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Deepti Shikha
| Updated: 29 Jan, 2020 | Category: Compliances

Compliances for a Nidhi Company: A Complete Checklist

Compliances for Nidhi Company

A Nidhi Company is categorised under the Non-Banking Financial Company or NBFC, which does not involve the Reserve Bank of India (RBI) license. Section 406 of the Companies Act, 2013 acknowledges a Nidhi Company and is managed and controlled by the Ministry of Corporate Affairs. Their primary fundamental business is borrowing and lending money between its members. Nidhi Company is based on the concept of the ‘Principle of Mutuality’ or ‘Paraspara Sahaya’. Entities who wish to operate a lending business with low funds investment can opt for Nidhi Company. A Nidhi Company functions for the common benefit of all its members and shareholders. Section 406 of the Companies Act, 2013 and Nidhi Rules, 2014 prescribes some major compliance for a Nidhi Company.

Nidhi Company Registration in India

Nidhi Company is registered under the provisions prescribed in Companies Act, 2013[1]. The only objective of forming a Nidhi Company is cultivating the habit of thrift and savings amongst its members. The minimum capital requirement to start a Nidhi Company is Rs.10 lakh. Since Nidhi Company is not bounded to receive a license from the Reserve Bank of India, hence it is easy to form. Moreover, it is registered as a Public Limited Company and must have “Nidhi Limited” as the last words of its name. Now we are aware of the process of Nidhi Company Registration so, let’s learn about the crucial compliances.

What are the Compliances of a Nidhi Company?

Compliances of a Nidhi Company are divided into three parts:

  • First is Pre-Incorporation Compliances,
  • Second is Post –Incorporation Compliances, and
  • Third is Event-based Compliances.

Know about the Pre-Incorporation compliances of Nidhi Company

Every Nidhi Company has to follow some mandatory compliance to obtain Nidhi Company Registration.

The necessary compliances to be followed are mentioned below:

  • Minimum of seven members is needed to start a Nidhi Company, out of which three members must be the Directors of the Company.
  • Minimum paid-up equity share capital of Rs. 10 lakh is required to start a Nidhi Company.
  • Not to issue preference shares and if it is issued the same to be redeemed as per the terms of the issue.
  • Nidhi Limited” must be used as part of the name.
  • Minor cannot be a member of a Nidhi Company.
  • A trust or body corporate cannot be admitted as a member of Nidhi Company.
  • Net Owned Funds of 20 lakhs or more. 
  • Nidhi Company cannot open branches if it has not earned any profit after tax for consecutive three financial years. 
  • The rate of interest on the loan shall not exceed 7.5% above the highest rate of interest offered on deposits.

What is the Post –Incorporation Compliances of Nidhi Company?

Post Incorporation of Nidhi Company compliance is divided into two:

Post Incorporation of Nidhi Company compliance

What are the General Compliances to be followed by a Nidhi Company?

The Nidhi Company must ensure the following compliances within a year of Nidhi Company registration:

  • The number of members should increase to at least 200 within one year of its incorporation.
  • The Net owned Fund should be Rs. 20 lakh or more.
  • The ratio of Net-owned Funds to the deposits must not exceed 1:20.
  • As prescribed in Rule 14 of the Nidhi Rules, 2014, the deposits should not be less than 10% of the outstanding deposits.
  • Maintenance of Books of Accounts.
  • Maintain the statutory Registers.
  • Convene Statutory Meetings.

What is the Annual Compliance of a Nidhi Company?

Annual compliance is followed to keep the Government updated on the activities and functional divisions of the company.

What is Event-Based Compliances of a Nidhi Company?

Generally, event-based compliances are required to file only once during the company registration process. Furthermore, these compliances must be followed when there is any change also in the Nidhi company’s structure which are non-periodical in nature.

Below is the list of event-based compliances:

  • Any change in the company’s name.
  • Change in Registered office address.
  • Appointment or Resignation or Removal of Director.
  • Appointment or Resignation or Removal of Auditor.
  • Any amendment in the company’s objective.
  • Transfer of shares.
  • Increase in the authorised capital of the company.
  • Appointment of the Key Managerial Personnel.
  • Any other changes that are event-based.

