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All about Nidhi Company

CA PRASHANT MITTAL , Last updated: 04 March 2017  

Section 406 of Companies Act 2013 and Nidhi Rules, 2014 governs the Law and procedure for Nidhi Company.

What is Nidhi Company ?

  • A Nidhi company, is one that belongs to the non-banking Indian finance sector and is recognized under section 406 of the Companies Act 2013.
  • Their core business is borrowing and lending money between their members and which complies with rules of Chapter XXVI of Companies Rules,2014.
  • They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company.
  • They are regulated by MCA. RBI is empowered to issue directions to them in matters relating to their deposit acceptance activities.
  • They are incorporated in the nature of Limited company and hence, they have to comply with two set of norms, one of Public limited company as per Companies Act, 2013 and another is for Nidhi rules, 2014.
  • No RBI approval is necessary to register the company, as RBI has specifically exempted this category of NBFC in India to comply with its core provisions such as registration with RBI etc
  • They are mutual benefit societies, because their dealings are restricted only to the members; and membership is limited to individuals.
  • The principal source of funds is the contribution from the members. The loans are given to the members at relatively reasonable rates for purposes such as house construction or repairs and are generally secured. The deposits mobilized by Nidhi's are not much when compared to the organized banking sector.
  • These companies are more popular in South India.

Incorporation and incidental matters

  • A Nidhi to be incorporated under the Act shall be a public company and shall have a minimum paid up equity share capital of five lakh rupees.
  • On and after the commencement of the Act, no Nidhi shall issue preference shares.
  • If preference shares had been issued by a Nidhi before the commencement of this Act, such preference shares shall be redeemed in accordance with the terms of issue of such shares.
  • 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 from, and lending to, its members only, for their mutual benefit.
  • Every Company incorporated as a "Nidhi" shall have the last words ‘Nidhi Limited' as part of its name.

General restrictions or prohibitions

No Nidhi shall-

  • Carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by anybody corporate;
  • Issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;
  • Open any current account with its members;
  • Acquire another company by purchase of securities 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, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over such Nidhi;
  • Carry on any business other than the business of borrowing or lending in its own name:

Provided that Nidhis which have adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty per cent of the gross income of the Nidhi at any point of time during a financial year.

  • Accept deposits from or lend to any person, other than its members;
  • Pledge any of the assets lodged by its members as security;
  • Take deposits from or lend money to anybody corporate;
  • Enter into any partnership arrangement in its borrowing or lending activities;
  • Issue or cause to be issued any advertisement in any form for soliciting deposit:

Provided that 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.

  • Pay any brokerage or incentive for mobilising deposits from members or for deployment of funds or for granting loans.

Share capital and allotment

  • Every Nidhi shall issue equity shares of the nominal value of not less than ten rupees each: P
  •  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:

Provided that a savings account holder and a recurring deposit account holder shall hold at least one equity share of rupees ten.


  • A Nidhi shall not admit a body corporate or trust as a member.
  • Except as otherwise permitted under these rules, 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:

Provided that 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.

Net owned funds

Every Nidhi shall maintain Net Owned Funds (excluding the proceeds of any preference share capital) of not less than ten lakh rupees or such higher amount as the Central Government may specify from time to time.


A Nidhi may open branches, only if

  • It has earned net profits after tax continuously during the preceding three financial years.
  • Subject to the provisions contained in sub-rule (1), 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.
  •  No Nidhi shall open branches or collection centres or offices or deposit centres, or by whatever name called outside the State where its registered office is situated.
  • No Nidhi shall 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.

A Nidhi shall not close any branch unless it

  • Publishes an advertisement in a newspaper in vernacular language in the place where it carries on business at least thirty days prior to such closure, informing the public about such closure;
  • Fixes a copy of such advertisement or a notice informing such closure of the branch on the notice board of Nidhi for a period of at least thirty days from the date on which advertisement was published; and
  •  Gives an intimation to the Registrar within thirty days of such closure.

Acceptance of deposits by Nidhis

  • A Nidhi shall not accept deposits exceeding twenty times of its Net Owned Funds (NOF) as per its last audited financial statements
  •  The fixed deposits shall be accepted 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.

A fixed deposit account or a recurring deposit account shall be foreclosed by the depositor subject to the following conditions, namely:-

  • A  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:

Provided that in the event of death of a depositor, the deposit may be repaid prematurely to the surviving depositor or depositors in the case of joint holding with survivor clause, or to the nominee or to legal heir with interest up to the date of repayment at the rate which the company would have ordinarily paid, had such deposit been accepted for the period for which such deposit had run.

Un-encumbered term deposits.-

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:

Provided that 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.


