Chapter XXVI: The Nidhis Rules, 2014

[YAGAY andSUN]

The Nidhis Rules, 2014 were introduced under the Companies Act, 2013 to regulate the operations of Nidhi Companies in India. These rules provide the framework for the incorporation, regulation, and functioning of Nidhi companies. Nidhis are a type of non-banking financial company (NBFC) which primarily deals with the receiving of deposits from and lending to its members.

Nidhi Companies are established under the purview of the Ministry of Corporate Affairs (MCA) and are governed by specific provisions of the Companies Act, 2013, with additional guidelines provided by these rules. The rules also ensure that Nidhi companies are well-regulated and compliant with necessary corporate governance standards.

Key Provisions of the Nidhis Rules, 2014

1. Definitions and Applicability

• Nidhi Company: According to the rules, a Nidhi Company is defined as a company that is formed for the purpose of receiving deposits from its members and lending them money. It can operate only for its members, and not for the general public. The company should have a minimum of 200 members and must be operating for a specific purpose as per the provisions of these rules.
• Member: A member is any person who is a shareholder of the company and has agreed to deposit money with the company.
• Capital Requirements: Nidhi Companies are required to have a minimum paid-up equity share capital of ₹5 lakhs to be incorporated as a Nidhi company. The company must also maintain a net-owned fund of at least ₹10 lakhs.
• Non-Public Company: A Nidhi company is a non-public company and cannot issue shares to the public. The company's shares must be held exclusively by its members.

2. Incorporation and Registration

1. Incorporation of Nidhi Companies:
   • Nidhi companies can be incorporated by following the provisions of the Companies Act, 2013.
   • They must apply for incorporation under the provisions of the Act and file necessary documents such as the Memorandum of Association (MoA) and Articles of Association (AoA).
   • The name of the company must include the word “Nidhi” to distinguish it from other types of companies.
2. Preliminary Approval:
   • Before incorporating a Nidhi company, the promoters must ensure that the company complies with the minimum capital requirements (₹5 lakhs paid-up capital).
   • The company must have a minimum of 200 members within one year of its incorporation.

3. Corporate Governance and Management

1. Board of Directors:
   • A Nidhi company must have a minimum of three directors and a minimum of seven members at the time of its incorporation.
   • Directors of the Nidhi company must be members of the company.
2. Prohibition on Outside Directors:
   • A Nidhi company can only appoint directors from within its membership base, which means no outsiders are allowed as directors.
3. Meetings and Financial Records:
   • The Nidhi company must hold its Board meetings at regular intervals and maintain proper books of accounts.
   • The company must comply with all statutory audit requirements and ensure proper filing of financial statements and returns.

4. Operational Regulations

1. Deposits and Loans:
   • A Nidhi company is allowed to accept deposits only from its members, and the deposits can only be utilized for lending to the members.
   • It is prohibited from accepting deposits from the public or any non-members.
   • The company can lend to its members, but there are specific guidelines about the types of loans that can be granted (e.g., personal loans, housing loans, etc.).
   • The rate of interest on loans should be regulated by the Reserve Bank of India (RBI) or any other applicable regulatory body.
2. Restrictions on Investments:
   • A Nidhi company is prohibited from investing in the securities of other companies, except for investments in government securities or in assets authorized by the company’s memorandum.
3. Statutory Reserve:
   • Nidhi companies are required to maintain a statutory reserve of 20% of their net profits every year, which is set aside for the company’s own protection and to meet future liabilities.

5. Compliance Requirements

1. Annual Compliance:
   • Nidhi companies are required to file annual returns with the Registrar of Companies (RoC), including the Form MGT-7 (Annual Return) and Form AOC-4 (Financial Statements).
   • Nidhi companies must maintain proper financial records and undergo statutory audits every year.
2. Compliance with Directions:
   • The Ministry of Corporate Affairs (MCA) and RBI may issue periodic directives regarding the operations of Nidhi companies. Compliance with such directives is mandatory.

6. Penalties for Non-Compliance

1. Fines and Penalties:
   • Nidhi companies failing to comply with the provisions of the Companies Act, 2013 or the Nidhis Rules, 2014 may face penalties, including fines.
   • The company may also face the possibility of cancellation of its registration by the RoC if it fails to comply with continuous operational requirements or violates regulatory guidelines.
2. Revocation of License:
   • In extreme cases of non-compliance or violation of the rules, the Registrar of Companies can revoke the license of the Nidhi company.

7. Winding Up of Nidhi Companies

• In case a Nidhi company fails to comply with the provisions of the Nidhis Rules or ceases to meet the requirements for continued operations, the company can be wound up by the order of the National Company Law Tribunal (NCLT).
• The company can also voluntarily wind up if its members approve such a decision through a special resolution.

8. Conclusion

The Nidhis Rules, 2014 provide a clear and structured regulatory framework for the incorporation, management, and operation of Nidhi companies in India. These rules ensure that Nidhi companies, while performing a useful function in terms of providing financial services to their members, operate within a regulated environment that minimizes the risk of financial instability.

By adhering to these rules, Nidhi companies can maintain a sound corporate governance framework, promote financial stability, and contribute to the development of the community-based financial ecosystem. The rules also ensure the protection of the interests of members by setting clear standards for the operation and management of these entities.

In conclusion, Nidhi companies play a vital role in fostering a savings culture among members, especially in small and medium communities, and these rules help keep such companies compliant with the law and operating in a transparent and efficient manner.

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