Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

What is Nidhi Company?

The term ‘nidhi’ in Hindi refers to finance or treasure. Nidhi Company is a company involved in borrowing and lending money to its members. It is a type of Non-Banking Financial Company (NBFC) and is mainly created to instill thrift and saving habits among its members. Its dealings are limited to its members only. Nidhi Company members consist of only individuals; a body corporate or trust cannot be a member. Nidhi companies are known by different names like Permanent Fund, Benefit Funds, Mutual Benefit Funds, Mutual Benefit Societies, and Mutual Benefit Company. These companies are more concentrated in the southern part of the country.

Legal Framework Governing Nidhi Companies

A Nidhi Company is regulated by the MCA and is registered under section 620A of the Companies Act, 1956 or under section 406 of the Companies Act, 2013. It is only partially regulated by the RBI in matters relating to their deposit acceptance. It is exempted from the core provisions of the RBI Act viz. requirement of registration, maintenance of liquid assets, and creation of reserve fund. However, RBI directions relating to the interest rate on deposits, prohibition from paying brokerage on deposits, ban on advertisements and the requirement of submission of certain returns are applicable. The DCA regulates matters relating to the operations and deployment of funds.

The Central government formulated the Nidhi Rules 2014 for carrying out the objectives of the firms. These rules are applicable to-

Nidhi company - Requirements, Registration Procedure, And Compliances Etc.

Every company which had been declared as a Nidhi or Mutual Benefits under Section 620A(1)of Companies Act, 1956

Every company functioning on the lines of a Nidhi company or Mutual benefit society but has either not applied for or has applied for and is awaiting notification to be a Nidhi or Mutual Benefit Society under Section 620A(1)of Companies Act, 1956

Every company incorporated as a Nidhi pursuant to the provisions of Section 406 of the Companies Act, 2013.

Every company declared as Nidhi or Mutual Benefit Society under sub-section (1) of section 406 of the Act*

*introduced via Amendment of Nidhi Rules 2019

Requirements for forming a Nidhi Company

A Nidhi company is to be incorporated as a Public Company. It shall have the words ‘Nidhi Limited’ as part of its name

It shall have a minimum paid-up equity share capital of 5 lakh

It shall not issue preference shares. If preference shares had already been issued by a Nidhi Company before the commencement of the Companies Act 2013, such preference shares are to be redeemed in accordance with the terms of issue of such shares.

Within one year from the date of its incorporation, every Nidhi Company should-

Not have less than 200 members (A minor shall not be admitted as a member. However, 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 the company)

It must have a minimum of INR 10 lakh of net-owned funds

It must have a minimum of 10% of unencumbered term deposits of the outstanding deposits

The ratio between the net-owned funds and the deposits cannot be more than 1:20

Declaration as Nidhi Company

The Nidhi (Amendment) Rules, 2019 has introduced a new form NDH-4 for those companies which wish to declare themselves as Nidhi. The government on receipt of such an application will declare a company as Nidhi if it is satisfied that they have been complying with all the prescribed rules and regulations of the government.

Every new Nidhi Company has to file form NDH-4 within 60 days after the expiry of one year from the date of its incorporation, or within such time period up to which extension has been granted by the Regional Director.

Meanwhile, companies incorporated as Nidhi before the rules were amended (July 1. 2019), have to apply within one year from the date of its incorporation or within 6 months of the commencement of the Nidhi Rules, 2019 whichever is later.

Prohibited Activities

No Nidhi Company shall indulge in the following activities-

Deal in chit fund, hire purchase finance, leasing finance, insurance, or acquisition of securities issued by any corporate

Issue preference shares, debentures, or any other debt instrument

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 name

Accept deposits from or lend to any person, other than its members

Pledge any of the assets lodged by its members as security

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 Nidhi members 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 mobilizing deposits from members or for the deployment of funds or for granting loans.

Provided that Nidhis have adhered to all the provisions of the rules, they may provide locker facilities on rent to its members on the condition that the rental income from such facilities can not exceed 20% of its gross income during a financial year.

