Nidhi Companies in India are created for cultivating the habit of thrift and savings amongst its members. Nidhi companies are allowed to borrow from its members and lend to its members. Therefore, the funds contributed for a Nidhi company are only from its members (shareholders). Nidhi companies are minute when compared to the banking sector and is mainly used to cultivate a savings amongst a group of people. To learn more about starting a Nidhi Company in India, you can also refer to the article “Starting a Nidhi Company” found in the IndiaFilings Learning Center. In this article, we mainly look at the nuances for registration of a Nidhi Company in India.
Nidhi Companies are registered Limited Companies involved in taking deposits and lending to its members. The activities of a Nidhi Company does fall under the purview of Reserve Bank of India, as it is similar to a NBFC. However, as Nidhi Companies ONLY deal with shareholder-members money, RBI has exempted Nidhi Companies from the core provisions of the RBI and other regulations applicable to a NBFC.
Nidhi Company is a company registered under the Companies Act, 2013, which has a sole objective of cultivating the habit of thrift and savings amongst its members. Nidhi companies are allowed to take deposit from its members and lend to its members only. Therefore, the funds contributed for a Nidhi company are only from its members (shareholders) and used only by the shareholders of the Nidhi Company. Nidhi company is a class of NBFCs and RBI is empowered to issue directions to them in matters relating to their deposit acceptance activities. However, in recognition of the fact that these Nidhis deal with their shareholder-members only, RBI has exempted the notified Nidhis from the core provisions of the RBI Act and other directions applicable to NBFCs. Therefore, Nidhi Company is an ideal entity to take deposit from and lend to a specific group of people. Nidhi Company can’t deal with chit funds, hire-purchase finance, leasing finance, insurance or securities business. It is strictly prohibited from accepting deposits from or lending funds to, any other person except members. Also, it can’t advertise itself to ask for any deposits. Minimum of seven members is required to start a Nidhi Company out of which three members must be the directors of the company.
The following are some of the restrictions a Nidhi Company is subject to under Nidhi Rules, 2014. As per Rule 6 of Nidhi Rules, 2014, a Nidhi Company shall NOT:
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 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
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.
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: 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.
Pay any brokerage or incentive for mobilising deposits from members or for deployment of funds or for granting loans.
There are two forms which are required to be filed.
If Nidhi Company satisfies all above conditions, it should file NDH-1 along with prescribed fees within 90 days from the end of the first financial year after incorporation. The form must be duly certified by practicing CA/ CS/ CWA.
A Nidhi Company is a Company which carries on the business of accepting deposits and lending the same on demand. Nidhi Company is similar to NBFC but the only basic difference between the two is that Nidhi Companies accept deposits only from its members. The main aim of these companies is to work for the mutual benefit of its members. These companies are not entitled to carry on the business of Hire Purchase Financing, Insurance, Chit Funds, and Acquisition of securities or Issue of any Debt Instruments.
Nidhi can provide loans to its members only after the members have given/ provided some securities like gold, silver jewelry or any type of financial securities against the loan.
Every company has two parts to its name. The first part is unique. For example, 'WIPRO' or 'MERCEDES-BENZ'. The second part describes the business activity of the company. For example, 'Legal Solutions' or 'Technologies'. This second part must be as descriptive as possible. The name of the company must end with 'Producer Company Limited'.
Any person who is above 18 years of age as per the standard age proof can become a member of the Nidhi Companies. The person desirous of becoming a member should have valid ID Proof and Address Proof.
The Nidhi Company uses the funds in lending to shareholders as per Nidhi Rules. It lends such money in the form of small loan for business and finance.
Yes, the Deposits with such companies are safe and secure because the Ministry of Corporate Affairs and Reserve Bank of India has framed rules and regulations to ensure the safety and security of Deposits. And the Nidhi Company compulsorily abide by the rules of Central Government.