The Hindu Business Line : Govt to tighten norms for Nidhis

DISTRESSED with the continuous instances of default by Nidhi companies or Mutual Benefit Societies (MBS), the Ministry of Company Affairs (MCA) is planning to further tighten the screws on them.

The Ministry also proposes to take up this issue with the Reserve Bank of India in order to address any `mismatch' between the RBI Act and the Company Law norms pertaining to such companies.

"The Government would be consulting RBI on the issues of dual control, if any, exercised by both the RBI and the Ministry for monitoring such entities. We would like to work in synergy with RBI and resolve the issue at the earliest," the Minister for Company Affairs, Mr Prem Chand Gupta, told Business Line.

"We are very concerned about the rising instances of defaulting Nidhis. The Ministry proposes to take steps to curb such defaults. In fact, if need be, the Government would like to further tighten the norms governing such entities, as it is mainly the small investors who are affected," he said.

Despite the Ministry setting stringent parameters for these companies in 2002, it continues to receive depositor complaints against the defaulting entities, including the Chennai-based RBF Nidhi, official sources said. Further, it has been brought to the MCA's notice that despite the Company Law Board's orders, there are instances of default by such entities.

Elaborating on the Ministry's move, officials said there has been thinking in the Government that the norms need to be made more transparent and Nidhis need to be made more accountable. In fact, this would be the right time to take up the issue as the J.J. Irani Committee is already working on the Concept Paper on a new company law.

The Nidhis, which are a type of non-banking finance companies (NBFCs), have some unique features. For instance, they do not lend to non-members — a borrower would have to become a member first.

As on January 31, 2005, there were about 230 Nidhis. The Ministry has been collecting information from various sources, including the Company Law Board (CLB) Southern region, on the cases where the Nidhis have defaulted.

Further, the Government has recently reconstituted the RBF Nidhi's Board. The Nidhis , which have defaulted, include Kuber Mutual Benefits Ltd, Trikone Mutual Benefits, Ican Mutual Benefit and Alwarpet Benefit Fund.

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