The Ministry of Corporate Affairs (MCA) has tightened the rules for Nidhi Companies. According to the Ministry, to safeguard the interest of the general public, it has become imperative that before becoming its member, one must ensure the declaration of a company as a Nidhi by the central government.
Amended rules
- A public company incorporated as a Nidhi with a share capital of ₹10 lakh should first get itself declared as a Nidhi by applying in form NDH-4 with a minimum membership of 200 and a Net Owned Fund (NOF) of ₹20 lakh within 120 days of its incorporation.
- The Promoters and Directors of the company have to meet the criteria of fit and proper person as laid down in the rules.
- For timely disposal, it has also been provided in amended Rules that in case no decision is conveyed by the Central Government within 45 days of the receipt of applications filed by companies in form NDH-4, approval would be deemed as granted. This would apply for such companies which shall be incorporated after Nidhi (Amendment) Rules, 2022.
What are Nidhi companies
- Nidhi companies are a type of non-bank lenders (NBFC) that raise funds exclusively from their members and give loans to them, to improve their governance and protect public interest.
- Under the Companies Act, 1956, a Nidhi or Mutual Benefit Society meant a company which the Central Government declared as Nidhi or Mutual Benefit Society by notification in the official gazette.
- Under the Companies Act, 2013, initially there was no need for a company to get declaration from Central Government to function as a Nidhi Company.
- To become a Nidhi company, the entity has to first register as a public limited company, which has more disclosure requirements than a private limited company.
- Only individual members are allowed in Nidhi companies and it cannot give loans to companies.
- Nidhi Company isn’t required to receive the license from Reserve Bank of India (RBI), hence it is easy to form.
- It inculcates the habit of saving among its members and works on the principle of mutual benefit. These companies typically operate in the southern part of the country.
