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RECENT CHANGES IN ‘NIDHI RULES, 2014’

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RECENT CHANGES IN ‘NIDHI RULES, 2014’
By: Mr. M. GOVINDARAJAN
July 6, 2019
All Articles by: Mr. M. GOVINDARAJAN       View Profile
  • Contents

Introduction

Chapter XXVI of the Companies Act, 2013 (‘Act’ for short) contains the provisions for Nidhi companies.    Section 406(1) of the Act defines the term ‘nidhi’ as a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies.

Section 406 (2) of the Act provides that the Central Government may, by notification, direct that any of the provisions of this Act shall not apply, or shall apply with such exceptions, modifications and adaptations as may be specified in that notification, to any Nidhi or Nidhis of any class or description as may be specified in that notification.

Section 406 of the Act was substituted by a new section vide the Companies (Amendment) Act, 2017, dated 03.01.2018. 

Nidhi

Section 406, as substituted by the Companies (Amendment) Act, 2017, will come into effect from 15.08.2019.   The term ‘Nidhi’ or ‘mutual benefit’ is defined under section 406(1) of the Act 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 provided 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.

Nidhi Rules

For the purposes of carrying out the provisions relating to Nidhi Companies effectively, the Central Government made ‘Nidhi Rules’ vide Notification No. GSR 258(E), dated 31.03.2014.  The provisions of these Rules came into effect from 01.04.2014.  These Rules contains the procedure for incorporation of a nidhi company and other procedure relating to the conduct of Nidhi Companies.  The said Rules contains 24 rules and following forms-

  • Form NDH – 1 – Return of Statutory compliances – in pursuant of Rule 5(2) which provides that within ninety days from the close of the first financial year after its incorporation and where applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form NDH – 1 along with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 with the Registrar duly certified by a company secretary in practice or a chartered accountant in practice or a cost accountant in practice.
  • Form NDH – 2 – Application for extension of time – Rule 5(3) provides that If a Nidhi is not complying with the requirement of having minimum 200 members, it shall within thirty days from the close of the first financial year, apply to the Regional Director in Form NDH – 2 along with fee specified in Companies  (Registration Offices and Fees) Rules, 2014 for extension of time and the Regional Director may consider the application and pass orders within thirty days of receipt of the application.
  • Form NDH – 3Half yearly returns – in pursuant of Rule 21 according to which this form is to filed with the Registrar within thirty days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice or cost accountant in practice.

Recent changes

The Central Government made amendment to Nidhi Rules vide notification dated 01.07.2019 which will come into effect from 15.08.2019.  The changes effected vide this notification are as follows-

Applicability

Rule 2 provides that the Nidhi Rules shall apply to-

The amendment brings one more under the applicability of Nidhi Rules - every company declared as Nidhi or Mutual Benefit Society under  section 406(1) of the Act.

Nidhi – definition

Originally the Rules did not define the term ‘Nidhi’.  The amendment to the Rules bring definition to the term ‘Nidhi’ as a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with the rules made by the Central Government for regulation of such class of companies.

Declaration of Nidhis

The amendment inserted a new Rule 3A for the purpose of declaration of Nidhis.  The newly introduced Rule 3A(1) provides that the Central Government, on receipt of application (in Form NDH-4 along with fee thereon) of a public company for declaring it as Nidhi and on being satisfied that the company meets the requirements under these rules, shall notify the company as a Nidhi in the Official Gazette.   A Nidhi incorporated under the Act on or after the commencement of the Nidhi (Amendment) Rules, 2019 shall file Form NDH-4 within sixty days from the date of expiry of-

  • one year from the date of its incorporation; or
  • the period up to which extension of time has been granted by the Regional Director under sub-rule (3) of rule 5:

 Nothing in the Rule shall prevent a Nidhi from filing Form NDH-4 before the period referred therein.   In case a company does not comply with the requirements of this rule, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment).

Incorporation

Rule 4 provides for incorporation of Nidhi Companies.  Rule 4(1) and 4(5) have met changes by means of amendment to the Rules.  The amended Rule 4(1) provides that a Nidhi shall be a public company and shall have a minimum paid up equity share capital of five lakh rupees.

Rule 4(5) after its amendment provides that every “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name.

Compliance

Rule 5(1) provides that every Nidhi shall, within a period of one year from the date of commencement of these rules, ensure that it has complied with the requirements of a nidhi company.  The amendment changed Rule 5(1) which reads after amendment, as every Nidhi shall, within a period of one year from the date of its incorporation, ensure that it has complied with the requirements for a Nidhi Company.

Rule 5(3) provides that If a Nidhi is not complying with the requirements, it shall within thirty days from the close of the first financial year, apply to the Regional Director in Form NDH-2 along with fee specified in Companies (Registration Offices and Fees) Rules, 2014 for extension of time and the Regional Director may consider the application and pass orders within thirty days of receipt of the application.  The amendment inserted a proviso to Rule 5(3) which provides that the Regional Director may extend the period up to one year from the date of receipt of application. 

Rule 5(4), after amendment, provides that if the failure to comply with Rule 5(1) extends beyond the second financial year, Nidhi shall not accept any further deposits from the commencement of the second financial year till it complies with the provisions contained in Rule 5(1) and gets itself declared under section 406(1) of the Act, besides being liable for penal consequences as provided in the Act.

Share capital

Rule 7(1) provides that every Nidhi shall issue equity shares of the nominal value of not less than ten rupees each.  After amendment Rule 7(1) provides that every Nidhi shall issue fully paid up equity shares of the nominal value of not less than ten rupees each.

Application form for deposit

Rule 12 provides the procedure for filing application for deposit.  Rule 12(1) provides the list of particulars that are to be incorporated in the application for deposits.  The amendment add one more particular to be incorporated I the application form, which is-

  • The date of declaration or notification as Nidhi;

Rule 12(2)(a) provides that the application form shall contain - in case of non- payment of the deposit or part thereof as per the terms and conditions of such deposit, the depositor may approach the Registrar of Companies having jurisdiction over Nidhi.  The amendment changes the authority.  Instead of Registrar of Companies the depositor may approach the Bench of the National Company Law Tribunal, having jurisdiction over Nidhi.

Power to enforce compliance

Rule 23 gives powers to the Regional Director to enforce compliance of the Rules.  The amendment changed the power from the Regional Director to the Central Government.

Compliance with Rule 3A by certain Nidhis

A new Rule 23A has been inserted by the amendment.  Rule 23A provides that every company referred to in Rule 2(b) and every Nidhi incorporated under the Act, before the commencement of Nidhi (Amendment) Rules, 2019, shall also get itself declared as such in accordance with rule 3A within a period of one year from the date of its incorporation or within a period of six months from the date of commencement of Nidhi (Amendment) Rules, 2019, whichever is later.  In case a company does not comply with the requirements of this rule, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment).

Companies declared as Nidhis under previous company law to file Form NDH-4

The amendment has inserted another Rule 23BRule 23B provides that every company referred in clause (a) of rule 2 shall file Form NDH-4 along with fees as per the Companies (Registration Offices and Fees) Rules, 2014 for updating its status.  No fees shall be charged under this rule for filing Form NDH-4, in case it is filed within six month of the commencement of Nidhi (Amendment) Rules, 2019. In case a company does not comply with the requirements of this rule, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment).

New Form

The amendment inserted a new form viz., Form NDH -4, an application for declaration as Nidhi Company and for updating the status by Nidhis.  This form is to be duly certified by a practicing Company Secretary/Cost Accountant/Chartered Accountant.

 

By: Mr. M. GOVINDARAJAN - July 6, 2019

 

 

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