What is Nidhi Company?
A Nidhi Company comes under the non-banking financial sector (NBFC) and recognized under section 406 of the Companies Act 2013. The crux of the Nidhi is carry on borrowing and lending business between the members, the working of which is regulated by the Ministry of Corporate Affairs.
As per section 406 of the Companies Act, 2013 and Companies (Nidhi Companies) Rules 2014 which governs Nidhi Company states that it is formed for the following objectives:
1) Building the habit of thrift and savings among its members
2) To carry on the business of lending and receiving deposits between the members for their mutual benefit (to be complied with as per the Rules mentioned in Chapter XXVI of the Companies Rules, 2014)
Reserve bank of India is empowered to issue direction from time to time to Nidhi Company relating to their deposit acceptance activities.
As explained above Nidhi comes under the class of NBFC’s. However, it deals with only members who are shareholders also, RBI has exempted Nidhi from following the core provisions of the RBI Act and other directions which are applicable to NBFC’s.
¬ Applicability of Nidhi Company Provisions:
The Nidhi Company Rules shall be applicable to the following companies:
a) A Nidhi or a mutual benefit Company registered under section 620A (1) of the Companies Act,1956.
b) Every company incorporated as Nidhi under section 406 of the Companies Act,2013
¬ Requirements pre-incorporation of Nidhi Company:
1) A Nidhi Company is registered as a Public Company under the Companies Act,2013
2) It must have a minimum capital of Rs.5,00,000/-
3) A Nidhi Company cannot issue preference shares. However, if already preference shares are issued it has to be redeemed in accordance with the terms of issue of such shares.
4) The object of the company shall be cultivating the habit of thrift and savings among its members, receiving deposits from and lending within its members only for their mutual benefits.
5) The Nidhi Company shall have words “NIDHI LIMITED” as part of its name.
¬ Requirements post incorporation of Nidhi Company:
1) Every Nidhi company after incorporation within one year from the commencement of these rules has to ensure that:
a) Minimum number of members should be 200
b) Net Owned Funds shall be Rs.10,00,000/- or more (Net Owned Funds means the aggregate of paid up equity share capital and free reserves as reduced by the accumulated and intangible assets as appearing in last audited balance sheet)
c) Net Owned Funds to deposit shall be not more than 1:20
d) As per Rule 14 unencumbered term deposits of not less than 10% of the outstanding deposits
¬ Loans under Nidhi Company:
Lending is a common feature under Nidhi Company. Following are some of the points which are to be considered under Loans in Nidhi Company:
1) The maximum amount of loan to one person cannot exceed Rs. 2,00,000/- if the deposit is less than 2 crores.
2) A Nidhi cannot engage in any unsecured or micro finance loans
3) The maximum repayment for gold loan shall be 1 year. However, repayment for other loan repayment cannot exceed 7 years.
4) Criteria for loan
a) Gold Loan – 60% of the value of the gold
b) Other Loans – 50% of the value of the property
5) A Nidhi Company is not eligible to provide any vehicle loans.
¬ Interest rates for Deposits and Loans:
1) For Deposits:
There are basically two types of deposits which are usually made by Nidhi company on which interest rates are provided as follows:
a) Fixed Deposits (FD’s): The maximum rate should not exceed the rate provided by NBFC which is currently up to 9%.
b) Recurring Deposits (RD’s): The maximum rate should not exceed the rate provided by NBFC which is currently up to 9%.
2) For Loans:
There are basically three types of loans which are usually entered by Nidhi Company on which interest rates are provided as follows:
a) Gold / Silver Loan: Maximum Rate should be 13.5% plus max rate given on deposits for e.g. 13.5% + 9% = 22.5.
b) Loans against property: Maximum Rate should be 13.5% plus max rate given on deposits for e.g. 13.5% + 9% = 22.5.
c) Other Loans (including against FD, LIC Policies etc.): Maximum Rate should be 13.5% plus max rate given on deposits for e.g. 13.5% + 9% = 22.5.
¬ Acceptance of Deposits under Nidhi Limited:
One of the major feature of Nidhi Company acceptance of deposits. While accepting the deposits the Nidhi company has to follow certain rules:
1) A Fixed Deposits can be accepted for minimum tenure of 12 months to a maximum tenure of 60 months.
2) A Recurring Deposits can be accepted for minimum tenure of 12 months to a maximum tenure of 60 months.
3) A maximum balance amount on which interest is given under the savings account cannot exceed Rs. 100,000.
However, the deposits made above have to also follow repayment criteria as mentioned below:
a) No deposits cannot be repaid within 3 months
b) If the deposits are repaid before maturity date in such case interest provided will be reduced by 2 percent.
Apart from this the Nidhi which has adhered to all the rules applicable to it, it may provide locker facilities to its members. The rent of the lockers shall not exceed 20% of the gross income of the Nidhi at any time during the financial year.
¬ General Restrictions on Nidhi Company:
As per Rule 6 of Companies (Nidhi Company) Rules 2014 there are general restrictions which are applicable to Nidhi Company:
1) A Nidhi is not eligible to carry on business of:
a) Chit Fund Company
b) Hire Purchase Finance
c) Leasing Finance
d) Insurance or acquisition of securities issued by any body corporate
2) A Nishi cannot issue any
a) Preference shares
c) Any other debt instrument by whatever name or issued by whomsoever
3) Open any current account by its members
4) Acquire any company by:
a) Purchase of Securities
b) Controlling the composition of the Board of Directors of any other company in any manner whatsoever or
5) Enter into any arrangement for the change of its management, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over Nidhi.
6) Carry on any business other than the borrowing or lending business in its own name.
7) Accepting deposits or lending money to any person, other than its members.
8) Must not pledge any of the assets that have been lodged by its members as security.
9) Taking Deposits from/ lending money to anybody corporate.
10) Entering into any Partnership agreement in its borrowing or lending activities.
11) Issuing or cause to issue any advertisement in any form for soliciting deposit.
12) Paying any amount in form of brokerage or incentive for mobilizing deposits from members or for deployment of funds or the granting loans.
¬ FAQ’s on Nidhi Company:
1) What is Nidhi Company?
A Nidhi is a company formed as a public limited company with minimum 7 members which is formed only for the purpose of accepting deposits, lending money which is restricted only to its members.
2) How many directors are required in case of Nidhi company?
A Minimum 3 directors are required to be appointed in case of Nidhi Company. However, the maximum number of directors cannot exceed 15.
3) How much capital is required initially to register a Nidhi company?
A minimum capital requirement for registering a Nidhi is Rs.5,00,000/- which is issued in form of equity shares. However, there is no upper limit set for maximum capital.
4) How much time is required to register a Nidhi company?
It normally takes 25 to 30 working days to register a Nidhi Company.
5) Can I register a Nidhi company even if I am not available physically?
Physical presence in not required in case of Nidhi Company. As Nidhi company registration is a completely online process. It is possible to register a Nidhi even if you are in a different state. You just need to send the documents via mail on gklegalsolutions.com
6) Can a director can be a salaried person in case of Nidhi company?
Yes, a salaried person is eligible to become a director in a Nidhi company. There is no legal hassle in this but one may have to go through their employment agreement if it contains any restrictions.
7) How long a Nidhi Company can carry on its business?
Once the company is incorporated its active and is in existence till is compliances are carried our timely. However, the company becomes dormant and gets struck off if the annual compliances are not done over a period of time. A company which is struck-off can be revived for a period of up to 20 years.
8) Is a specific office space is required to open a Nidhi Company?
There is no such specific requirement for office space in case of Nidhi company. Even a residential address can be used to incorporate a Nidhi Company.