Compliance of Nidhi Company in India
A Nidhi Company operates under Section 406 of the Companies Act, 2013, along with the Nidhi Rules 2014 and Amendment Rules 2022. These companies primarily engage in the lending and borrowing of money between their members, falling under the non-banking financial sector.
Like any other company, a Nidhi company is obligated to file annual tax and compliance of Nidhi Company returns. To stay compliant, it must adhere to the guidelines set by the Companies Act, 2013, and the Nidhi Company Rules (both 2014 and the amended 2022 rules). Non-compliance could result in penalties and liabilities for the company and its officers.
A Nidhi Company is classified as a Public Limited Company and, to avoid legal complications, must ensure strict compliance of Nidhi Company with all required regulations.
Types of Compliances:
Nidhi Companies are required to fulfill two types of compliances:
Annual Compliances: These are generally filed yearly and represent the company’s overall status and performance. Some forms are filed at regular intervals, while others are based on specific events.
Event-Based Compliances: These compliances are triggered by specific events, such as changes in company structure, appointment of directors, etc. These do not require periodic filings.
Post-Incorporation Compliances of a Nidhi Company:
Upon incorporation, Nidhi Companies must fulfill certain mandatory requirements within the first year, including:
A minimum of 200 members.
Net Owned Funds (NOFs) should be at least Rs 20 lakhs.
The ratio of NOFs to deposits should not exceed 1:20.
Unencumbered term deposits should not be less than 10% of the total outstanding deposits (as per Rule 14 of Nidhi Rules 2014 and Amended Rules of 2022).
Limitations Imposed on Nidhi Companies:
As per Rule 6 of the Nidhi Rules 2014, Nidhi Companies are restricted from engaging in the following activities:
Leasing finance, chit funds, hire purchase, or any other financial activities outside their primary business of lending and borrowing.
Acquiring securities issued by any other body corporate.
Issuing debentures, preference shares, or debt instruments.
Opening current accounts for its members.
Lending to or accepting funds from third parties or body corporates.
Conducting publicity for obtaining deposits.
Pledging assets lodged by members as security.
Note: If a Nidhi company meets the necessary provisions, it may offer locker facilities to its members, provided the income from lockers does not exceed 20% of the company’s total income for the financial year.
Annual Compliances:
- NDH-1, NDH-2, NDH-3, NDH-4, NDH-5
- Declaration of Nidhi status by the Central Government
- Form ADT-1 (Appointment of Auditor)
- Preservation of Books of Accounts
- Protection of Statutory Register
- Filing of Annual Income Tax Returns
- AOC-4 (Financial Statements)
- MGT-7 (Annual Return)
Event-Based Compliances:
- Change of Company Name
- Alteration in Registered Office Address
- Director Appointments/Resignations
- Appointment of Key Managerial Personnel (KMP)
- Changes in Company’s Objectives (MOA)
- Transfer of Shares
- Alteration in Capital Structure
Failure to comply with Nidhi Company rules can result in penalties:
- Rs. 5,000 for the company and officers in case of default.
- A continuing penalty of Rs. 50 per day until the default is rectified.
Filing Compliances With the Registrar of Companies (ROC) as per Nidhi Rules 2014 and Amended Rules 2022:
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Form
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Due Date
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Contents
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Important Notes
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|---|---|---|---|
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NDH-5
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As applicable
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Process for closing a branch, including advertisements and intimation to the Registrar.
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Must inform the Registrar within 30 days of closure.
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AOC-4
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Within 30 days from AGM
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Filing of financial statements.
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-
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MGT-7
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Within 60 days of the AGM
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Filing of annual return, including a list of company members.
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-
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Amendments Under the Nidhi Company (Amendment) Rules 2022:
- Branch Definitions: The definition of "Branch" has been clarified, referring to any location other than the registered office.
- Net Owned Funds (NOFs): The requirement for NOFs has increased from Rs 10 lakh to Rs 20 lakh.
- Loans Against Silver: Nidhi companies can now also provide loans against silver jewelry, in addition to gold.
- Dividend Restrictions: Nidhi companies cannot declare a dividend exceeding 25% in a financial year.
- Branch Operations: Nidhi companies must notify the Registrar within 30 days of opening or closing branches.
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Frequently Asked Questions in India
What is a Nidhi Company?
A Nidhi Company is a type of non-banking financial company (NBFC) that primarily engages in the business of lending and borrowing money between its members. It is regulated under Section 406 of the Companies Act, 2013 and follows the Nidhi Rules, 2014 and Amendment Rules, 2022.
What are the mandatory post-incorporation requirements for a Nidhi Company?
Within one year of incorporation, a Nidhi Company must:
- Have a minimum of 200 members.
- Maintain Net Owned Funds (NOFs) of at least Rs 20 lakhs.
- Ensure that the ratio of NOFs to deposits does not exceed 1:20.
- Maintain unencumbered term deposits of not less than 10% of its total outstanding deposits.
What is the maximum loan a Nidhi Company can give to its members?
The loan limit depends on the total deposits raised by the company:
- Loans against deposits up to Rs 2 crores can be up to Rs 2 lakh.
- Loans against deposits between Rs 2 crore and Rs 20 crore can be up to Rs 7.5 lakh.
- Loans against deposits between Rs 20 crore and Rs 50 crore can be up to Rs 12 lakh.
- Loans against deposits above Rs 50 crore can be up to Rs 15 lakh.
Can a Nidhi Company offer loans to third parties?
No, Nidhi Companies are not allowed to lend money to third parties or accept funds from them. The company’s business must only be restricted to borrowing and lending money between its members.
What is Form NDH-1, and when should it be filed?
Form NDH-1 is a return of statutory compliance that needs to be filed within 90 days from the closure of the first financial year. For subsequent years, it must be filed annually, containing details about the company’s members, deposits, loans, and reserves.
What happens if a Nidhi Company fails to comply with the Nidhi Rules?
Non-compliance with Nidhi Company regulations can result in penalties:
- A fine of Rs 5,000 for the company and its officers in case of default.
- A continuing penalty of Rs 50 per day until the non-compliance is rectified.
Is a Nidhi Company allowed to open branches outside its registered district?
Yes, a Nidhi Company may open branches outside its district, but it must obtain prior approval from the Registrar and file Form NDH-2 within 30 days of opening a branch. Additionally, it must have filed its financial statements or annual return.
Can a Nidhi Company accept deposits from the general public?
No, Nidhi Companies are only allowed to accept deposits from their members. They cannot raise deposits from the general public or issue debentures or other debt instruments.
What is the dividend policy for a Nidhi Company?
A Nidhi Company is not permitted to declare dividends exceeding 25% of its total profits in a financial year, as per the updated Nidhi Company rules.
How can a Nidhi Company convert to another type of company or cease operations?
If a Nidhi Company wishes to alter its structure or cease operations, it must follow the formal procedure outlined in the Companies Act, 2013 and Nidhi Company Rules. This includes filing for approval, publishing notices, and obtaining necessary clearances from the Registrar and the Regional Director.
