Nidhi Company Under Companies Act 2013 & Nidhi Rules 2014: By CS Shefali Bharti


Meaning of word “NIDHI”
 
The word Nidhi contains a meaning itself “wealth“. So under Companies Act, 2013 or in 1956 the companies which are incorporated as a Nidhi company shall carry the business of lending and depositing the amount from and to their members

Definition under Companies Act, 2013

Nidhi Company defined in Companies Act, 2013 under section 406.

In this section, Nidhi means which has been incorporated as Nidhi with the object of cultivating the habit of thrift and saving amongst its members receiving deposits from and lending to its members only for their mutual benefit and which complies such rules as are prescribed by the central government for regulation of such class of companies

(Point to be considered – Nidhi Company can take deposits and give loan to their members only, and have to follow the rules guidelines issued by the central government time to time)
Central government may by notification direct that any provisions of this act shall not apply, or shall apply with such exception, modification and adaptation as may be specified in that notification to any nidhi and nidhi of any class or description as may be specified in notification

(Point to be considered – central govt. may allow exemption or modification on the applicability of the notification on Nidhi companies)
Every notification proposed to be issued shall be laid before the house of parliament while is in session .for a total no of 30 days which may be comprises of one session or in two or more successive sessions any such acceptance and modification in the notification shall be approved by both the houses 
(Point to be considered – the notification shall be approved or modified only if the house of parliament is in session)

Meaning of Nidhi Company under Companies Act, 1956
Under section 620A of companies act 1956 means a company which   a central government by a notification in official gazette declare to be a Nidhi or a Mutual Benefit Society as the case may be.

(Point to be considered – under Companies Act, 1956 Nidhi Company is considered as a Nidhi Company only if it comes under the purview of the notification issued by a Central Government, but under Companies Act, 2013. Nidhi Company means a company which IS formed under Section 406 of Companies Act, 2013 and with the object to cultivating the habit of thrift and saving the money into their (members)
  • Process of formation of Nidhi company
The Requirements of formation of Nidhi Company:
  • Name of the company
  • 3 Directors
  • 7 Members
  • Minimum capital (10,00,000/- INR)
  • Registered office
Documents Required:
  • For the directors first need their DSC (Digital Signature Certificate)
  • For the application of DSC, colored photo graph, PAN Card and Residence Proof are mandatory
  • After availing a DSC, apply for the Director Identification Number pursuant to section 153 of companies act and rule 9(1) of the companies’ appointment and qualification of directors
  • For this, Form DIR-3 has to be filed and the above mentioned documents are required for the application of the Director Identification number too. Minimum 3 Directors are required.
Application for Name Approval and getting COI:
  • After getting the DIN of all the directors, application of Name Approval has to be filed with the registrar of companies in INC-1 pursuant to section 4(4) of Companies Act, 2013 and pursuant to rule 8 and 9 of Companies Incorporation Rules, 2014
  • Apply for 6 nameS according to the order of preference, the most suitable name will be approved by the registrar of companies.
  • After the approval of the Name, the MOA (memorandum of articles and the article of association) get drafted according to the rules mentioned in companies’ act 2013 and rules thereunder
  • Apply for the Registered Office under section 12(2) and (4) of the Companies Act, 2013 and rules 25 and 27 of the Companies Incorporation Rules, 2014 in Form INC-22
  • After complying with the requirements, MCA will issue the Certificate of Incorporation in for INC-11 and the company will be registered with MINISTRY OF CORPORATE AFFAIRS.
While incorporating a Nidhi company the point which should be considered  in mind are as follows:

Every Nidhi Company shall within a period of one year from the commencement of the rules ensure that it has:
  • NOT LESS THAN 200 MEMBERS
  • NET OWNED FUNDS OF 10,00,000 /-INR OR MORE
  • UNECUMBERED DEPOSITS OF NOT LESS THAN 10%OF THE OUTSTANDING DEPOSITS ARE SPECIFIED IN RULE 14:
  • RATIO OF NET OWNED FUNDS TO DEPOSITS OF NOT MORE THAN 1:20
Point to be considered – Within The Incorporation Of One Year From The Date Of Incorporation Of The Nidhi Company It Has To Comply The Above Mentioned Criteria’s If It Is Unable To Comply All Of Such Above Mentioned Conditions Then It May Ask For An Extension From The Central Government But If It Is Not Able To Comply Within Such Period Of Extension It Will Ceases To Be A Nidhi Company.

Compliances for Nidhi Company
  • Within 90 days from the close of the first financial year after its incorporation and where applicable , the second financial year  a nidhi company has to file a return of statutory return in a FORM –NDH-1 along with such fees as prescribed in (companies registration offices and fees) rules 2014  duly certified by the company secretary in practice or a chartered accountant in practice or cost accountant in practice
  • If Nidhi Company unable to comply with the condition above mentioned it shall within 30 days from the close of first financial year apply to regional director in form NDH-2 along with the fees specified in companies (registration and fees) rules 2014  for the extension time and the regional director may consider the application and pass orders within 30 days of receipts of application 
  • A nidhi company covered under rule 2 shall file half yearly return with the registrar in form NDH-3 along with such fees prescribed in companies (registration and office)rules 2014  within 30 days from the conclusion of  each half year duly certified by the company secretary in practice or chartered accountant in practice or cost accountant in practice
Point for consideration:

