NIDHI (AMENDMENT) RULES, 2022

[Mr. M. GOVINDARAJAN]

Section 406

Section 406(1) of the Companies Act, 2013 (‘Act’ for short) defines the term ‘Nidhi’ or ‘Mutual Benefit Society’ as  a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be.  Section 406(2) of the Act provides that the Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act specified in the notification shall not apply to any Nidhi or Mutual Benefit Society; or shall apply to any Nidhi or Mutual Benefit Society with such exceptions, modifications and adaptations as may be specified in the notification.

Rules

For the purposes of functioning of Nidhi Companies the Central Government brought Nidhi Rules, 2014.  The said Rules have been amended with effect from 15.08.2019.  Now the said Rules have been amended vide Notification No.GSR 301(E), dated 19.04.2022, which came into effect from 19.04.2022.

Changes brought in

Nearly 12 amendments have been brought to Nidhi Rules.  We may see amendments one by one.

Meaning of ‘branch’

The amendment proposes to insert a new definition under Rule 3(1)(aa).  This rube rule defines the term ‘branch’ as a place other than the registered office of Nidhi.

Declaration of Nidhi

Rule 3A provides that the Nidhi Company, within one year from the date of incorporation or the extended time file NDH – 4.  On receipt of the said form the Central Government, if the company meets all the requirements of the provisions relating to Nidhi will declare the company as Nidhi Company through notification.

The amendment inserted the fourth, fifth and sixth proviso to this Rule.  The fourth proviso provides that if the company does not comply with the provisions or the application is rejected by the Government, then such company shall not accept deposit from its members or provide any loan to its members from the date of non compliance or the date of rejection of application.

The fifth proviso provides that if any deposit is raised by the company after the date of non compliance or from the date of commencement of the said rules or from the date of rejection of the application whichever is later, the same shall be deemed to be raised in accordance with the provisions of Chapter V of the Act (deposits) and subject to all requirements under Chapter V and the rules made there under.

The sixth proviso provides that Rule 3A shall not be applicable to companies incorporated as Nidhi on or after the commencement of the said rules.

Revised procedure for declaration

The amendment inserted a new Rule 3B.  This rule provides that after 19.04.2022 any company desire to be declared as Nidhi is to file NDH form within 120 days from the date of incorporation.  The company has to fulfill the following for the above purpose-

• it has not less than two hundred members; and
• it has Net Owned Funds of twenty lakh rupees or more.

The Director shall be a fit and proper person, for which the following shall be taken into account-

• integrity, honesty, ethical behavior, reputation, fairness and character of the person; and
• the person not incurring any of the following disqualifications-

• criminal complaint or information under section 154 of the Code of Criminal Procedure, 1973 has been filed by a person authorized by the Central Government against such person and which is pending;
• charge sheet has been filed against such person by any enforcement agency in matters concerning economic offences which is pending;
• an order of restraint, prohibition or debarment has been passed against such person by any regulatory authority or enforcement agency in any matter concerning company law, securities laws or financial markets which is in force;
• an order of conviction has been passed against such person by a court for any offence involving moral turpitude;
• such person has been declared insolvent and not been discharged;
• such person has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force;
• such person has been categorized as a willful defaulter;
•  such person has been declared a fugitive economic offender;
• such person is a director in five or more companies incorporated or declared as Nidhi, or is a promoter of three or more companies incorporated or declared as Nidhi.

The Central Government shall examine NDH – 4 and convey its decision within 45 days to the company. If no decision is taken within 45 days it shall be deemed to be approved by the Government.  The decision of the Central Government shall be filed by the company with the Registrar in Form 20A under section 10A of the Act.  The company shall commence the business only after it gets the approval of the Central Government.  If the same is not complied with the company cannot file SH-7 and PAS - 3.

Rule 3B is not applicable to the public companies incorporated before 19.04.2022.

Minimum paid up share capital

The amendment raised the minimum paid up share capital required for the Nidhi Company from ₹ 5 lakhs to ₹ 10 lakhs.  The existing Nidhi companies on 19.04.2022 shall comply with the said requirements within 18 months from 19.04.2022.

Requirements of minimum number of members

Rule 5 provides for the requirements of minimum of number of members, net owned fund etc.  The amendment provides that this rule shall not be applicable to the companies incorporated after 19.04.2022.

General Restrictions

Rule 6 provides the general restrictions or prohibitions on Nidhi companies.  The amendment substituted a new rule for Rule 6(d) and also inserted new Rule 6(l).

The newly substituted Rule 6(d) restricts to acquire or purchase securities of any other company 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.

The newly inserted Rule 6(l) restricts to raise loans from banks or financial institutions or any other source for the purpose of advancing loans to members of Nidhi.

Membership

The amendment inserted new Rule 8(4).  The newly inserted Rule 8(4) provides that a member shall not transfer more than fifty percent of his shareholding (as on the date of availing of loan or making of deposit) during the subsistence of such loan or deposit, as the case may be.  The member shall retain the minimum number of shares required under sub-rule (3) of rule 7 at all times.

