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Nidhi Companies in India are formed and regulated by Section 406 of the new Indian Companies Act of 2013, the Companies (Nidhi Companies) Rules of 2014, and the Chapter XXVI of the Companies Rules, 2014.Nidhi Company is a type of Non-Banking Financial Company (NBFC)
The main feature of Nidhi company is that Nidhi deals with deposits from and loans to its members/shareholders only,and works for the mutual benefits of its
members for develop the habits of saving. Accordingly, certain exemptions have been provided to these companies in respect of annual compliances and taxation.
Nidhi Company isn’t required to receive the license from Reserve Bank of India (RBI), hence it is easy to form Still RBI has powers to issue directives for them related to their deposit acceptance activities.
Nidhi companies are allowed to take a deposit from and lend to the members only. In other words, the funds contributed to a Nidhi company come only from its members (shareholders) and are to be used only by the members of the Nidhi Company.
The name “Nidhi” in Nidhi Company means “treasure”or fund which is for the mutual benefit of its members.It is registered as a public company and should have “Nidhi Limited” as the last words of its name. Moreover, because these Nidhis deal with their shareholder-members only, they have been exempted from the core provisions of the RBI Act and other directions applicable to NBFCs. Therefore, Nidhi Company is an ideal legal entity to take a deposit from and lend to a specific group of people.Nidhi Company is easy and economic to register as compare to NBFC.
Requirements for Nidhi Company Incorporation
Given below are the essential conditions that must be met with for registering or operating a Nidhi Company.
Requirement before Registration
*Minimum 7 shareholders.
*Minimum 3 directors.
*Minimum paid up equity share capital of Rs.5,00,000/-
*No Preference Shares shall be issued.
Requirement after Registration within 1 year of incorporation
*Not have less than two hundred members (shareholders);
*Net owned fund should be more than Rs. 10 lacss.
*The ratio for Net owned fund to Deposit should be more than 1:20.
*Unencumbered term deposits Must not less than ten per cent of the outstanding deposits.
"Net Owned Funds" means
The aggregate of paid up equity share capital
Add: free reserves
Less:reduced by accumulated losses and intangible assets appearing in the last
audited balance sheet.
Restrictions of Nidhi Company
*It can not do the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate;
*It can not issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;
*It can not carry on any business other than the business of borrowing or lending in its own name: Provided that Nidhis which have adhered to all the
provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty per cent of the gross income of the Nidhi
at any point of time during a financial year.
*It cannot accept deposits from or give loans to some external individual or corporation.
*It can not take deposits from or lend money to any body corporate;
*It can not enter into any partnership arrangement in its borrowing or lending activities;
*It can not advertise themselves to invite deposits,: 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 considered to be an advertisement for soliciting deposits.
*It can not Pay commission, fee or incentive for giving or taking deposits,
*Acquire another company by purchase of securities or control the composition of the Board of Directors of any other company in any manner whatsoever or 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 such Nidhi;
*It can not open any current account with its members;
*It can not Pledge any of the assets lodged by its members as security;
*It can not do Leasing Finance & Hire-Purchase finances,Lotteries,Insurance business.
*It is not entitled to perform vehicle finance business or micro finance business in India.
*A Nidhi Company is not empowered to issue preference shares, debentures, or some other debt instruments in any form.
Compliances for Nidhi Company
*NDH-1 Form: submit the list of members within 90 days from the end of every financial year.
*NDH-2 Form: Request MCA for an extension, in case it has not been able to add 200 members in its first financial year.
*NDH-3 Form: A half-yearly return is required to be filed in NDH-3 Form.
*Annual Returns with ROC: The Nidhi Company has to file its Annual Returns with MCA through Form MGT-7.
*Profit & Loss Statement and Balance sheet: The financial statements and other related documents are to be submitted, annually, in Form AOC-4.
*Income Tax Returns: Nidhi Company, like all other businesses, must file its Annual Income Tax Returns by 30th September of the following financial year.
*Audit: A Nidhi co. is require for audit by CA as per companies act 2013.
Key Features
as mentioned in Rule-6 of the Nidhi Rules of 2014 some key feature are noted
*Within 12 months of registration, the number of members must be Minimum 200.
*A maximum interest rate of 20% p.a. (calculated by the reducing balance method) can be charged.
*Operations limited to district level for the first 3 Years. After completion of 3 years, 3 offices can be set up within the same district. For expansion beyond district level , prior approval from the Regulator Director is required.
*It can only give loans against security. These securities may be Gold, Property, Fixed Deposits, Government Securities or Life Insurance Certificates.
*Unencumbered deposits (Deposits not offered as securities for any purpose) should not be less than 10 % of outstanding deposits.
*Filing of Annual Accounts, Audit, and Tax Returns, in the proper format, is compulsory.