Acceptance of Deposits

Nidhi Companies are allowed to accept deposits from members only. No Nidhi Company can accept deposits exceeding 20 times that of its net owned funds as per its last audited financial statements. They are allowed to accept Fixed, Recurring, and Savings deposits.

Fixed Deposits and Recurring Deposits can be accepted for a minimum of 6 and 12 months, respectively, and a maximum of 60 months. The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees.


A Nidhi shall provide loans only to its members. The loans given to a member shall be subject to the following limits:


Loan Amount

If total deposit from members is <2 Crore


2 Crore < Deposits < 20 Crore


20 Crore < Deposits < 50 Crore


>50 Crore


A Nidhi company that has not made profits in the three preceding financial years, can not make any fresh loans exceeding 50% of the maximum amounts of loans specified above.The rate of interest to be charged on any loan shall not be greater than 7.5% above the highest rate of interest offered on deposits and shall be calculated on the reducing balance method.

A Nidhi Company can give loans to its members only against the following securities -

Gold, silver jewelry, and immovable property

Immovable property

Against insurance policies, fixed deposit receipts, National Savings Certificates, and other Government securities

The repayment period of such loan shall not exceed one year in the case of gold, silver, and jewelry. In the case of immovable property, the loan shall not exceed 50% of the value of the property offered as security, and the period of repayment of such loan shall not exceed 7 years.


In case a member has defaulted on a previous loan, they are not eligible for any loan.

Documents for Nidhi Company Registration

Before applying for registration, a Nidhi Company must have a minimum of 7 members and 3 directors. Thereafter, it must follow the below process-

  • Apply for Director Identification Number (DIN) and Digital Signature Certificate
  • Name Approval by using Reserve Unique Name (RUN) Service of MCA
  • Prepare the Articles of Association and Memorandum of Association according to the object of the company and all other documents
  • File for Incorporation Form SPICe+
  • Apply for PAN and TAN

For incorporation, the following documents will be required-

  • PAN of directors and shareholders
  • ID Proof of directors and shareholders
  •   Address proof like bank statements, utility bills
  • Property Ownership Document of registered office premises
  • Passport-sized photographs of directors
  • Copy of rent agreement, if the property is rented
  • Copy of property papers, if the property is owned
  • No Objection Certificate (NOC) by the landlord


Form NDH-1: A Nidhi Company has to file a return of statutory compliances in Form NDH-1 within 90 days from the end of the first financial year after its incorporation and where applicable, the second financial year. This is to be done along with such fee as prescribed with the Registrar and duly certified by a Company Secretary or a Chartered Accountant or a Cost Accountant in practice.

Form NDH -2: If the company is not complying with the above it shall within 30 days from the end of the first financial year, apply to the Regional Director in Form NDH -2 along with a fee for an extension of time.

If there is still a non-compliance with the above-stated requirements, the Nidhi shall not accept any further deposits from the commencement of the second financial year till it complies with the provisions. In addition, it will also be penalized.

Form NDH-3: A Nidhi Company has to file a half-yearly return in Form NDH-3 along with prescribed fees within thirty days from the conclusion of each half-year.

Form NDH-4: The government has amended the provisions related to Nidhi under the Companies Act, which now requires Nidhi companies to apply to the Centre for updation of their status and declaration as a Nidhi company in Form NDH-4.

Form AOC 4: It has to be filled for filing financial documents and other supporting documents to the Registrar of Companies Within 30 days from the date of the Company’s Annual General Meeting.

Form MGT-7: is for filing annual returns and has to be done within 60 days of the Annual General Meeting.

If a company contravenes any provision of the rules then every officer of the company who is in default shall be punishable with a fine which may extend to INR 5,000. In case the contravention is a continuing one, a further fine is applicable, which may extend to INR 500 for every day after the contravention continues.


Published by

Category Corporate Law   Report

1 Likes   2 Shares   2784 Views


Related Articles


Popular Articles

Follow Follow Book Book Book Business Course caclubindia books

CCI Articles

submit article

Stay updated with latest Articles!