Nidhi Company

Nidhi Company

Subject: Economy

Why in the news?

The Company Law Committee has made a host of recommendations for stricter regulation of Nidhi companies.

Details:

• The committee suggested that the Centre should prescribe rules and only companies that fulfil the prescribed financial and non-financial criteria should be declared as Nidhis.
• The declaration notification for each Nidhi may also specify additional restrictions or conditions, as deemed necessary and reasonable by the Central Government, and the
• Government should have the power to revoke the declaration in the event of non-compliance.
• Grant Nidhi status for a specified period (approximately five years), after which the Nidhis may apply for renewal, subject to compliance with the Companies Act (CA) 2013.
• Central Government should have the power to formulate schemes for restructuring (merger, amalgamation or takeover) of Nidhis that are sick, financially weak or mismanaged.
• Nidhis which are not financially viable should be liquidated.

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.