  •  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:-

Total amount of deposits of such Nidhi from its members is

Maximum Limit of amount of Loans given to individual Member

Less than 2 Crore Rupees

Two lakh rupees

More than two crore rupees but less than twenty crore rupees

Seven lakh fifty thousand rupees

More than twenty crore rupees but less than fifty crore rupees

Twelve lakh rupees

More than fifty crore rupees

Fifteen lakh rupees

  • Provided that 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 in above table.
  • Provided further that 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.
  • For the purposes of sub-rule (2), the amount of deposits shall be calculated on the basis of the last audited annual financial statements.

A Nidhi shall give loans to its members only against the following securities, namely:-

  • Gold, Silver and Jewellery: Provided that the re-payment period of such loan shall not exceed one year.
  • Immovable property: Provided that the total loans against immovable property [excluding mortgage loans granted on the security of property by registered mortgage, being a registered mortgage under section 69 of the Transfer of Property Act, 1882 (IV of 1882)] 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:

Provided that such securities duly discharged shall be pledged with Nidhi and the maturity date of such securities shall not fall beyond the loan period or one year whichever is earlier: Provided further that in the case of loan against fixed deposits, the period of loan shall not exceed the unexpired period of the fixed deposits.

Rate of interest.-

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:

Provided that 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.

Rules relating to Directors.-

  • The Director shall be a member of Nidhi.
  • The Director of a Nidhi shall hold office for a term up to ten consecutive years on the Board of Nidhi.
  •  The Director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a Director.
  • Where the tenure of any Director in any case had already been extended by the Central Government, it shall terminate on expiry of such extended tenure.
  • The person to be appointed as a Director shall comply with the requirements of sub-section (4) of Section 152 of the Act and shall not have been disqualified from appointment as provided in section 164 of the Act. 18.

Dividend.- A Nidhi shall not declare dividend exceeding twenty five per cent 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, namely:-

  •  An equal amount is transferred to General Reserve;
  • there has been no default in repayment of matured deposits and interest; and
  • it has complied with all the rules as applicable to Nidhis.


  • No Nidhi shall appoint or re-appoint an individual as auditor for more than one term of five consecutive years.
  •  No Nidhi shall appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years: Provided that an auditor (whether an individual or an audit firm) shall be eligible for subsequent appointment after the expiration of two years from the completion of his or its term:

Explanation: For the purposes of this proviso:

(i) 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 five consecutive years or ten consecutive years, as the case may be;

(ii) Appointment includes re-appointment.

Requirements for minimum number of members, net owned fund etc

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 (Minimum number of members should be 200) ; 
  •  Net Owned Funds of ten lakh rupees or more(‘Net owned funds' means the aggregate of paid up equity share capital and free reserved as reduced by the accumulated and intangible assets appearing in the last audited balance sheet);
  •  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.
  • If the failure to comply above rule extends beyond the second financial year, Nidhi shall not accept any further deposits from the commencement of the second financial year till it complies with the above provisions, besides being liable for penal consequences as provided in the Act.


NDH- 1

Within 90 days from the closure of the first financial year after its incorporation and where applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form NDH – 1 along with such fee as prescribed with the Registrar duly certified by a Company Secretary in practice or a Chartered Accountant in practice or a Cost Accountant in practice.


If the company is not complying with the above it shall within90 days from the close of the first financial year, apply to the Regional Director in Form NDH -2 along with fee for extension of time and The Regional Director may consider the application and pass orders within 30 days of the receipt of the application.


Filing of half yearly return.-Every company covered under rule 2 shall file half yearly return with the Registrar in Form NDH-3 along with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 within thirty days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice or cost accountant in practice.

Power to enforce compliance

  •  For the purposes of enforcing compliance with these rules, the Registrar of companies may call for such information or returns from Nidhi as he deems necessary and may engage the services of chartered accountants, company secretaries in practice, cost accountants, or any firm thereof from time to time for assisting him in the discharge of his duties.
  • In respect of any Nidhi which has violated these rules or has failed to function in terms of the Memorandum and Articles of Association, the concerned Regional Director may appoint a Special Officer to take over the management of Nidhi and such Special Officer shall function as per the guidelines given by such Regional Director: Provided that an opportunity of being heard shall be given to the concerned Nidhi by the Regional Director before appointing any Special Officer.

Penalty for non-compliance.-

If a company falling under rule 2 contravenes any of the provisions of the rules prescribed herein, the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees, and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which the contravention continues.

Explanation. - For the purpose of this rule "Regional Director" means the person appointed by the Central Government in the Ministry of Corporate Affairs as a Regional Director;

The author can also be reached at caprashantmittal12@gmail.com 

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