Munish Bhandari 13.1 Misc.

Provisions of Companies Act, 2013

Chapter 13
Miscellaneous Provisions of the Companies Act, 2013

13.19 Provision relating to Nidhis and its application, etc. (Sec. 406)

1. Definition ‘Nidhi’ or ‘Mutual Benefit Society’ means a company which CG may, by notification in
the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be.
2. Exemptions to (a) CG may, by notification in the Official Gazette, direct that any of the provisions of
Nidhi or Mutual this Act specified in the notification –
Benefit Society (i) shall not apply to any Nidhi or Mutual Benefit Society; or
(ii) shall apply to any Nidhi or Mutual Benefit Society with such exceptions,
modifications and adaptations as may be specified in the notification.
(b) Where any such notification is proposed to be issued, a copy of such notification
shall be laid in draft before each House of Parliament, while it is in session, for a
total period of 30 days, and if, both Houses agree in disapproving the issue of
notification or both Houses agree in making any modification in the notification,
the notification shall not be issued or, as the case may be, shall be issued only in
such modified form as may be agreed upon by both the Houses.
(c) In reckoning any such period of 30 days, no account shall be taken of any period
during which any House of the Parliament is prorogued or adjourned for more than
4 consecutive days.
(d) The copies of every notification issued under this section shall, as soon as may be
after it has been issued, be laid before each House of Parliament.
∗
Provisions contained in the Nidhi Rules, 2014 .
1. Definition of “Nidhi” means a company which has been incorporated as a Nidhi with the object of
‘Nidhi’ cultivating the habit of thrift and savings amongst its members, receiving deposits from,
and lending to, its members only, for their mutual benefit, and which complies with the
[Rule 3(1)(da)] Rules made by CG for regulation of such class of companies.
2. Application These Rules shall apply to, –
(Rule 2) (a) every company which had been declared as a Nidhi or Mutual Benefit Society u/s
620A of the Companies Act, 1956;
(b) 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 or Mutual Benefit Society;
(c) every company incorporated as a Nidhi pursuant to the provisions of Sec. 406 of
the Companies Act, 2013; and
(d) every company declared as Nidhi or Mutual Benefit Society u/s 406 of the
Companies Act, 2013.

∗
Certain Rules contained in the Nidhi (Rules), 2014 (e.g. Rule 3A, Rule 3B, Rule 23A, Rule 23B, Rule 10, Rule 12, Rule 22 and
Rule 23) have not been included in the Study Material and RTPs issued by ICAI, and accordingly, these Rules have not been
included in this Book.
Munish Bhandari 13.2 Misc. Provisions of Companies Act, 2013

3. Incorporation (a) A Nidhi shall be a public company. It shall have a minimum paid up equity share
and incidental capital of Rs. 10 lakh.
matters Provided that every Nidhi existing as on the date of commencement of the Nidhi
Amendment Rules, 2022 (i.e. 19th April, 2022), shall comply with this requirement
(Rule 4) within a period of 18 months from the date of such commencement.
(b) No Nidhi shall issue any preference shares.
(c) Any preference shares issued by a Nidhi before the commencement of the
Companies Act, 2013, shall be redeemed in accordance with the terms of issue of
such shares.
(d) No Nidhi shall have any object in its Memorandum of Association other than the
object of cultivating the habit of thrift and savings amongst its members, receiving
deposits only from its members, and lending only to its members, for their mutual
benefit.
(e) Every Nidhi shall have the last words ‘Nidhi Limited’ as part of its name.
4. Requirements Every Nidhi shall, on or before the close of first FY after its incorporation, ensure that
with respect to it has –
minimum (a) not less than 200 members;
number of (b) unencumbered term deposits of not less than 10% of the outstanding deposits as at
the close of business on the last working day of the 2nd preceding month;
members, net
(c) Net Owned Funds of Rs. 10 lakh or more (‘Net owned funds’ means the aggregate
owned fund etc. of paid up equity share capital and free reserves as reduced by accumulated losses
[Rule 5(1)] and intangible assets appearing in the last audited balance sheet); and
(d) ratio of Net Owned Funds to deposits of not more than 1:20.
5. Application by If a Nidhi is not in compliance with clause (a) or clause (d) of Rule 5(1), it shall, within
Nidhi to the 30 days from the close of the first FY, apply to the Regional Director in Form NDH-2
along with prescribed fees for extension of time and the Regional Director may consider
Regional director the application and pass orders within 30 days of receipt of the application. The
for extension of Regional Director may grant extension to Nidhi for a period not exceeding 1 year.
time
[Rule 5(3)]
6. Consequences of If the failure to comply with Rule 5(1) extends beyond the second FY, Nidhi shall not
default accept any further deposits from the commencement of the second FY till it complies
with the provisions contained in Rule 5(1) and gets itself declared as a Nidhi by CG u/s
[Rule 5(4)] 406, besides being liable for penal consequences as provided in the Act.
7. Filing of return of (a) Every Nidhi shall file with the Registrar a return of statutory compliances in Form
statutory NDH-1 along with prescribed fees.
compliances (b) Such return shall be filed within 90 days from the close of –
(i) first FY after its incorporation; or
[Rule 5(2)]
(ii) second FY after its incorporation, where extension is granted to Nidhi by the
Regional Director under Rule 5(3).
(c) Such return shall be duly certified by a company secretary in practice or a chartered
accountant in practice or a cost accountant in practice.
8. Non-applicability The provisions contained in Rule 5(1) to Rule 5(4) shall not apply to the companies
of Rule 5 incorporated as Nidhi on or after the commencement of the Nidhi (Amendment) Rules,
2022 (i.e. 19th April, 2022).
[Rule 5(5)]
Munish Bhandari 13.3 Misc. Provisions of Companies Act, 2013

