Compliance & Procedures applicable to Nidhi Companies

1. Prevailing Regulatory Aspects

• Companies Act, 2013 and particularly Section 406 of the Companies Act, 2013.
• Nidhi Rules, 2014
• Exemption Notification for Nidhi Companies dated 5th June, 2015

2. Every Nidhi shall, within a period of one year from the commencement of these rules, ensure that it has:

• Not less than “Two hundred” members;
• Net Owned Funds of “Ten Lakh Rupees” or more;
• Unencumbered term deposits of not less than “ten per cent” of the outstanding deposits as specified in rule 14; and
• Ratio of Net Owned Funds to deposits of not more than 1:20.

(“Net Owned Funds” means the aggregate of paid up equity share capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet)

3. Share capital and allotment

• Every Nidhi shall issue equity shares of the nominal value of not less than ten rupees each.
• No service charge shall be levied for issue of shares.
• Every Nidhi shall allot to each deposit holder at least a minimum of ten equity shares or shares equivalent to one hundred rupees.
• A Nidhi shall not admit a body corporate or trust as a member
• Every Nidhi shall ensure that its membership is not reduced to less than two hundred members at any time.
• A minor shall not be admitted as a member of Nidhi.

4. Return of statutory compliances by Nidhi Companies

• Filing of Form NDH-3: Half Yearly Return by Nidhi Company. Every Nidhi Company is required to File Form NDH-3 with ROC within 30 days from the close of each half year. i.e. 30th April for the half year ending on 31st March and 30th Oct for the half year ending on 30th Sept. Form NDH-3 contains the details of Number of Members admitted during the half year, number of members ceased to be members and total number of members as on the date, Loan granted by Nidhi company along against the particular security and Deposits accepted by the Nidhi company form its members. Form NDH-3 should be certified by Company Secretary of CA , CMA in Practice.

• Filing of Form NDH-1 : Yearly Return by Nidhi Company. Every Nidhi Company is required to file Form NDH-1 with ROC within 90 days form  the close of Financial Year, this form contains all the details regarding the members, loans , deposits, reserves etc for the full financial years.

• Form AOC-4: Filing of Financial Statements. Every Nidhi company is required to file its Financial Statements, along with Notice calling General Meeting, Directors Report, Auditors Report and Balance sheet to ROC within 30 days from the date of Annual General Meeting of the Company.

• Form MGT-7: Annual Return. Every Nidhi company is required to file its Annual Return along with List of members of Nidhi Company within 60 days from date of Annual General Meeting.

5. What can all a Nidhi Company do;

• The secured loan, i.e. it can only give loan against certain securities like gold, silver, immovable property etc.
• Take deposits in the ratio of 1:20. I.e. if paid up capitals Rs.10 lakh, then max deposits will be 2 crores.
• Can offer locker facility and charge fee for the same.
• Can open collection centres if all compliances are duly fulfilled.

6. A Nidhi cannot do;

• Unsecured loans, i.e. it cannot extend loan based on surety, guarantee, ITR based etc.
• No Microfinance work can be done under Nidhi Companies and no vehicle loans, etc.
• A Nidhi cannot pay commission to leverage deposits.
• A Nidhi cannot invest in land, in other companies, in stock market etc.
• Cannot invest in any company
• Cannot run microfinance
• A Nidhi Company shall not carry any chit fund, hire purchase finance leasing finance insurance or acquisition of securities issued by any Body corporate
• Nidhi Company is not allowed to issue any kind of preference shares or any debt instruments by any name whatsoever.
• Nidhi company is prohibited to open any current account with its members
• Carry on any business other than the business of borrowing or lending in its own name
• Nidhi company is prohibited to accept deposits or lend amount other than its members
• Pledge any of the assets lodged by its members as security
• Nidhi company is prohibited to take deposits or lend money to any Body corporate
• These companies are prohibited to enter into any partnership arrangement in its borrowing or lending activities
• Nidhi company prohibited to issue any advertisement in any form for soliciting deposits

7. Branches of Nidhi

• A Nidhi may open branches, only if it has earned net profits after tax continuously during the preceding three financial years. A Nidhi may open up to three branches within the district.
• If a Nidhi proposes to open more than three branches within the district or any branch outside the district, it shall obtain the prior permission of the Regional Director and an intimation is to be given to the Registrar about opening of every branch within thirty days of such opening.
• Nidhi shall not open branches or collection centres or offices or deposit centres, or by whatever name called outside the State where its registered office is situated.
• Nidhi shall not open branches or collection centres or offices or deposit centres, or by whatever name called unless financial statement and annual return (up to date) are filed with the Registrar.

8. Acceptance of Deposits

• Rule 13 of the Nidhi Rules, 2014 provides that any of the fixed deposits accepted by a Nidhi company shall be for a minimum period of six months and a maximum period of sixty months.
• Recurring deposits shall be accepted for a minimum period of twelve months and a maximum period of sixty months. In case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi.
• The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees at any point of time and the rate of interest shall not exceed two per cent above the rate of interest payable on savings bank account by nationalised banks.
• A Nidhi may offer interest on fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the Reserve Bank of India which the Non-Banking Financial Companies can pay on their public deposits.

9. Un-encumbered term deposits by Nidhi

• Under Rule 14 of the Nidhi Rules, 2014, every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a Scheduled commercial bank (other than a co-operative bank or a regional rural bank), or post office deposits in its own name an amount which shall not be less than ten per cent of the deposits outstanding at the close of business on the last working day of the second preceding month.
• In cases of unforeseen commitments, temporary withdrawal may be permitted with the prior approval of the Regional Director 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 ten per cent.

10. Loans by Nidhi : According to Rule 15 A Nidhi shall provide loans only to its members. The loans given by a Nidhi to a member shall be subject to the following limits, namely:

• Rs. 2 Lakh where a total amount of Deposits form its members is less than Rs. 2 crore
• Rs. 7.50 Lakh where the total amount of Deposits form its members is more than Rs. 2 crore but less than twenty crore rupees
• Rs. 12 Lakh where the total amount of Deposits form its members is more than Rs. 20 crore but less than Fifty crore rupees
• Rs. 15 Lakh where the total amount of Deposits form its members is more than Rs. 50 crore
• Where a Nidhi has not made profits continuously in the three preceding financial years, it shall not make any fresh loans exceeding fifty per cent of the maximum amounts of loans specified above.
• A member shall not be eligible for any further loan if he has borrowed any earlier loan from the Nidhi and has defaulted in repayment of such loan.

(The amount of deposits shall be calculated on the basis of the last audited annual financial statements.)

11. Nidhi shall give loans to its members only against the following securities, namely:

• Gold, silver and jewellery, and the re-payment period of such loan shall not exceed one year.
• Immovable property and, the total loans against immovable property shall not exceed fifty per cent of the overall loan outstanding on the date of approval by the board, the individual loan shall not exceed fifty per cent of the value of property offered as security and the period of repayment of such loan shall not exceed seven years.
• Fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies.

12. Rate of interest on any loan given by a Nidhi

• The rate of interest to be charged on any loan given by a Nidhi shall not exceed seven and half per cent above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method.

• Nidhi shall charge the same rate of interest on the borrowers in respect of the same class of loans and 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.