should be greater than 1:20

Deposits:

A Company shall accept deposits solely in compliance with the subsequent conditions:

1. Shall not accept deposits exceeding twenty times its Net owned fund.

2. Fixed Deposits shall be accepted for a period of a minimum of 6 months to almost 60 months.

3. Recurring Deposits shall be accepted for a period of a minimum of twelve months to most sixty months.

4.  In the case of recurring deposits concerning mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi.

Unnumbered Term Deposits: 

Every Nidhi Company in India shall invest in unencumbered term deposits with a scheduled commercial Bank (other than a cooperative bank or a regional rural bank), or post office deposits in its name an amount that shall not be less than 10 percent of the deposits outstanding at the close of business on the last operating day of the second preceding month.

Further, just in case of any unforeseen emergency, the limit of 10% is often withdrawn only when the previous approval of the Regional Director is taken.

Benefits of Nidhi Company:

1. Simple Formation:

• The formation of the Nidhi Company is an extremely simple method.

• It needs seven members out of which three members would be the directors.

• It doesn’t need to get a license from the RBI.

• The Nidhi company takes hardly 10-15 days to get registered.

• Also no. of documents needed for registration is extremely less.

Capital required for registration

• The capital demand for the registration of Nidhi company is incredibly less compared to alternative styles of nondepository financial institutions.

• The minimum capital demand for the registration of Nidhi company is 10,00,000 Rs. Only

2. Limited RBI Regulations:

• Nidhi Company in India though it’s a finance company and falls under the class of NBFC, doesn’t need the approval of RBI.

• Nidhi Company is exempted from main provisions otherwise applicable to NBFC in the Republic of India.

• These Companies follow Nidhi rules 2014 issued by the center in respect of the activity and dealing of the corporate.

• There would be the minimum intervention of RBI

3. No outsider intervention:

• The Nidhi Companies are formed, managed, and provide benefits solely to their members.

• The outsider won’t be allowed to intervene in Nidhi in any way. Be it operating the Nidhi companies or depositing money with them or perhaps availing credit from Nidhi.

• There would be no external intervention in the management additionally.

Nidhi Company Registration Document: 

1. Proof of the registered place of business (Ownership documents/ rent or lease agreement)

2. No Objection Certificate (signed by the owner/ landlord)

3. Identity proofs

4. Address proofs of the members

5. Photos of the members

6. PAN card copies of the members

7. Digital Signature (DSC)

8. Person should hold Director Identification Number (DIN) 

9. Make a Memorandum of Association of the company (MoA) as per Nidhi Object

10. Make Articles of Association of the company (AoA) as per Nidhi Rules.

The Nidhi Company Registration Process is given below:

Steps involved in Nidhi Company Registration

Step-1. Application of Digital signature (DSC) & Director Identification Number (DIN) :

First of all, the partners got to apply for Digital signature and DIN for Nidhi’s company. A digital signature is an online signature used for filing for company registration and Directors Identification Number (DIN)  is issued by the Ministry of corporate affairs. If the directors already got DSC and DIN, then there’s no need to be compelled to perform this step.

Step-2. File for Approval of name:

The Applicant can give 2 completely different names for Nidhi company in India to the Ministry of Corporate Affairs, if the Names that you provided are unique, MCA will approve the same.

Step-3. Memorandum of Association & Article of Association:

When you get the approval of the name, you need to draft a Memorandum of association and Articles of Associate, As Both MOA and AOA are filed with the MCA with the subscription statement the article of the Nidhi company should be encouraging the habit of saving and making reserve funds amongst its members.

Step-4 File form SPICe32 After the name approval, 

      File form SPICe 32 with the following attachments on the MCA portal

• Memorandum of Association Articles of Association 

• PAN Card of subscribers 

• Id Proof of First Directors 

• Address Proof of First Directors 

• Address Proof of Registered Office (Rent Agreement/Sale Deed) 

• Latest Utility Bill of Registered Office (Electricity/Telephone/Gas) 

• NOC of Owner of Registered Office Consent and 

• Declaration from the first Director in form DIR-2 

• Self Declaration from First Directors and Subscribers in form INC-9

Step-5. Get incorporation certificate:

It typically takes 10- 15 days for a Nidhi company in India to get the incorporation certificate. Once you receive the Incorporation certification, it’ll serve as proof that Nidhi Company has been created and registered and It additionally contains your CIN number.

Step-6. PAN, TAN, and GST are registered with the incorporation:

After that applicant should open a current bank account in the name of Nidhi Company.

Can a Nidhi Company have branches?

Yes, a Nidhi Company is allowed to possess branches. However, to be eligible to open branches, the corporate should  follow the subsequent prescribed provisions:

• The Nidhi Company is allowed to open branches provided that it’s earned net profits after deducting tax, for the preceding three financial years continuously.

• A Nidhi Company in India is allowed to open up to three branches only. All these three branches have to be compelled to be opened within the same district.

• A Nidhi Company has to seek and obtain permission from the Regional Director just in case it desires to open more than three branches. These branches are within the same district or in a separate district.

• The registrar should be intimated within 30 days of opening each branch.

Exemptions and privileges to Nidhi Companies under the Companies Act, 2013:

• Accordingly, certain provisions of the Companies Act, 2013 shall not apply to the Nidhi Company and Nidhi would be exempted from that provisions.

• Service of documents to Nidhi members is also done by sending them to him by post or registered mail or by speed post or by courier or by delivering the same at his office or by such electronic or different mode as may be prescribed.