9. General (a) No Nidhi shall carry on the business of chit fund, hire purchase finance, leasing
restrictions or finance, insurance or acquisition of securities issued by any body corporate.
prohibitions (b) No Nidhi shall issue preference shares, debentures or any other debt instrument by
any name or in any form whatsoever.
(Rule 6) (c) No Nidhi shall open any current account of any of its members.
(d) No Nidhi shall acquire or purchase securities of any other company or control the
composition of the Board of directors of any other company in any manner
whatsoever or enter into any arrangement for the change of its management.
(e) No Nidhi shall carry on any business other than the business of borrowing or
lending.
However, a Nidhi which has complied with all the provisions of these Rules may
provide locker facilities on rent to its members subject to the condition that the
rental income from such facilities shall not exceed 20% of the gross income of the
Nidhi at any point of time during a FY.
(f) No Nidhi shall accept deposits from or lend to any person, other than its members.
(g) No Nidhi shall pledge any of the assets lodged by its members as security.
(h) No Nidhi shall take deposits from or lend money to any body corporate.
(i) No Nidhi shall enter into any partnership arrangement in its borrowing or lending
activities.
(j) No Nidhi shall issue or cause to be issued any advertisement in any form for
soliciting deposit. Private circulation of the details of fixed deposit schemes among
the members of the Nidhi carrying the words ‘for private circulation to members
only’ shall not be considered to be an advertisement for soliciting deposits.
(k) No Nidhi shall pay any brokerage or incentive for mobilising deposits from
members or for deployment of funds or for granting loans.
(l) No Nidhi shall raise any loan from any bank or financial institution or any other
source for the purpose of advancing loans to members of Nidhi.
10. Share capital and (a) Every Nidhi shall issue fully paid up equity shares of the nominal value of not less
allotment than Rs. 10 each.
(b) No service charge shall be levied for issue of shares.
(Rule 7)
(c) Every Nidhi shall allot to each deposit holder a minimum of 10 equity shares.
However, a savings account holder and a recurring deposit account holder shall
hold at least 1 equity share of Rs. 10.
11. Membership (a) A Nidhi shall not admit a body corporate or trust as a member.
(Rule 8) (b) 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.
(c) A minor shall not be admitted as a member of Nidhi. However, 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.
(d) A member shall not transfer more than 50% of his shareholding (as on the date of
availing of loan or making of deposit) during the subsistence of such loan or
deposit, as the case may be. However, the member shall retain the minimum
number of shares required under Rule 7 at all times.
Munish Bhandari 13.4 Misc. Provisions of Companies Act, 2013

