The Corporate Affairs Ministry has prescribed doubling the Net Owned Fund of a Nidhi company to ₹20 lakh. Also, minimum paid-up capital requirement has been enhanced to ₹10 lakh as against ₹5 lakh.

The Ministry has amended Nidhi Rules 2014, which have come into effect from April 19. “To safeguard the interest of general public, it has become imperative that before becoming its member, one must ensure declaration of a company as a Nidhi by the Central Government and towards this, a fewnecessary/important amendments in the Rules have been carried out which are applicable to the Companies to be incorporated after Nidhi (amendment) Rule, 2022,” a statement said.

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Nidhi Company is a kind of Non-Banking Financial Company that is is formed to borrow and lend money to its members. It inculcates the habit of saving among its members and works on the principle of mutual benefit. Such companies are not required to receive the licence from Reserve Bank of India (RBI), but need approval under Companies Act.

The amended rules

Amended rules say a Public Company incorporated as a Nidhi with a share capital of ₹10 lakh; needs to first get itself declared as a Nidhi from the Central Government by applying in form NDH-4 with a minimum membership of 200 and Net Owned Fund (NoF) of ₹20 lakh within 120 days of its incorporation. The Promoters and Directors of the company have to meet the criteria of fit and proper person as laid down in the rules.

For timely disposal, it has also been provided in amended Rules that in case no decision is conveyed by the Central Government within 45 days of the receipt of applications filed by companies in form NDH-4, approval would be deemed as granted. This would apply for such companies which shall be incorporated after Nidhi (Amendment) Rules, 2022.

Under the Companies Act, 1956, a Nidhi or Mutual Benefit Society meant a company which the Central Government declared as Nidhi or Mutual Benefit Society by notification in the official gazette. Under the Companies Act, 2013, initially there was no need for a company to get declaration from Central Government to function as a Nidhi Company. Such companies were required to only incorporate as a Nidhi and meet requirements such as minimum membership of 200, Net Owned Fund (NoF) of ₹10 lakh, NOF to deposit ratio of 1:20 and keeping 10 per cent unencumbered deposits in scheduled commercial banks or post offices within one year of commencement of Nidhi Rules, 2014.

Panel’s recommendations

A committee was constituted in the Ministry to make recommendations on the issues arising from the implementation of the Companies Act, 2013 etc. and it was felt that the earlier provisions under the Companies Act, 1956 requiring the approval of the Central Government for declaration as Nidhi were appropriate since they provided a centralised and more restrictive frame work for regulation of such entities and accordingly section 406 of the Companies Act, 2013 was amended with effect from August 15, 2019, to bring back the requirement of declaration as a Nidhi by the Central Government.

Under the Companies Act, 1956, about 390 companies were declared as Nidhi companies only. During 2014-2019, more than 10,000 companies get incorporated. However, only about 2,300 companies have applied in form NDH-4 for declaration. It has been noticed from examination of form NDH-4 that companies have not been complying with the applicable provisions of the Act and the Nidhi Rules, 2014.

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