Incorpration of Nidhi Company

Procedure for incorporation of Nidhi Company

How to incorporate Nidhi company

Nidhi Company is incorporated under the provisions of Section 406 of the Companies Act, 2013 and Nidhi Rules, 2014.The formation of Nidhi Company to done in type of Limited Company. It enjoys the advantages of Non- Banking Finance Companies without obtaining licensing approval of Reserve Bank of India. The main function of Nidhi Company to borrow from its members and lend money to its members.

Nidhi Company as defined in Companies Act, 2013.

Power to Modify Act in its Application to Nidhi 406

  1. In this section, “Nidhi” or “Mutual Benefit Society” means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be.
  2. The Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act specified in the notification—
    • shall not apply to any Nidhi or Mutual Benefit Society; or
    • shall apply to any Nidhi or Mutual Benefit Society with such exceptions, modifications and adaptations as may be specified in the notification.
  3. A copy of every notification proposed to be issued under sub-section (2), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty 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
  4. In reckoning any such period of thirty days as is referred to in sub-section (3), no account shall be taken of any period during which the House referred to in sub-section (3) is prorogued or adjourned for more than four consecutive days
  5. 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.
BASIC INFORMATION (NIDHI COMPANY)
S No.NameNidhi Company
1Section 406 of the Companies Act, 2013 effective from 01.04.2014
2Rule Nidhis Rules, 2014 effective from 01.04.2014
3Suffix allowedNidhi Limited
4StatusAlways incorporated Public Company
5Share CapitalIncorporated only with Equity Share Capital, Nidhi Company Cannot issue Preference Share capital
6Minimum Paid Up Equity Capital Rupees 5,00,000
7ObjectNo Nidhi shall have any object other than the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit
8SectorNon Banking Finance Sector
9Any approvalNo RBI approval is required as RBI has specifically exempted this category of NBFC in India to comply its core provisions such
as registration with RBI etc
10ComplyComply with Section and rules of Nidhi Company along with Provisions regarding Public Company
11Exemption Notification dated 05 June 2015
12General Restrictions or Prohibitions1. Continuing business of chit fund, insurance, hire purchase finance or acquisition of securities by any corporate body
2. The issue of debentures or any other debt by any name or in any form
3. Current accounts with its members
4. lend or deposit money to other members other than the Nidhi members
5. Making a partnership arrangement in its borrowing or lending
6. Pay any brokerage or incentives for mobilizing deposits from members
7. Carry any business other than the business of borrowing or lending
8. Acquire any other companies by the purchase of securities
9 pledge any of the assets lodged by its members as security
10. take deposits from or lend money to any body corporate
11. issue or cause to be issued any advertisement in any form for soliciting deposit
13Nominal ValueNot less than Rs 10/- each
14Minimum Shares to be subscribed10  Equity Shares of Rs 10/- each for other
1     Equity Share of Rs 10/-  each for savings account holder and a recurring deposit account holder
15Prohibition regarding Membership Body Corporate, Minor except made by the natural or legal guardian who is a member of Nidhi, Trust
16Branches1. Earned net profits after tax continuously during the preceding three financial years.
Subject to up to three branches within the district.
2. If need to open more than three branches within the district or any branch outside the district, Required prior permission of Regional Director
17Restriction on opening Branches1.  Branches outside State where its registered office is situated.
2.  If financial statement and annual return (up to date) are not filed with the Registrar.
18Acceptance of DepositsDeposits not exceeding twenty times of its Net Owned Funds (NOF) as per its last audited financial statements.
19Period of Deposits1. Fixed Deposit – 6 to 60 Months
2. Recurring Deposit – 12 to 60 Months
3. Recurring deposits relating to mortgage loans – Maximum Period corrospond to repayment period of Loans
4. Maximum Balance in Saving deposit account shall not exceed Rs 1 Lakh at any point of time
20Rate of interest to be given1. Saving account – Not exceed 2% above rate payable on Saving account by nationalised Banks viz. 9%
2. Fixed or Recurring  –  Maximum rate of interest which NBFC can pay on their public deposits viz. 12.5%
21Rate of interest to be receivedNot exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method viz. 20%
22DividendA Nidhi shall not declare dividend exceeding 25% 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-
An equal amount is transferred to General Reserve;
There has been no default in repayment of matured deposits and interest; and
It has completed with all the rules as applicable to Nidhis.
23Foreclosure of accountForeclosure of fixed deposit account or a recurring deposit account by the depositor subject to following conditions
– Nidhi shall not repay any deposit within a period of three months from the date of its acceptance;
– where at the request of the depositor, a Nidhi repays any deposit after a period of three months, the depositor shall not be entitled to any interest up to six months from the date of deposit;
– where at the request of the depositor, a Nidhi makes repayment of a deposit before the expiry of the period for which such deposit was accepted by Nidhi, the rate of interest payable by Nidhi on such deposit shall be reduced by two per cent. from the rate which Nidhi would have ordinarily paid, had the deposit been accepted for the period for which such deposit had run:
24LoansNidhi shall provide loans only to its Member subject to following limits:-
1 total deposits of Nidhi from Members is less than 2 Crore Rupees                                         –  Rs 2 Lakh
2. total deposits of Nidhi from Members is More than 2 crore but less than 20 Crore        –  Rs 7.50 Lakh
3. total deposits of Nidhi from Members is More than 20 crore but less than 50 Crore      –  Rs 12  Lakh
4. total deposits of Nidhi from Members is More than 50 Crore                                                   –  Rs 15  Lakh
Conditions:-
– Not make any fresh loans exceeding fifty per cent. of the maximum amounts of loans specified in clauses (1), (2), (3) or (4) if Nidhi has not made profits continuously in the three preceding FY
– In case of default in repayment of loan, member shall not eligible for further loan
25Security furnished members against loans1. Gold, silver and jewellery, repayment period not exceed one year.
2  immovable property  subject to fifty per cent of the overall loan outstanding on the date of  approval by the board, repayment period not exceed 7 years.
3.  fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies
26DirectorDirector
– shall be member of Nidhi
– shall hold office for a term up to ten consecutive years on the Board of Nidhi.
– Shall be eligible for re-appointment only after the expiry of two years from the date of expiry of ten years period.
27AuditorNo Nidhi shall appoint or re-appoint an individual as auditor for more than one term of 5 years
and audit firm for more than two terms of five consecutive years;
They are eligible for subsequent allotment after the expiration of two years
28Penalty for Non ComplianceCompany and Every officer – Rs 5,000
In case of continuing failure  – Rs 500 for every day

