Nidhi Company

I. Introduction: Nidhi Company is a company incorporated as such with an objective of:

1. Cultivating the habit of thrift;
2. Saving amongst its members;
3. Receiving deposits from its members; and
4. Lending money to it members.

II. Procedure to setup a Nidhi Company: Rule 4 of NIDHI Rules 2014 provides that:

1. A Nidhi Company should be incorporated as a public company under the Companies Act, 2013 (“the Act”) with paid up equity capital of five lakh rupees.
2. After the Act came into effect no Nidhi company should issue preference shares.
3. If preference shares are issued prior to commencement of the Act, they shall be redeemed as per the terms of their issue.
4. Nidhi Company is created with the objective of cultivating the habit of thrift and saving amongst its members. They shall not persuade any other objects.
5. It shall have the words “Nidhi Limited” as part of its name.

III. Minimum Number of members, Net owned funds, etc., Rule 5 of NIDHI Rules 2014 Provides that:

1. Minimum number of members shall be 200.
2. Net owned fund of ten lakhs or more.
3. Unencumbered term deposit of not less than 10% of outstanding deposit.
4. Ratio of net owned fund to deposit of not more than 1:20.

IV. Restrictions: Rule 6 provides for general restrictions, according to which rule Nidhi Companies shall not carry on-

1. business of chit fund, hire-purchase finance, leasing financing, insurance or acquisition of securities issues by a body corporate.
2. they shall not issue debenture, preference shares, any other debt instrument whatsoever in any form.
3. acquire another company through purchasing shares or control the composition of Board of Directors of any other company in any manner
4. Enter into an arrangement for change of its management unless it has passed a special resolution in its general meeting and obtained prior approval from Regional Director having Jurisdiction.
5. Carry on any business other than its own business in its name.
6. Accepts deposits from and lend money to any person other than its members.
7. Pledge any of the assets lodged by its members as security.
8. Accept deposits from and lend money to any body corporate.
9. Enter into any partnership arrangement in its borrowing or lending activities
10. Issue or cause to be issued any advertisement in any form for soliciting deposit.
11. Pay any brokerage or incentive or mobilizing deposits from members or for deployment of funds or the granting loans.

A Nidhi shall not admit a body corporate or trust as a member except as otherwise permitted under these rules. Every Nidhi shall ensure that its membership is not reduced to less than 200 members at any time. A minor shall not be admitted as a member of Nidhi. But deposits may be accepted in the name of a minor, if they are made by the natural or legal guardian who is a member of Nidhi. V. Share capital and allotment

1. Every Nidhi Company shall issue equity shares of the nominal value of not less than ten rupees each.
2. No service charge shall be levied for issue of shares.
3. Every Nidhi shall allot to each deposit holder at least a minimum of ten equity shares or shares equivalent to one hundred rupees: It may be noted that a savings account holder and a recurring deposit account holder shall hold at least one equity share of rupees ten.

VI. Acceptance of deposits by Nidhi Company: A Nidhi shall not accept deposits exceeding twenty times of its Net Owned Funds (NOF) as per its last audited financial statements. In the case of companies covered under clauses (a) and (b) of rule 2 and existing on or before 26^th July, 2001 and which have accepted deposits in excess of the aforesaid limits, the same shall be restored to the prescribed limit by increasing the NOF position or alternatively by reducing the deposit according to the table given below:

Ratio of Net Owned Funds to Deposits (as on 31.3. 2013)	Date by which the company has to achieve prescribed ceiling of 1:20
a) More than 1:20 but upto 1:35	By 31.3. 2015
b) More than 1:35 but upto 1:45	By 31.3. 2016
c) More than 1:45	By 31.3. 2017

The companies which are covered under the Table in sub-rule (2) above shall not accept fresh deposits or renew existing deposits if such acceptance or renewal leads to violation of the prescribed ratio. The ratio specified in sub-rule (2) above shall also apply to incremental deposits. VII. Director:

