Nidhi company

Dear Ashishji,

As per my knowledge, the present procedure to incorporate a Nidhi company is as follows :

To get approval of the name by which the company will be known. The promoters propose three names to ROC.

After verification, the ROC is able to either identify one name or else calls for a panel of fresh names.

Following this exercise a name is finally allotted by ROC to the promoters which will be used as the name of the company. But the word ‘Nidhi’ cannot be used as a part of the name at this stage.

Thereafter the promoters submit the Memorandum and Articles of Association to ROC who after examination registers the company and issues a Certificate of Incorporation.

Thereafter the company submits to the ROC documents such as a Statement in lieu of Prospectus, declaration by the promoters etc., specified under Section 149 of the Companies Act.

ROC registers these documents after corrections if any and issues a Certificate of Commencement of Business. At this stage there is no stipulation as to the membership strength of the company nor any restriction regarding capital for doing business. The company can receive deposits and lend without any restriction on rates of interest and for any period of time.

Consequently, the functioning of such companies is not restricted or supervised by the authorities.

During this period authorities are expected to know the functioning of this type of companies and place restrictions on receipt of deposits.

[Prior to amendments to RBI Act in January, 1997, the RBI held a view that grant of Nidhi status was under the purview of DCA (MCA) and that the companies working on nidhi lines but awaiting notification by the Government should be under DCA’s (MCA) control and in fact, therefore, there being no clear understanding these companies had the opportunity to do what they liked !]

(I have no idea regarding the expenses incurred on it’s incorporation and normal time taken to incorporate it. Expert’s view solicited.)

Regards,

Veeral Gandhi