INCORPORATION OF NIDHI COMPANY (SECTION 406 OF THE COMPANIES ACT 2013)

S No.Name of ActivityDocuments ExecutionInformation/Documents required from ClientRequirementLimitation period
1Name Application in RUNDeclaration regarding compliance of provisions of Concerned regulator1. Any 2 Proposed names of Company
2. Proposed Object of the Company
3. Significance of Coined word
 Approved name shall be available for 20 days
2Incorporation in SPICE, SPICE MOA and SPICE AOA1. INC-9
2. DIR-2
3. Undertakind regarding NBFC Business
4. Preparation of object Clause
5. Declaration regarding Compliance of (rule 4, 5, 6 and 10 of Nidhi Rules, 2014)
For Incorporation, required following information for each subscriber/Director

1.  Self Attested PAN
2.  Self Attested Aadhaar (Not Required if having updated DIN)
3.  Self Attested Latest Bank Statement having Name & Address of Individuals (Not Required if having updated DIN)
4.  Mobile Number
5.  Occupation
6. Email ID
7. Education Qualification
8. Place of Birth
9. Duration of stay at present address (if duration is less than one year, then previous address with proof)
10.  Capital Bifurcation
11. Correspondence Address
12. DSC of all subscriber

Documents required for regd office:

1.  Copy of Registry & NOC (if own by director/subscriber)’ or
2.  Copy of Lease/rent deed; and
3. Copy of utility Bill of Office location (Mobile/Gas/Electricity/Landline) not older than 02 months.
Minimum 3 Directors
Minimum 7 Subscribers
Minimum Capital Rs 5 Lakh
With in 20 days from approval of Name application

POST INCORPORATION COMPLIANCES REGARDING NIDHI COMPANY (SECTION 406 OF THE COMPANIES ACT 2013)