*The maximum rate of interest that can be offered on saving deposit account shall not exceed 2% above the rate offered by Nationalised Banks.
*Nidhi Company can accept FD, RD & savings and can earn an interest of 12.5% currently.
*Rate of Interest that can be offered on Fixed and Recurring Deposit shall not exceed the maximum rate of interest prescribed by RBI for the NBFCs to offer on their deposits. The maximum limit of the rate of interest for NBFCs is also applicable to the Nidhi companies.
Advantage of Nidhi Company
*Easy Processing: Taking borrowing or lending the amount form Nidhi company is much easy then other like banks or Nbfc because the transaction take place between the known person or group or persons.
*Less Capital Requirement: As per Companies act 2013 minimum capital required for Nidhi co. is Rs. 5 lacs And, within 1-year, the capital has to be raised to at least Rs. 10 lacs.
*Micro Banking: Nidhi co.'s also provide banking services to the remote and rural areas.
*Interest Rate:The loans given to the members are at a lower rate of interest than the market rate. This brings greater savings to the members.
*Liability is Limited: Liability of Directors and shareholders of is limited.In case of any loss the members and directors have no impact form market.
Documents Required
Aadhar Card, Aadhar number is now a necessity for applying for any registration in India.
Address proof will be required for all directors and shareholders of the company to be incorporated.Residence proof documents like bank statement or electricity bill should not be more than 2 months old.
For Indian nationals, PAN is mandatory. For foreign nationals, apostilled or notarised copy of passport must be mandatorily submitted.
Photos of the members
All documents submitted must be valid and self attested.
REGISTERED OFFICE PROOF : Register office of all companies must be in India .If it is a Rented Property, Rent agreement and NOC from a landlord. If it is a Self-owned Property, Electricity bill or any other address proof.
Documents submitted must be valid and not more than 2 month old.
FAQS
How much branches a Nidhi company can open?
(1) A Nidhi may open branches, only if it has earned net profits after tax continuously during the preceding 3 F.Y.
(2) Subject to the provisions contained in sub-rule (1), a Nidhi may open up to 3 branches within the district.
(3) If a Nidhi proposes to open more than 3 branches within the district or any branch outside the district, it shall obtain the prior permission of the Regional Director and an intimation is to be given to the Registrar about opening of every branch within 30 days of such opening.
(4) 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.
(5) No Nidhi shall open branches or collection centres or offices or deposit centres, or by whatever name called unless financial statement and annual return (up to date) are filed with the Registrar.
(6) A Nidhi shall not close any branch unless it-
(a) publishes an advertisement in a newspaper in vernacular language in the place where it carries on business at least 30 days prior to such closure, informing the public about such closure;
(b) fixes a copy of such advertisement or a notice informing such closure of the branch on the notice board of Nidhi for a period of at least 30 days from the date on which advertisement was published under clause (a) ; and
(c) gives an intimation to the Registrar within 30 days of such closure.
What is the Maximum rate of interest to be charged on any loan given by a Nidhi?
The rate of interest to be charged on any loan given by a Nidhi shall not exceed 7.5 per cent. above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method:
Provided that Nidhi shall charge the same rate of interest on the borrowers in respect of the same class of loans and the rates of interest of all classes of loans shall be prominently displayed on the notice board at the registered office and each branch office of Nidhi.
What is General Restrictions or Prohibitions for Nidhi company?
No Nidhi shall-
(a) carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate;
(b) issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;
(c) open any current account with its members;
(d) acquire another company by purchase of securities or control the composition of the Board of Directors of any other company in any manner whatsoever or 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 such Nidhi;
Explanation.- For the purposes of this sub-rule, “control” shall have the same meaning assigned to it in clause (27) of section 2 of the Act;
(e) carry on any business other than the business of borrowing or lending in its own name:
Provided that Nidhis which have adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty per cent. of the gross income of the Nidhi at any point of time during a financial year.
(f) accept deposits from or lend to any person, other than its members;
(g) pledge any of the assets lodged by its members as security;
(h) take deposits from or lend money to any body corporate;
(i) enter into any partnership arrangement in its borrowing or lending activities;
(j) issue or cause to be issued any advertisement in any form 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 considered to be an advertisement for soliciting deposits.
(k) pay any brokerage or incentive for mobilising deposits from members or for deployment of funds or for granting loans.
Who can be member of Nidhi company?
(1) A Nidhi shall not admit a body corporate or trust as a member.
(2) Except as otherwise permitted under these rules, every Nidhi shall ensure that its membership is not reduced to less than two hundred members at any time.
(3) A minor shall not be admitted as a member of Nidhi:
Provided that deposits may be accepted in the name of a minor, if they are made by the natural or legal guardian who is a member of Nidhi.
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