Basics of ‘Nidhi’ as per Companies Act, 2013
What is ‘Nidhi’ Company?
Nidhi in the Indian context / language means TREASURE. However, in the Indian financial sector it refers to any mutual benefit society notified by the Central / Union Government as a Nidhi Company.
Section 406 of the Companies Act 2013 talks about Nidhi Companies which are companies incorporated with the object of cultivating the habit of thrift and savings amongst its members, and the salient feature of Nidhi is that it receives deposits from and lends to, its members only, for their mutual benefit.
How to incorporate ‘Nidhi’?
There are certain requirements which every such company should keep in mind, which are:
- A Nidhi company to be incorporated under this Act has to be Public Company;
- It shall have a minimum paid up equity share capital of Rs.5,00,000/-;
- No preference shares can be issued.
- If preference shares had already been issued by a Nidhi Company before commencement of this Act, such preference shares are to be redeemed in accordance with the terms of issue of such shares;
- The most important of all, it shall have the words ‘Nidhi Limited’ as part of its name.
Nevertheless, Nidhi Company has some post-Incorporation requirements which have to be necessarily fulfilled within a period of one year from the commencement of these rules and hence ensure that it has —
- not less than two hundred members;
- Net Owned Funds of ten lakh rupees or more;
- unencumbered term deposits of not less than ten per cent of the outstanding deposits as specified in rule 14; and
- ratio of Net Owned Funds to deposits of not more than 1:20
Does Nidhi Company require Reserve Bank of India (RBI) approval to register in India?
No, Nidhi Company does not require any RBI approval for its registration in India. Nidhi Company is one of the categories of Non-Banking Financial Company which has been specifically exempted by the RBI from its core provisions including registration requirement etc.
Which types of companies cannot be incorporated as Nidhi ?
If you are thinking of incorporating a Nidhi Company, then you must ensure that your company does not come under the general restrictions on Nidhi Company as stated in Nidhi Rules, 2014. Here are some of the restrictions-
- The Business Restrictions: A Nidhi Company cannot do the following types of business as they are strictly prohibited by the rules.
a) Business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by anybody corporate.
b) Further, it shall not carry on any business other than the business of borrowing or lending in its own name.
2. General Restrictions: Apart from the business restrictions, there are some general restrictions are also there which are as follows:
a) Nidhi Company shall not issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever.
b) Nidhi Company shall not open current account with its members. Please note, there is a restriction on current account that means you can still open saving account with the members.
c) A Nidhi Company cannot issue or cause to be issued any advertisement in any form for soliciting deposit:
d) Nidhi Company cannot pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or for granting loans.
It should be kept in mind by anyone incorporating a Nidhi Company that it may not be as flexible in terms of working as other companies and also there are certain restrictions but that is because it deals in money related matters that too without the RBI approval. What this company aims at is MUTUAL BENEFIT!
About the Author
This article has been co-authored by Harshit Parekh, Co-Founder, Director at LegalNow and Rudraksh Durrani, Content Writer at LegalNow.
