All About Nidhi Company, Conditions, Restrictions and Procedure for Incorporation By CS Shaffy Mehta

Definition of Nidhi Company or Mutual Benefit Society

Nidhi or Mutual Benefit Society 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 rules of Chapter XXVI of Companies Rules, 2014.

Section 406 of Companies Act 2013 and Companies (Nidhi Companies) Rules, 2014 governs the Law and Procedure for Nidhi Company.

Conditions before Incorporation of Nidhi

To set up a Nidhi company one has to comply with the requirements mentioned below:

  • A company must be a “public company” first, before incorporating as a Nidhi Company.

  • To run a Nidhi Company, one should have a minimum paid-up equity share capital of INR 5 Lakhs.

  • At the time of incorporation, a company shall not issue any preference shares. In case a company has issued preference shares before the incorporation process. Then those shares must get redeemed as per the terms of the issue.

  • The objective of a Nidhi should be crystal clear. Primarily the object must be to foster the habit of thrift and savings among its members. Secondly, the company must receive and lend deposits to its members for mutual benefits.

  • Every company incorporated as a “Nidhi” shall have the last words as ‘Nidhi Limited at the end of its name.

  • The minimum number of members and directors at the time of Nidhi Company’s incorporation shall be 7 or more and 3 or more respectively.

Restrictions or Prohibitions

No Nidhi Company 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 Board of Directors of any company in any manner whatsoever or enter into any arrangement for the change of its management unless it has approved by a Special Resolution in its general meeting and also obtain the prior approval of Regional Director.

  • Carry on any business other than borrowing/lending in its own name.

(Nidhi which have adhered to all the provisions of Nidhi Rules may provide locker facilities on rent to its members on rental basis, but the rental income from such facilities not exceeds 20% of the gross income of the nidhi at any point of the time.)

  • 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 Scheme among the members of Nidhi carrying the words “For Private Circulation to Members only” will not be considered as an advertisement.)

  • pay any brokerage or incentive for mobilising deposits from members or for deployment of funds or for granting loans.

Documents Required for Incorporation of Nidhi Company

  1. Copy of PAN of Directors and Shareholders.

  2. Copy of ID Proof of Directors and Shareholders. (Voter ID, AADHAR, Driving License, Passport)

  3. Copy of Address Proof of Directors and Shareholders (Bank Statement/ Electricity bill/ Mobile bill/ Telephone Bill)

  4. Passport size Photographs.

  5. Property Ownership Documents of Registered office premises:

  • If property is owned: Electricity bill + Ownership Documents + NOC (if required)

  • If property is rented: Electricity bill + Rent Agreement + NOC

Apart from all these documents, some other required documents will be prepared by your Corporate Professional i.e. CA/CS for submission to ROC.

Process of Registration of Nidhi Company

Usually Nidhi Company Registration Process takes up to 45 days, Registration of a Nidhi Company consists the following steps:

  1. Minimum 7 Members and 3 Directors will be required to start the Incorporation of Nidhi Limited.

  2. Apply for DIN and DSC.

  3. After getting the DIN and DSC, file an application in web based form Spice+ Part A to MCA for reservation of name of Nidhi Company.

  4. Once the name is approved, Prepare Memorandum of association and Articles of Association according to Nidhi objects and all other required documents carefully.

  5. Apply for Incorporation in web based form Spice+ Part B

  6. Get Incorporation Certificate along with PAN, TAN and GST No (if Applied) of the Company.

E-Form INC-20A

After obtaining Certificate of Incorporation (COI) of the Company from the ROC, the Company required to file e-form INC-20A (Declaration for commencement of business) within 180 days of obtaining COI with the following attachment:

  1. Bank statement of company having all credit entries for receipt of subscription money received from all subscribers to MOA.
Post Incorporation requirements for a Nidhi Company

Here are the requirements that one has to fulfill after registration of a Nidhi Company:

  • Within a year of its incorporation, a Nidhi Company shall have at least 200 Members. Along with that, the company must have the Net Owned Funds of Rupees 10 Lakhs or more.

  • It shall have Unencumbered Term Deposit of not exceeding to 10% of its Outstanding Deposits.

  • The Net owned fund to deposits ratio should be more than 2:1.

  • If the company does not meet the above requirements within one year of its incorporation, then it shall seek an extension from RD in Form NDH-2 within 30 days of First Financial Year’s closure.

  • RD shall permit such orders as may consider appropriate within 30 days of receipt of Application for the extension.

  • If non-compliance of above points extends beyond second Financial Year, Nidhi shall not accept any further deposits from the commencement of second Financial Year till it complies with the provisions.

  • Nidhi Company shall file Form NDH-1(Return of Statutory Compliances), certified by CA/CS/CMA within 90 days of closure of First Financial Year.

  • Nidhi Company shall file Form NDH-3(Half Yearly Return), certified by CA/CS/CMA within 30 days of conclusion of each half year.

  • Every Director of the Nidhi shall be its member also.

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