1. The Director shall be a member of Nidhi.
2. The Director of a Nidhi shall hold office for a term up to ten consecutive years on the Board of Nidhi (3) The Director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a Director.
3. Where the tenure of any Director in any case had already been extended by the Central Government, it shall terminate on expiry of such extended tenure.
4. The person to be appointed as a Director shall comply with the requirements of Director Identification Number.
5. A person shall not be eligible for appointment as a director of a Nidhi, if —
   1. he is of unsound mind and stands so declared by a competent court;
   2. he is an undischarged insolvent;
   3. he has applied to be adjudicated as an insolvent and his application is pending;
   4. he has been convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence. Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;
   5. an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
   6. he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
   7. he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or

VIII. Divided: Dividend Under Rule 18 of Nidhi Rules, a Nidhi shall not declare dividend exceeding twenty-five per cent or such higher amount as may be specifically approved by the Regional Director for reasons to be recorded in writing and further subject to the following conditions, namely:

1. an equal amount is transferred to General Reserve;
2. there has been no default in repayment of matured deposits and interest; and
3. it has complied with all the rules as applicable to Nidhis.

XI. Appointment of Auditor Nidhi shall not appoint or re-appoint an individual as auditor for more than one term of five consecutive years and Nidhi shall not appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years. It may be noted that an auditor (whether an individual or an audit firm) shall be eligible for subsequent appointment after the expiration of two years from the completion of his or its term. Further, in case of an auditor (whether an individual or audit firm), the period for which he or it has been holding office as auditor prior to the commencement of these rules shall be taken into account in calculating the period of five consecutive years or ten consecutive years, as the case may be. X. Un-encumbered term deposits by Nidhi Under Rule 14 of the Nidhi Rules, 2014, 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 ten per cent 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 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 ten per cent. XI. Loans by Nidhi A Nidhi shall provide loans only to its members. The loans given by a Nidhi to a member shall be subject to the following limits, namely:—

1. two lakh rupees, where the total amount of deposits of such Nidhi from its members is less than two crore rupees;
2. seven lakh fifty thousand rupees, where the total amount of deposits of such Nidhi from its members is more than two crore rupees but less than twenty crore rupees;
3. twelve lakh rupees, where the total amount of deposits of such Nidhi from its members is more than twenty crore rupees but less than fifty crore rupees; and
4. fifteen lakh rupees, where the total amount of deposits of such Nidhi from its members is more than fifty crore rupees:

Where a Nidhi has not made profits continuously in the three preceding financial years, it shall not make any fresh loans exceeding fifty per cent of the maximum amounts of loans specified in clauses (a), (b), (c) or (d). A member shall not be eligible for any further loan if he has borrowed any earlier loan from the Nidhi and has defaulted in repayment of such loan. The amount of deposits shall be calculated on the basis of the last audited annual financial statements. A Nidhi shall give loans to its members only against the following securities, namely:

1. gold, silver and jewellery, and the re-payment period of such loan shall not exceed one year.
2. immovable property and, the total loans against immovable property [excluding mortgage loans granted on the security of property by registered mortgage, being a registered mortgage under section 69 of the Transfer of Property Act, 1882 (IV of 1882)] shall not exceed fifty per cent of the overall loan outstanding on the date of approval by the board, the individual loan shall not exceed fifty per cent of the value of property offered as security and the period of repayment of such loan shall not exceed seven years.
3. fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies. It may be noted that such securities duly discharged shall be pledged with Nidhi and the maturity date of such securities shall not fall beyond the loan period or one year whichever is earlier and in the case of loan against fixed deposits, the period of loan shall not exceed the unexpired period of the fixed deposits.

XII. Power of to enforce compliance As per Rule 23 of the Nidhi Rules, 2014, the Registrar of companies may call for such information or returns from Nidhi as he deems necessary and may engage the services of chartered accountants, company secretaries in practice, cost accountants, or any firm thereof from time to time for assisting him in the discharge of his duties. Further, In respect of any Nidhi which has violated these rules or has failed to function in terms of the Memorandum and Articles of Association, the concerned Regional Director may appoint a Special Officer to take over the management of Nidhi and such Special Officer shall function as per the guidelines given by such Regional Director.