Net owned funds

The amendment revised the quantum of net owned funds from ₹ 10 lakhs to ₹ 20 lakhs or such higher amount as the Central Government may specify from time to time.   Every Nidhi existing as on 19.04.2022, shall comply with this requirement within a period of eighteen months from the date of such commencement.

Branches

The amendment has brought many changes in Rule 10 which deals with the formation of branches by the Nidhi Companies.  The amended provisions read as below-

Rule 10(3) - If a Nidhi proposes to open more than three branches within the district or any branch outside the district, it shall obtain the prior permission of the Regional Director by applying in Form NDH-2 along with fee specified in the Companies (the Registration Offices and Fees) Rules, 2014 and an intimation is to be given to the Registrar about opening of every branch within thirty days of such opening.

Rule 10(4) - No Nidhi shall open branches outside the State where its registered office is situated.

Rule 10(5) - No Nidhi shall open branches unless financial statement and annual return (up to date) are filed with the Registrar.

Rule 10(6) (a)  -  A Nidhi shall not close any branch, unless, -

1. the proposal to close the branch along with the plan as to how the existing deposits have been or shall be paid off and how the existing loan shall be recovered is duly approved by the Board at its meeting; and
2. it has obtained the prior approval of the Regional Director by applying in Form NDH-2 along with fee as specified in the Companies (the Registration Offices and Fees) Rules, 2014 at least sixty days prior to such closure.

Provided that the Regional director shall consider such application and pass orders within a period of thirty days of receipt of such application.

(b) After obtaining approval from the Regional Director, the Nidhi shall-

(i)   publish advertisement, as per format NDH-5, in a newspaper in vernacular language in the place where it carries on business at least thirty days prior to such closure, informing the public about such closure;

(ii) fixes a copy of such advertisement or a notice informing such closure of the branch on the notice board of Nidhi as well as the relevant Branch for a period of at least thirty days from the date on which advertisement was published;

3. give an intimation to the Registrar within a period of thirty days of such closure in Form NDH-2 along with fee as specified in Companies (the Registration Offices and Fees) Rules, 2014.

Rule 10(7) -  Any place, not being a registered office or a branch, where a Nidhi carries on its operation shall be closed within a period of six months from the date of commencement of the Nidhi (Amendment) Rules, 2022 and intimation shall be sent to the Registrar in this regard in Form NDH-2.

Unencumbered deposits

The amendment brings insertions to Rule 14.  After this Rule 14 provides that  every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a scheduled commercial bank (other than a co-operative bank or a regional rural bank), or post office deposits in its own name an amount which shall not be less than 10% of the deposits outstanding at the close of business on the last working day of the second preceding month.    in cases of unforeseen commitments, temporary withdrawal may be permitted with the prior approval of the Regional Director by making application in Form NDH-2 along with fee specified in the Companies (the Registration Offices and Fees) Rules, 2014 for the purpose of repayment to depositors, subject to such conditions and time limit which may be specified by the Regional Director to ensure restoration of the prescribed limit of 10%.

Loans

Rule 15(1) provides that a Nidhi shall provide loans only to its members.  The amendment inserts a proviso to this rule.  The said proviso provides that in case of joint shareholders, the loan shall be provided to the member whose name appears first in the Register of members.

Dividend

The amendment substituted a new rule for the existing Rule 18.  The newly substituted Rule 18 provides that a Nidhi shall not declare dividend exceeding twenty five per cent in a financial year.

Compliance with Rule 3A by certain companies

The amendment inserted second and third provisos to Rule 23A which deals with the compliance with Rule 3A by certain companies.

The newly inserted second proviso provides that no company which has not complied with the requirements of this rule, or fails to comply with such requirement on or after the date of commencement of the Nidhi (Amendment) Rules,2022, or in case the application submitted by the company in Form NDH-4 is or has been rejected by the Central Government, shall raise any deposit from its members or provide any loan to its members under the provisions of these rules from the date of such non-compliance, or the date of commencement of the said rules, or the date of rejection of the application in Form NDH-4, whichever is later.

The newly inserted third proviso provides that any deposit raised by a company after the date of non-compliance, or the date of commencement of the above said rules, or the date of rejection of the application in Form NDH-4, whichever is later, as referred to in the second proviso shall be deemed to have been raised in pursuance of Chapter V of the Act, and shall be subject to all the requirements under that Chapter, or under any other provisions of the Act or the rules made there under, as the case may be. 

Amendment to Rule 23B

The amendment brought changes in Rule 23B.  Accordingly no fees shall be charged under this rule for filing Form NDH-4, in case it is filed within nine months (previously 6 months) of the commencement of Nidhi (Amendment) Rules, 2019.

Silver

Rule 12 and Rule 20 added ‘silver’ along with gold after this amendment.