Changes made by Nidhi Company (Amendment) Rules of 2022

The followings are the said amendments related to the registration of Nidhi Company made under the Nidhi Company (Amendment) Rules, 2022:

  • No company shall raise the deposit for any member or gives a loan to any of its members if:
  • it does not comply with the rules or requirements of Nidhi Company New Rules,
  • the central government has rejected the application in Form NDH -4,

However, not anything written under these rules shall apply to the Company incorporated on or after the commencement of these Nidhi Company New Rules. 

  • Any public company wanting to be declared as a Nidhi company shall apply in Form NDH-4 within a period of 120 days from the date of its incorporation for declaration as a Nidhi company after fulfilling the following conditions:

   (i) it has not less than 200 members;

   (ii) it has Net owned Funds of Rs. 20 lacs or more

After examining the application, the central government conveys its decision within 45 days to the Company, and if it fails to do so within 45 days, it will be deemed to be approved.

However, the Company shall commence its business only if the central government approves its application. 

  • The Company shall attach a declaration with regard to the fulfilment of fit and proper person by all of its directors and promotors with the Form NDH-4.

The following criteria should be looked upon to determine that any promoter or Director is a fit and proper person:

(a) Integrity, honesty, ethical behaviour, fairness, reputation and character 

(b) Not incurring any of the following disqualifications:

(i) Any complaint or information under section 154 of CrPC has been filed or is pending against him

(ii) Chargesheet filed against him in the matter of economic offences

(iii) Restraining, prohibition or department order has been passed against him in any matter related to company law, securities law or financial market in force

(iv) Conviction order passed against him involving moral turpitude

(v) Declared involvement and not been discharged 

(vi) Unsound mind

(vii) Wilful defaulter

(viii) Fugitive economic offender

(ix) Director of five or more companies  

(x) Such person is the Director in five or more than five; or promoter in three or more than three Nidi Companies

  • The minimum paid-up share capital has been raised from 5 lakhs to 10 lakhs.
  • Nidhi company existing on the date of enforcement of Nidhi Company New Rules shall comply with all the requirements within a period of 18 months from the date of such enforcement. 
  • The requirement of filing the application in Form NDH 1 within 90 days from the Company’s incorporation shall not be applicable to the companies incorporated on or after the enforcement of Nidhi Company New Rules. 
  • The requirement of Net owned funds for Nidhi company has been changed from 10 lakhs to 20 lakhs. 
  • In case a Nidhi company wants to open more than three branches outside the district or any branch outside the district, then it shall now have to apply in Form NDH 2 along with the fee as required under the Companies (Registration Offices and Fee) Rules, 2014 and intimate about such opening to the Registrar within 30 days from the opening. However, it cannot open branches unless it has filed its financial statement or annual return to the Registrar. And, it shall not open its Branch outside the state where its registered office is situated.
  • In the Annexure, an amendment has been made in the Forms (NDH 2 Form: heading, serial no. 4, serial no. 6, in Form NDH 3 and NDH, also, after NDH 4, another Form of NDH 5 is inserted) 

Conclusion

Nidhi Companies are easy to operate as there is less involvement of RBI. Still, they have to follow the compliances set up for them by the Companies Act, 2013 and the Nidhi Rules, 2014. Not following the compliances can subject to hefty penalties. The compliance process is a bit complicated, so it is always suggested in the best advice to take the help of professionals. You can contact Corpbiz, we have highly qualified CA’s, CS and other professionals who can help you sail through this complicated process.

Read our Article:Nidhi Company Incorporation: A Step By Step Approach

Deepti Shikha

Deepti is a Law graduate with an avid interest in reading and very proficient in summarizing legal cases. She has enough experience in handling legal affairs of the company. In the initial days of her career, she has worked as a legal researcher and has 3+ years of experience.

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