• A Nidhi Company in India is free to create a private placement to any number of persons and it shall not be deemed to be an offer to the general public.

Loans:

A Nidhi shall give loans solely to its members. The loans given to a member shall be subject to the subsequent limits:

• 2,00,000/- wherever the entire amount of deposits from members is less than Rs.2 crores;

• 7,50,000/- wherever the entire amount of deposits from its members more than Rs.2 crores  but less than Rs.20 crores;

• 12,00,000/- wherever the entire amount of deposits from its members is more than Rs.25 crores  but less than Rs.50 crores;

• 15,00,000/- wherever the entire amount of deposits from its members is more than Rs.50 crores.

Can Unsecured Loans Given by Nidhi Company in India?

No, a Nidhi company cannot give any unsecured loans to its members. Its entire loan must be secured by way of security mentioned below:

1. Gold, Silver, and Jewelry

Nidhi can provide a loan against gold, which is conjointly known as a “Gold Loan”. Gold Loans are subject to certain rules and regulations as per Nidhi Rules, 2014. Here are the subsequent conditions:

• The maximum repayment period shall be twelve months.

2. Fixed / immovable Property

Nidhi’s business is allowed to provide secured loans against property. There are certain conditions for this kind of loan that you simply should follow:

• The repayment period of the loan shall not exceed seven years.

• The maximum finance is up to 50%.

• Also, this kind of loan cannot exceed 50% of the total loan amount.

3. Loan against Fixed Deposit and Other Money Deposits

This type of loan is additionally advanced by Nidhi Company in India. A Nidhi company can provide loans against FD and also even against its deposits kept by it. Further, this kind of loan is additionally subject to certain restrictions:

• Such Securities duly discharged shall be pledged with Nidhi and the maturity date of that securities shall not fall beyond the loan period or 1 year whichever is earlier.

• The maximum finance under this case will be up to the worth of a Fixed Deposit under Nidhi Company.

4. Loan provided against National Savings Certificates (NSC) or Government Bonds

Nidhi company in India can advance loans against these securities.

These corporations aren’t allowed to provide any loans which are mentioned below:

• Any kind of unsecured loan: Nidhi can’t grant any loan, no matter the name referred to as that is unsecured. Additionally, specifically, it can’t grant loans stated as below.

• Micro Finance – Small Credit: Microfinance business is very famous, particularly in rural and semi-urban areas. However, no company is allowed to do business in microfinance, apart from the registered NBFC.

• Vehicle Finance: The business of vehicle finance is additionally not allowed. The business of vehicle finance is additionally allowed only to a registered NBFC. These are all special classes and need a net worth of at least Rs.10 crores.

• Personal Loan: A Nidhi Company isn’t allowed to provide money as a Personal loan. The loan has got to be against any security as prescribed above.

• Hire Purchase: A Nidhi company can’t undertake a hire purchase business

What is the maximum rate of interest in Nidhi Company?

• The rate of interest on loans in Nidhi shall not exceed more than 7.5% of the highest rate offered on deposits by Nidhi Company. It should be calculated on the reducing balance method. The rate of interest in the same category of loan should be the same for all the members

Annual Compliances and Returns to be filed by Nidhi Company:

1. Within 90 days from the closure of the first financial year after its incorporation and wherever applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form NDH – 1 along with such fee as prescribed with the Registrar duly certified by a Company Secretary in practice or a Chartered Accountant in practice or Cost Accountant in Practice.

2. If the company isn’t complying with the above then it shall within 90 days from the close of the first financial year, apply to the Regional Director in Form NDH -2 with ROC fee for extension of time and;

3. Every Nidhi Company in India is required to File Form NDH-3 with ROC within thirty days from the close of each half year. I.e. 30th April for the half year ending on 31st March and 30th Oct for the half year ending on 30th September. Form NDH-3 contains the details of the Number of Members admitted during the half year, the number of members who ceased to be members and the total number of members as of the date, the Loan granted by Nidhi company in India against the particular security and Deposits accepted by the Nidhi company type its members. Form NDH-3 should be certified by CS or CA, CMA in practice.

4. As per Rule 3A of Nidhi (Amendments) Rules, 2019 and On and after the commencement of Nidhi (Amendment) Rules, 2022, a public company desirous to be declared as a Nidhi shall apply, in Form NDH-4, within 120 days of its incorporation for declaration as Nidhi, if it fulfills the subsequent conditions, namely: –

(I) it has not less than Two hundred members; and

(II) it has Net Owned Funds of 20 Lakh Rupees or more.

The corporate shall additionally attach, along with Form NDH-4, the declaration with relevant fulfillment of fit and proper criteria, as per this sub-rule, by all the promoters and directors of the company.

(4) The Central Government, shall examine the application filed in Form NDH-4 and convey its decision within forty-five days to the company the choice of the Central Government approving the application, shall be filed by the corporate with the Registrar along with Form 20A required under section 10A of the Act:

Event-Based Compliances of a Nidhi Company:

Following are some important Event-Based Compliances of a Nidhi Company that should be followed once there’s any modification in the Nidhi Company’s structure that are non-periodical:

1. Any modification in the Company’s name;

2. Removal of Director or Resignation/Appointment of a Director;

3. Transfer of Share;

4. Appointment of the KMP (Key social control Personnel);

5. increased the authorized capital of the Company;

6. Removal of Auditor or Resignation/Appointment of Auditor;

7. Any changes in the Company’s objective;

8. Change in Registered Office Address;

9. Any other changes that are event-based.

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