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Sushree Dash
| Updated: 27 Jun, 2022 | Category: Nidhi Company

How to Choose the Right Nidhi Company Business Model?

Nidhi Company Business Model

A Nidhi Company is part of the Non–Banking Finance Sector in India in accordance with Section 406 of the Companies Act, 2013. The essential purpose of a Nidhi Company is to burrow and lend money within the members of the company. Other common names of a Nidhi Company are as follows – Permanent Funds, Benefit Funds, Mutual Benefit Funds, Mutual Benefit Companies, etc.

If one is interested in establishing a Nidhi Company or is already a member of a Nidhi Company, they need to comply with the latest Nidhi (Amendment) Rules, 2022, as per the notification issued by the Government of India.

The intention of the Government of India behind the issuance of the latest amended rules for Nidhi Companies was that it would simplify the process of becoming a Nidhi Company and declaring of becoming a Nidhi Company which can be obtained by the issuance of Approval of the applicant’s NDH – 4 Application Form within the specified time.

Protecting the public interest in mind, the Government of India has notified in the latest amendments that for choosing the right Nidhi Company Business Model, it is mandated that the applicable company needs to ensure that they are declared as a Nidhi Company by the Central Government of India and comply with the latest amendments that are incorporated in the Nidhi (Amendment) Rules, 2022.

Criteria for the ideal Nidhi Company Business Model

The essential amendments that have been enforced through the Nidhi (Amendment) Rules, 2022 are stated as follows to showcase the ideal Nidhi Company Business Model, which is needed to be implied for companies seeking to be incorporated as a Nidhi Company –

  • The applicant company is needed to file the NDH – 4 Application within 120 days, i.e., four months from the date of the company’s incorporation.
  • All the necessary requirements for filing an NDH – 4 Application needs to be duly fulfilled that are mentioned as follows –
  1. The applicant company is required to have a minimum of 200 members, and the Net Owned Fund, which is also known as NOF, should be a minimum of INR 20 Lakhs or more.
  2. The Promoters and Directors are required to meet the “Fit and Proper Criteria for Nidhi Finance Company” as specified in the latest amendment.
  • The applicant company is eligible to function as a Nidhi Company only upon issuance of approval of the NDH – 4 Application after filling Form 20 A.
  • The Government of India[1] is required to grant Approval for the NDH – 4 Application within 45 days of the filing of the application. If the Government has not reverted any notification within the specified time, the NDH – 4 Application is assumed to be approved.
  • The For 20 A is required to be filed only after the grant of Approval for the NDH – 4 Application, which by default means there cannot be the commencement of any business as a Nidhi Finance Company prior to the approval of the NDH – 4 Application.
  • Filling of the NDH – 1 Application and the NDH – 2 Application is not applicable to be filled by any company incorporated as a Nidhi Company since the commencement of the latest amendment.
  • For all the existing Nidhi Companies, even prior to commencement of the latest amendment, the minimum required capital for the applicable company is INR 10 Lakhs which is required to be fulfilled within 18 months from the date of commencement of the latest amendment rules.
  • The Nidhi Finance Companies are prohibited from raising loans from any banks or from any other financial institutions for the purpose of advancing loans for its members.
  • The members of the Nidhi Companies are required not to transfer more than fifty per cent of their shareholding for the purpose of subsistence of any availing of loans or any deposits.
  • The set limit of the Net Owned Fund, also known as a NOF, is of INR 20 Lakhs that is required to be fulfilled within 120 days, i.e., four months of the date of incorporation for newly formed Nidhi Finance Companies, whereas for Nidhi Finance Companies that were incorporated prior to the enforcement of the latest amendment, this rule is relaxed for the time limit being eighteen months from the date of commencement of the latest amendment rules.
  • For the purpose of incorporation of new branches of a Nidhi Finance Company, the applicable company is required to apply the NDH – 2 Application under the Regional Director, also known as the RD.
  • For the purpose of closing any branch of a Nidhi Finance Company, the applicable company is required to apply the NDH – 2 Application under the Regional Director, also known as the RD, within sixty days prior to the closing of the branch, which is needed to be approved in a board meeting and is required to be duly filled in the NDH – 5 Application format to be published in a news article along with the NDH – 2 Application being submitted within the specified time duration in accordance with the latest amendment.
  • If any branch of a Nidhi Company is not a registered office that is utilised for carrying out any operations is to be shut down within six months from the commencement date of the latest amended rules, and an intimation in regard to the situation is to be notified to the Registrar in accordance with NDH – 2 Application.
  • A loan for Silver is granted to disbursed among the members of the Nidhi Company.
  • In case any situation arises of any unforeseen events or commitments, a temporary withdrawal is granted upon receiving approval from the Regional Director, also known as RD, in accordance with the filing of the NDH – 2 Application.

Conclusion

The amendments made to the Nidhi Rules are mandated to be abided in accordance the regulations set by the The Ministry of Corporate Affairs, also known as the MCA. The enforcement of these rules was for the purpose of benefiting the public, with the essential focus being on the declaration that is required to be issued by the Central Government. All Companies seeking to be incorporated as a Nidhi Company need to follow these essential amendments that have been enforced through the Nidhi (Amendment) Rules, 2022 that showcase the ideal Nidhi Company Business Model.

Read our Article:Different Nidhi Company Forms and Their Uses

Sushree Dash

Sushree Dash has completed BBA-LLB with a specialization in IPR Laws from KIIT University. As a recent graduate, she has both legal and management internship experience in international law firms, Indian law firms and under Indian litigation. She secures good drafting skills for various legal documents in multiple fields of law. She has also published multiple research papers in reputed UGC approved international journals.

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