Introduction

NIDHI Company may be a company registered under the Companies Act and notified as a Nidhi company by Central Government under Section 620A of the Companies Act, 1956. It is a non-banking non-depository financial institution doing the business of lending and borrowing with its members or shareholders.

The Central Government made ‘Nidhi Rules, 2014’ for the aim of completing out the objectives of ‘Nidhi’ companies. These rules shall be applicable to-

• Every company which had been declared as a Nidhi or Mutual Benefits under Section 620A(1)of the Companies Act, 1956;
• Every company functioning on the lines of a Nidhi company or Mutual benefit society but has either not applied for or has applied for and is awaiting notification to be a Nidhi company or Mutual Benefit Society under Section 620A(1)of Companies Act, 1956
• Any company incorporated as a Nidhi pursuant to the provisions of Section 406 of the Companies Act, 2013.

Restrictions on NIDHI Company

Non-banking Indian Finance Sector is governed by NIDHI Rules and recognized under the Companies Act, 2013 and controlled by the Ministry of Corporate Affairs. NIDHI corporations work on the principle of ‘Paraspara Sahayta’ generally borrowing and lending money to its members. 80% of the NIDHI companies are established in Tamil Nadu. Moreover, the Reserve Bank of India has exempted this category to comply with its core registration procedures. It is also known as Permanent Fund, Benefit Fund, and Mutual Benefit Fund. It cannot issue preference shares and shall have a minimum paid-up equity share capital of ? 500000.

Some restrictions on NIDHI Company are as follows:

Restrictions on business– No NIDHI Company shall carry a business within the field of chit fund, leasing finance and hire purchase business and invest in securities of companies. The reason is ‘MUTUALITY’. NIDHI companies work as a trust basis, flowing money among its members only.

Restrictions on issuance of preference shares, debentures or any other debt instrument- it deals with its own members which prohibit it to issue preference shares or other types of securities.

Restrictions on carrying other business– borrowing or lending money to its members are the sole business it can run in its name. As money transactions happen, it becomes necessary to supply locker facilities.

Restrictions on the money– No taking/giving of cash to outsiders. If NIDHI violates the rule, then it will have to proceed for a fully-fledged NBFC.

Restrictions on pledging assets– as money belongs to members, NIDHI Company cannot pledge assets and lift a loan for any other entity or bank.

Restrictions on advertisement– NIDHI companies cannot advertise like others for depositing schemes. Only among its members, it can do so.

Disadvantage NIDHI Company in India-

• NIDHI Company can accept deposits and lend money between its shareholder-members only. NIDHI Companies can’t accept deposits directly from the public.
• NIDHI Company can’t issue any Preference Shares, Debentures or any Debt Instrument to any person or corporation.
• No NIDHI Company Shall involves in businesses like Chit Fund, Hire Purchase Finance, Lease Finance and Insurances or cannot buy any Corporate Share.
• Within a year after the commencement, NIDHI Company should ensure minimum 200 members and net owned fund of 10,00,000 according to Section 406 of the Companies Act 2013 and NIDHI Rules 2014.
• The central government issues rules and directions governing NIDHI Companies from time to time. Therefore, they are not totally exempt from the regulatory framework.

How to Register NIDHI Company?

The requirements to incorporate a NIDHI Company are as follows:

• A Minimum number of  seven members is required
• A Minimum number of 3 Directors is required
• A Minimum of ? 5 Lakhs required for the capital
• DIN (Director Identification Number) for Directors
• No Preference Shares will be issued
• The nominal value of equity shares must not be less than ? 10 per share
• A minimum number of 10 equity shares or shares corresponding to ? 100 should be issued to each deposit holder

Documents Required for the Incorporation of a NIDHI Company

From Directors and Shareholders

• PAN Card details of the Members
• Photographs of the Directors and Members
• Digital Signature Certificate
• Aadhaar Card or Voter ID of the Members
• Address Proof of the Directors
• DIN (Director Identification Number) of the Directors

For Registered Office:

• Rent Agreement or the Lease Deed or the Sale Deed of the place being used as Registered Office; or,
• Address Proof of the Registered Office;
• No-Objection Certificate (NOC) signed by the actual owner of the Property.

Documents which are needed to be prepared and drafted:

• MOA (Memorandum of Association) of the Company
• AOA (Article of Association) of the Company
• MCA (Ministry of Corporate Affairs) form attestation

Procedure for NIDHI Company Registration

• Apply for a Name Approval: The shareholders or the Directors are required to apply for a name approval by suggesting three names to the MCA (Ministry of Corporate Affairs). After, out of all the names suggested, the MCA will choose one name for the said company. Furthermore, it shall be taken into consideration that each one the names suggested must be of unique character and not almost like an already existing company’s name. Moreover, consistent with rule 8 of the Companies Act, 2013, the approved name will remain valid only for a period of 20 days.
• Prepare the MOA and AOA: After the approval of the name, the directors need to submit the Application for registration in the form INC- 32, together with the Articles of Association (AOA) and Memorandum of Association (MOA), respectively. Further, it’s significant to require into consideration that the documents must state the objective behind incorporating a NIDHI Company.
• Certificate of Incorporation: Generally, it takes about 15-25 days’ time to get the Certification of Incorporation. Further, this certificate acts as a bit of evidence or proof that the said Company has been incorporated.
• Opening of a Bank Account and Applying for TAN and PAN: After the incorporation, the directors need to apply for PAN (Permanent Account Number) and TAN (Tax Deduction Account Number). Further, shareholder or members of the corporate is additionally required to urge a bank account opened just by submitting the Certificate of Incorporation, and the copies MoA, AoA, along with the allotted PAN details to the bank.