Incorporation of Nidhi Company

Nidhi Company is governed by Section 406 of the Companies Act, 2013 and Company Nidhi Rules, 2014. The company is incorporated as a public company.

Incorporation of Nidhi Company

  1. Get DIN and DSC for minimum 3 directors.
  2. Get name approval in the form of public limited company with adding word Nidhi Limited in INC-1
  3. File documents with Registrar of Companies, for incorporation in INC-7, DIR-12 and INC-22.

Conditions to be ensured in the process of incorporation

  • Minimum paid up capital of Rs. 5,00,000 and 7 members
  • No preference shares shall be issued.
  • The object of the company shall be cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to its members only for their mutual benefits;

Post Incorporation Requirements

Every Nidhi shall, within a period of one year from the commencement of these rules, ensure that it has:

Minimum number of members should be 200 and ensure the membership is not reduced below 200 at any time.

Net owned funds shall be Rs.10,00,000/- or more

Ratio of net owned funds to deposit shall be not more than 1:20

Unencumbered term deposits of not less than 10% of the outstanding deposits as per Rule 14.

A Nidhi Company shall not admit a body corporate or trust as a member.

A minor shall not be admitted as a member of Nidhi Company.

General Restrictions on Nidhi Company

No nidhi shall carry on :

the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities by any body corporate.

Issue preference shares, debentures, or any debt instrument by any name or in any form whatsoever.

Open any current account with member.

Acquire another company by purchase of securities or Control the composition of the Board of Directors of any other company in any manner whatsoever. 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 anybody 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 mobilizing deposits from members or for deployment of funds or the granting loans.

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 Nidhi.

Deposits

The fixed deposits shall be accepted for a minimum period of six months and a maximum period of sixty months.

Recurring deposits shall be accepted for a minimum period of twelve months and a maximum period of sixty months.

The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees at any point of time and the rate of interest shall not exceed two per cent 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.

Loans

A Nidhi shall provide loans only to its members.  The loans given to a member shall be subject to the following limits:

  Rs.2,00,000/- where the total amount of deposits from members is less than Rs.2 crores;

  Rs.7,50,000/- where the total amount of deposits from its members more than Rs.2 crores but less than Rs.20 crores;

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

  Rs.15,00,000/- where the total amount of deposits from its members is more than Rs.50 crores.

A Nidhi shall give loans to its members only against the following securities, namely gold, silver and jewellery immovable property fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies.

Share Capital

Every Nidhi shall issue equity shares of the nominal value of not less than Rs.10/- each.

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 Rs.100/-.

A savings account holder and a recurring deposit account holder shall at least 10 equity shares of Rs.10

Acceptance of deposits

The fixed deposits shall be accepted for a minimum period of six months and a maximum period of sixty months.

Recurring deposits shall be accepted for a minimum period of twelve months and a maximum period of sixty months.

The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees at any point of time and the rate of interest shall not exceed two per cent 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.

Directors 

The Director shall be a member of Nidhi.

The Director of a Nidhi shall hold office for a term up to ten consecutive years on the Board of Nidhi.

The Director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a Director.

Dividend 

A Nidhi Company shall not declare dividend exceeding twenty five per cent. or such higher amount as may be specifically approved by the Regional Director for reasons to be recorded in writing and further subject to the following conditions, namely:-

(a) an equal amount is transferred to General Reserve

(b) there has been no default in repayment of matured deposits and interest and

(c) it has complied with all the rules as applicable to Nidhis’.

Auditor 

No Nidhi Company shall appoint or re-appoint an individual as auditor for more than one term of five consecutive years.

No Nidhi Company shall appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years;

Provided that an auditor (whether an individual or an audit firm) shall be eligible for subsequent appointment after the expiration of two years from the completion of his or its term.

Branches:

A Nidhi may open branches, only if it has earned net profits after tax continuously during the preceding three financial years. Nidhi may open up to three branches within the district.

No Nidhi shall open branches or collection centres or offices or deposit centres, or by whatever name called outside the State where its registered office is situated.

A Nidhi shall not close any branch unless it :-

Publishes an advertisement in a newspaper in vernacular language in the place where it carries on business at least thirty days prior to such closure, informing the public about such closure;

Gives an intimation to the Registrar within thirty days of such closure.

Returns to be filed

NDH -1 :- Return of Statutory Compliances. Within 90 days from the closure 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 prescribed with the Registrar duly certified by a Company Secretary in practice or a Chartered Accountant in practice or a Cost Accountant in practice.

NDH -2 :- Apply to the Regional Director for extension of time : If the company is not complying with the above it shall within90 days from the close of the first financial year, apply to the Regional Director in Form NDH -2 along with fee for extension of time and the Regional Director may consider the application and pass orders within 30 days of the receipt of the application.

NDH -3:- Half yearly return with the Registrar: In Form NDH-3 along with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 within thirty 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.

Note: RBI has exempted the notified Nidhi’s from the core provisions of the RBI Act and other directions applicable to NBFCs. As on date RBI does not have any specified regulatory framework for Nidhi’s. The provisions of Section 45-IA(Compulsory Registration with RBI), Section 45-IB(Maintenance of Liquid Assets), Section 45-IC(Creation of Reserve fund) have been exempted for Nidhi Companies.

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