Compliance under Nidhi Company
/ Nidhi Company

Compliance under Nidhi Company

A Nidhi company is a kind of enterprise in the Indian non-banking finance sector which is acknowledged under section 406 of the Companies Act, 2013. Their basic business is borrowing and lending money between its members. They are also popular as everlasting fund, benefit funds, mutual benefit funds, and mutual benefit corporation. Nidhi Company is shaped to upsurge the habit of savings only for mutual benefit among its member only. Nidhi Company does not necessitate holding a license of Reserve Bank of India.

In order to incorporate Nidhi Company in Indian region, you have to incorporate it as a limited company under the Company Act 2013. At least of 3 directors and 7 shareholders are required to start a Nidhi Company incorporation procedure. After being incorporated as a Nidhi Company, it shall satisfy with all the provisions and restrictions applicable under Companies Act 2013 as well as Nidhi Rule 2014.

What to do after incorporation as Nidhi Company
There is a requirement to open a current account with any scheduled bank in the name of the Company and file Form 20A consequently before beginning of its business operations.

Within a period of one year, certify that it has:

  1. Not less than two hundred members;
  2. Net owned funds of rupees ten lakh or more;
  3. Unencumbered term deposits of not less than ten per cent of the outstanding deposits; and
  4. Ratio of net owned funds to deposits of not more than 1:2.

In the event the Company is not consenting with (a) or (d) above, it shall within thirty days from the closure of the first financial year, apply to the regional director in Form NDH-2 for extension of time. For the cause of identification, take proof of identity and address as prescribed (not older than two months) from depositors and that provided document should not be older than months. Observing to prudential norms as prescribed under Rule 20 of the Nidhi Rules, 2014.

What not to do after incorporation as Nidhi Company

  • To be incorporated as “Public Limited Company” the requirement of minimum paid-up equity share capital is Rupees 5 Lakhs.
  • Ensure that there should not be any issue of preference share. If allotted before, the same to be redeemed as per the terms of the issue mentioned in the prospectus.
  • It is mandatory to use “Nidhi Limited” as part of the name.
  • Any minor cannot become member of a NIDHI Company.
  • A body corporate or trust cannot be admitted as member of Nidhi.
  • Cannot accept deposit more than twenty percent of net owned funds.
  • Nidhi cannot open branches if it has not made any profit after tax for uninterruptedly in three preceding financial years.
  • Director should be member of Nidhi and can hold office up to term to ten consecutive years
  • The holding of auditor is five consecutive years. Annual certificate from statutory auditors on compliance is a mandatory.
  • The rate of interest on loan shall not exceed 7.5% above the highest rate of interest catered on deposits.
  • The period of holding fixed deposit is minimum 6 months and the maximum of 60 months.
  • The period of recurring deposits is minimum 12 months and maximum of 60 months.

Acceptance of deposits by Nidhi Companies

  • It shall not accept deposits exceeding twenty times of its net owned funds as per its last audited financial statements.
  • The Nidhi Company shall be permitted to accept deposits with the following timelines:
    • Fixed deposits- 6 to 60 months
    • Recurring deposits- 12-60 months
  • Recurring deposits bearing to mortgage loans: maximum period shall correspond to the repayment period of loans granted.

Share capital and allotment by Nidhi Companies
Each deposit holder shall allot to at least a minimum of ten equity shares or shares corresponding to one hundred rupees. The holder of saving account and a holder of recurring deposit account shall hold at least one equity share of rupees ten.

Loan by Nidhi Company
Loan shall be furnished only to members of the Company and further, subject to the following limits:

Total amount of deposits Loan amount (lacs)
< 2 crores 2
2 crores > 20 crores 7.50
20 crores > 50 crores 12
>50 crores 15

In case the Company has not made profits constantly in the three preceding years, it shall not make fresh loans exceeding 50% of the previously mentioned amount. The loan shall be given only against the following, namely:

  • Gold, silver and jewellery;
  • Immovable property, and
  • Insurance policies, National savings certificates, fixed deposit receipts and other Government securities.

Rate of interest

  • The rate of interest to be charged on any loan given by a Nidhi shall not be increased 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method.
  • The maximum interest on savings account shall not be increased 2% above of what is being by the nationalized banks.
  • The rate of interest being offered on fixed and recurring deposits shall not exceed the rate of interest prescribed by the Reserve Bank of India which the Non-Banking Financial Companies can pay on their public deposits.           

Opening of branch by Nidhi companies

  • It may open branches, within the state, only if it has earned net profits after tax consistently during the preceding three years.
  • No Nidhi shall open branches outside the State where its registered office is situated.
  • No Nidhi shall open branches unless financial statement and annual return (up to date) are filed with the registrar.
  • A Nidhi shall not close any branch unless it produced advertisement, fixes a copy of such advertisement on the notice board of Nidhi Company and gives notice of such closure to the Registrar thereof.

Filing of annual forms with ROC by Nidhi Company

  • Form NDH-1 (Return of Statutory compliances) within 90 from the close of financial year;
  • Form NDH-3 (Half-Yearly Return) within 30 days from the conclusion of each half year;
  • Form AOC-4 (Return for Financial Statements) within 30 days of annual general meeting;
  • Form MGT-7 (Annual Return) within 60 days of annual general meeting.

Directors of Nidhi Companies
The director shall be the member of Nidhi and shall hold office for a term up to ten consecutive years on the board of Nidhi.

We assist our clients in dealing with the compliances related to company incorporation, business setup, ROC filings, winding up of the company etc. If you have any questions or would like to know more about compliances under Nidhi Company, kindly contact us.