‘Nidhi companies need to step up disclosures’

‘Nidhi companies need to step up disclosures’

Subject : Economy

Section: Msc

Context: The government has now made it mandatory for Nidhi companies to inform the authorities about any change in management control as part of additional disclosers required by these companies. Other information re quired includes details of collection centres and profit details. These changes have been incorporated in the revised forms — NDH-1 (return of statutory compliances), NDH-2 (application to Regional Director and intima tion to the Registrar), NDH¬3 (return for the half year ended) and NDH¬4 (form for filing application for de claration as Nidhi company and for up-dation of status by Nidhis). With the issuance of a notification, new forms have been made effective from January 23

Concept:

Under Nidhi Rules, 2014, Nidhi is a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and saving amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.

It is a company registered under the Companies Act, 2013.It works on the principle of mutual benefits that are regulated by the Ministry of Corporate Affairs.

Nidhi Company is a class of Non-Banking Financial Company(NBFC) and Reserve Bank of India(RBI) has powers to issue directives for them related to their deposit acceptance activities. However, since these Nidhis deal with their shareholder-members only, RBI has exempted them from the core provisions of the RBI Act and other directions applicable to NBFCs.

The Nidhi Companies have to abide by certain prohibitions which are imposed on them in terms of their activities:

• Nidhi Companies cannot deal with chit funds.
• Nidhi Companies cannot deal with hire-purchase finance.
• Nidhi Companies cannot deal with leasing of finances.
• Nidhi Companies cannot deal with insurance business.
• Nidhi Companies cannot deal with securities business.
• Nidhi Companies cannot accept deposits from any other person except members.
• Nidhi Companies cannot lend funds to any other person except members.

There are certain requirements which are to be fulfilled by a company in order to to be registered as a Nidhi Company:

• The company must be incorporated as a Public Limited Company under the Companies Act.
• The company should have a minimum of 7 shareholders.
• The company should have a minimum of 3 directors.
• The company should have a minimum of Rs.5 lakh of equity capital.
• The company should have a minimum of 200 members.
• The company should have Net Owned Funds worth Rs.10 lakh or more.
• The name of the company should end with ‘Nidhi Limited’.
• The objective of the company should be lending and borrowing of funds among the members only.
• The company must have unencumbered term deposits of 10% or more of the outstanding deposits.
• The company should have a Net Owned Funds to deposits ratio of 1:20 or less.
• The Director Identification Number (DIN) of all the directors has to be provided.