Restriction on Nidhi 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 anybody 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 the deployment of funds
or for granting loans.
Nidhi Company Registration
To start a Nidhi Company in India, the first step is to incorporate a Limited Company,
under the Companies Act, 2013. Hence, it requires a minimum of three Directors and seven shareholders to
start the Limited Company incorporation process.
During incorporation of the Nidhi company, care must be taken to ensure that the object of the Limited
Company mentioned in the Memorandum of Association is that of cultivating the habit of thrift and
savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual
benefit.
Post incorporation of the Limited Company, within a period of one year from the commencement, the Nidhi
Company must meet all of the following criteria:
- not have less than two hundred members (shareholders);
- Have Net Owned Funds (NOF) of ten lakh rupees or more;
- Have unencumbered term deposits of not less than ten per cent of the outstanding deposits; and
- Have a ratio of Net Owned Funds to deposits of not more than 1:20.
If the Nidhi Company satisfies the above conditions required for operating as a Nidhi Company, the
company shall within ninety days from the close of the first financial year after its incorporation and
where applicable, the second financial year, file a return of statutory compliances in Form NDH-1 duly
certified by a practising CA/CS/CWA along with the requisite fees.
In the case at the end one year from commencement the Nidhi Company is not able to meet the above
requirement, the Company may within thirty days from the close of the first financial year, apply to the
Regional Director in Form NDH-2 for extension of time.
If even after the second financial year the Nidhi Company is not able to meet the requirements for a
Nidhi Company, then the Nidhi Company shall not accept any further deposits from the commencement of the
second financial year till it complies with the provisions for operating as a Nidhi Company and be
liable for penal consequences.
Document Required for Nidhi Company