S No.Name of ActivityComplianceLimitation periodType of Compliance
1Intimation of Registered OfficeE-form INC-22With in 30 days from the date of IncorporationOne time intimation with ROC unless there is change
2Commencement of BusinessForm INC-20AWith in 180 days from the date of IncorporationOne time intimation with ROC 
3Appointment of first auditorForm ADT-1With in 15 days from appointmentOne time intimation with ROC unless there is change
4Every Nidhi Company shall ensure that
– It shall have Members not less than 200
– Net Owned Funds of ten lakh rupees or more;
– ratio of Net Owned Funds to deposits of not more than 1:20.
– Unencumbered term deposits of not less than ten per cent. of the outstanding deposits
1. Net Owned Funds =  Aggregate of paid up equity share capital + free reserves – accumulated losses and intangible assets appearing in the last audited balance sheet
2. Invested, in unencumbered term deposits with a scheduled commercial bank or post office deposits not be less than ten per cent. of the deposits outstanding last working day of second preceding month. Further, in case of any unforeseen emergency, the limit of 10% can be withdrawn only after prior approval of Regional Director.
Within 1 Year of IncorporationPost Incorporation Compliance with ROC
5Seek Extension for not complying with either of following
– Members not less than 200
– ratio of Net Owned Funds to deposits of not more than 1:20.
File RD-1 with attachment of NDH-2Within 30 days from close of 1st Financial year Application to Regional Director for extension
6Return of Statutory CompliancesFile GNL-2 with attachment of NDH-1Within 90 days from close of 1st Financial year after incorporationOne time return with ROC
7Open More than 3 Branches in District or Branch in outside the district Prior permissionPermission of Regional Director
8Intimation regarding Opening of any Branch 30 days of openingIntimation to Registrar
9Closure of Branch 1. Publish Advertisment in  vernacular language

2. Fixed Copy of Advertisement on the notice board of Nidhi

3. Intimation to ROC
1. 30 days prior to closure 
102. 30 days from Advertisement given 
113. 30 days from ClosureIntimation to Registrar
12Auditor Certificate Auditor Certificate regarding Compliance of Nidhi Rules, 2014 which shall annex to Audit reportEvery YearYearly Compliance
13Filing of Half yearly return with RegistrarFile GNL-2 with attachment of NDH-3With in 30 days from conclusion of each half yearHalf Yearly Return with ROC
14Filing of financial statementE-form AOC-4Within 30 days from the date of AGMYearly return with ROC
15Filing of Annual ReturnE-form MGT-7Within 60 days from the date of AGMYearly return with ROC
16Filing of approval of Financial statementE-form MGT-14With in 30 days of passing resolutionYearly filing with ROC

EXEMPTION TO NIDHI COMPANY (NOTIFICATION DATED 05 JUNE 2015 AND 22 JAN 2019)

S No.ComplianceExemption
1Service of Documents and Financial Statements  to MembersThis provision grants a relief to the Nidhi Companies from sending documents, notices etc. to  small shareholders (i.e. those holding shares of one thousand rupees or less in face value or one percent or less of the total paid-up share capital of the Nidhis whichever is less) instead documents can be served by a public notice in newspaper and notice Board
2Private Placement of SharesFew procedural requirements in relation to private placement like maintenance of record of private placement;  restrictions on fresh offer, restriction on receipt of subscription money in cash etc. has been relaxed for Nidhi Companies.
3Further issue of Share capitalNidhi Companies can make further allotment of their shares without having to comply with requirements of Section 62.
4Buyback of Shareswhen shares are purchased by the NIdhi from a member on his ceasing to be a depositor or borrower, it shall not consider reduction of Share Capital
5Payment of Dividendif the dividend is not claimed by a member within 30 days from the date of declaration, then the same may be paid by crediting it to the account of the member.

Further Section 127 deals with punishment for failure to distribute dividend. However for Nidhi companies, where the dividend payable to a member is one hundred rupees or less, it shall be sufficient compliance of the provisions of the section, if the declaration of dividend is announced in the local language in one local news paper of wide circulation and announcement of the said declaration is also displayed on the notice board of the Nidhis for at least three months
6Deposit Amount from person proposed to appoint as DirectorAmount reduced from Rs 1 Lac to 10,000
7Loan to Directors and their relativesSection 185 Shall not apply, provided the loan is given to a director or his relative in their capacity as members and such transaction is disclosed in the annual accounts by a note.
8Remuneration Nidhi Company can pay remuneration to directors other than managing director, wholetime director or manager for performing special services and for seeking approval of members in specified cases
9Filing fees for return of allotmentFiling fees to be paid to ROC for filing return of allotment has been reduced.
10Vote on Pollno member of Nidhi Company shall exercise voting rights on poll in excess of five per cent of total voting rights of equity shareholders.
11Dmat of SharesNidhi Company is not required to get it shares dematerialised

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