NDH-1 is for the annual compliance of return that Nidhi Company fulfill all of such conditions,

NDH -2 is for the extension to the regional director if the company is unable to comply such conditions.
NDH-3 for half yearly compliance which a nidhi company has to file with the registrar of companies
 
 
RESTRICTION OR A PROHIBITION ON NIDHI COMPANIES
  • A Nidhi Company shall not carry any chit fund, hire purchase finance leasing finance insurance or acquisition of securities issued by any Body corporate
  • Nidhi Company is not allowed to issue any kind of preference shares or any debt instruments by any name whatsoever.
  • Nidhi company is prohibited to open any current account with its members
  • Nidhi company is prohibited to do any compromise or arrangement or takeover unless it is passed by a Special Resolution in the General Meeting and also obtained the previous approval from the Regional Director having jurisdiction over such nidhi company
  • Carry on any business other than the business of borrowing or lending in its own name :
Nidhi Company which follows above rules can provide a locker facility to their members on rent and subject to the rental income from such facilities not exceeding 20% of gross income of the nidhi at any point of time during the financial year.
  • Nidhi company is prohibited to accept deposits or lend amount other than its members
  • Pledge any of the assets lodged by its members as security
  • Nidhi company is prohibited to take deposits or lend money to any Body corporate
  • These companies are prohibited to enter into any partnership arrangement in its borrowing or lending activities
  • Nidhi company prohibited to issue any advertisement in any form for soliciting deposits :
Private circulation of the details of fixed deposits schemes among the members of the nidhi carrying the words “ for private circulation of members only “ shall not be considered to be an advertisement for soliciting deposits.

Exemption Exceptions and Modification Applicable on Nidhi Company

S.No

Sections under
Companies Act, 2013

EXEMPTION , MODIFICATION

1

SECTION 20(2)

IN  of nidhi companies the document may be served  Only on members who hold shares of more than 1%of the total paid up capital     

2

Section 42 except section 42(1)

private placement

3

Section 47(1) (b) 

no company shall exercise voting rights on poll in

4

Section 62

Excess of 5%of total voting rights of equity shareholders issue of further share capital shall not apply on nidhi Companies

 

5

Section 67(1) (restriction on purchase of Own shares by the company)

company from a member on his ceasing to be a Depositor or borrower and it shall not be considered as Reduction of capital under section 66 of companies act 2013

 

 

6

Section 123(5)(declaration of dividend)

shall apply  subject to the modification that any dividend payable in cash may be paid by crediting the same to the account of member if the dividend is not claimed within 30 days from the date of declaration of the dividend

7.

Section 127(punishment for the failure

to distribute dividend                           

subject to the modification that  where the dividend amount is 100 rupees or less it shall sufficient compliance of the section if the dividend declaration is through the local language newspaper of wide circulation and announcement of the said declaration is displayed on the notice board of nidhi for last 3 months

8.

Section 136(1) (right of members to copies                                               

     Of audited financial statement    

this section apply with a modification that in the case of members who do not individually  or jointly hold shares of more than 1000 rupees in face value or more than 1% of the total paid up share capital whichever is less it shall be sufficient compliance for the provision of section if an intimation is sent by public notice in newspaper circulated in the district in which the registered office of the nidhi company is situated stating the date time and venue of annual general meeting be inspected at registered office of the company and the financial statement which enclosures are affixed in the board in the notice of the company and is entitled to vote either in person or through proxy

9.

Section 160(right of the persons other the

Retiring directors to stand for directorship                                             

Word 100000 is substituted with 10000

10

Section 185(loan to directors)

A company can give a loan to  their directors or their relatives in the capacity as the member of the company is allowed and must be disclosed in the annual return of the company

11

Section 197( overall maximum managerial

Remuneration in case of absence or inadequacy of

profits

This section with the modification that the remuneration of a directors  who is neither a managing director nor whole time director or manager for performing special services to the nidhi specified  in the article of association may be paid by way of monthly payment in the approval of the company in general meeting  and also to be the provision of section 197 :

Provided that no approval of the company in general meeting shall be required where

a)     A nidhi does  not have a managing director ,whole time director or a manager

b)    The remuneration does not exceed 10% of net profits of nidhi or 1500,000 whichever is lower  to all the directors

c)     The remuneration payable under clause (b) is approved by a special resolution passed in this behalf by the nidhi.

 

12.

Section 403(Fee for filing etc.)

This  section will be applicable  with modification that the filing fees in respect of every return of allotment under sub section (9) of section  42 shall be calculated at the rate of one rupee for every one hundred rupees or parts thereof  on the face value of the shares  included in the return but shall not exceed the amount of normal filing fee payable

 

 
Conclusion:

We can understand that Nidhi Company is a Company which can be incorporated Under Section 406 of Companies Act, 2013 with the object of cultivating the habit of thrift, saving a money. Many people have this prevailing myth that for the incorporation of Nidhi Company, RESERVE BANK OF INDIA approval is necessary but in real sense, there is no need to take any approval of RBI for the incorporation of Nidhi Company. 
                                                                                                                        
Author
CS Shefali Bharti
Practicing Company Secretary
csshefalibharti@gmail.com

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