12. Net Owned Funds (a) Every Nidhi shall maintain Net Owned Funds of not less than Rs. 20 lakh or such
(Rule 9) higher amount as CG may specify from time to time.
(b) Every Nidhi existing as on the date of commencement of the Nidhi (Amendment)
Rules, 2022 (i.e. 19th April, 2022), shall comply with this requirement within a
period of 18 months from the date of such commencement.
13. Acceptance of A Nidhi shall not accept deposits exceeding 20 times of its Net Owned Funds as per its
deposits by last audited financial statements.
Nidhis
(Rule 11)
14. Deposits (a) The fixed deposits shall be accepted for a minimum period of 6 months and a
(Rule 13) maximum period of 60 months.
(b) Recurring deposits shall be accepted for a minimum period of 12 months and a
maximum period of 60 months.
(c) The maximum balance in a savings deposit account at any given time qualifying
for interest shall not exceed Rs. 1 lakh at any point of time and the rate of interest
shall not exceed 2% above the rate of interest payable on savings bank account by
nationalised banks.
15. Un-encumbered (a) Every Nidhi shall invest and continue to keep invested, in unencumbered term
term deposits deposits with a Scheduled commercial bank or post office deposits, in its own
name, an amount which shall not be less than 10% of the deposits outstanding at
(Rule 14) the close of business on the last working day of the 2nd preceding month.
(b) However, in cases of unforeseen circumstances, temporary withdrawal may be
permitted with the prior approval of the Regional Director by making application
in Form NDH- 2 alongwith fee specified in the Companies (the Registration
Offices and Fees) Rules, 2014 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 10%.
16. Loans (a) A Nidhi shall provide loans only to its members. In case of joint shareholders, the
(Rule 15) loan shall be provided to the member whose name appears first in the Register of
members.
(b) The loans given by a Nidhi to a member shall be subject to the following limits:
Total amount of deposits accepted by Nidhi Maximum amount of
from its members loan that can be given by
a Nidhi to a member
Less than Rs. 2 crore Rs. 2 lakh
More than Rs. 2 crore but less than Rs. 20 crore Rs. 7.5 lakh
More than Rs. 20 crore but less than Rs. 50 crore Rs. 12 lakh
More than Rs. 50 crore Rs. 15 lakh
(c) Where a Nidhi has not made profits continuously in the preceding 3 FYs, it shall
not make any fresh loans exceeding 50% of the maximum amounts of loans
specified above.
(d) A member shall not be eligible for any further loan if he has taken any earlier loan
from Nidhi and has defaulted in repayment of such loan.
(e) A Nidhi shall give loans to its members only against the following securities:
(i) Gold, silver and jewellery
(ii) Immovable property
(iii) Fixed deposit receipts, National Savings Certificates, other Government
Securities and insurance policies.
Munish Bhandari 13.5 Misc. Provisions of Companies Act, 2013

17. Rate of interest (a) The rate of interest to be charged on any loan given by a Nidhi shall not exceed
7.5% above the highest rate of interest offered on deposits by Nidhi.
(Rule 16)
(b) Nidhi shall charge the same rate of interest on the borrowers in respect of the same
class of loans.
(c) The rates of interest of all classes of loans shall be prominently displayed on the
notice board at the registered office and each branch office of Nidhi.
‘Branch’ means a place other than the registered office of Nidhi [Rule 3(1)(aa)].
18. Provisions (a) Every director shall be a member of Nidhi.
relating to (b) Every director shall hold office for a term upto 10 consecutive years.
Directors (c) A director shall be eligible for re-appointment only after the expiration of 2 years
of ceasing to be a director.
(Rule 17)
(d) Where the tenure of any director in any case had already been extended by CG, it
shall terminate on expiry of such extended tenure.
(e) The provisions of Sec. 152(4) and Sec. 164 shall apply to the directors of Nidhi.
19. Dividend A Nidhi shall not declare dividend exceeding 25% in a financial year.
(Rule 18)
20. Auditor (a) No Nidhi shall appoint or re-appoint an individual as auditor for more than one
term of 5 consecutive years.
(Rule 19)
(b) No Nidhi shall appoint or re-appoint an audit firm as auditor for more than 2 terms
of 5 consecutive years.
(c) An auditor (whether an individual or an audit firm) shall be eligible for subsequent
appointment after the expiration of 2 years from the completion of his or its term.
(d) 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 5 consecutive years or 10
consecutive years, as the case may be.
(e) For the purpose of Rule 19, ‘appointment’ includes ‘re-appointment’.
21. Filing of half Every Nidhi shall file half yearly return with the Registrar in Form NDH-3 along with
yearly return such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 within
30 days from the conclusion of each half year duly certified by a company secretary in
(Rule 21) practice or chartered accountant in practice or cost accountant in practice.
22. Auditor’s (a) The Auditor of Nidhi shall furnish a certificate every year to the effect that the
certificate Nidhi has complied with all the provisions contained in the Rules.
(b) Such certificate shall be annexed to the audit report.
(Rule 22)
(c) In case of non-compliance by Nidhi of any of the provisions of these Rules, the
auditor shall specifically state the Rules which have not been complied with.
23. Penalty for non- If a company falling under Rule 2 contravenes any of the provisions of the Rules
compliance prescribed herein, the company and every officer of the company who is in default shall
be punishable with fine which may extend to Rs. 5,000, and where the contravention is
(Rule 24) a continuing one, with a further fine which may extend to Rs. 500 for every day after
the first during which the contravention continues.
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