Govt. amends rules governing Nidhi companies

To protect the interests of the public and prevent possible illegal fundraising activities, the government has amended the rules governing Nidhi companies whereby its prior declaration will be compulsory for a certain class of such companies for starting operations.

The move by the Corporate Affairs Ministry also came against the backdrop of a significant increase in the number of Nidhi companies in recent years and instances of the public getting duped by fraudulent money-pooling activities.

Now, public companies seeking to function as Nidhis must obtain a prior declaration from the central government before accepting deposits, the Ministry said in a release on Wednesday.

Just about 390 companies were declared as Nidhi companies under the Companies Act, 1956. However, their count surged since the implementation of the Companies Act, 2013, in April 2014.

“During 2014-2019, more than ten thousand companies got 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 (as amended),” the release said.

According to the Ministry, to safeguard the interest of the general public, it has become imperative that before becoming its member, one must ensure the declaration of a company as a Nidhi by the central government.

A public company incorporated as a Nidhi with a share capital of ₹10 lakh should first get itself declared as a Nidhi by applying in form NDH-4 with a minimum membership of 200 and a Net Owned Fund (NOF) of ₹20 lakh within 120 days of its incorporation.

Further, promoters and directors of the company concerned 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,” the release said.

Nidhi companies are non-banking finance entities that are into lending and borrowing transactions with their members.

After the amendment in the Companies Act, 2013 and resultant changes in the rules, with effect from August 15, 2019, companies incorporated as Nidhis were required to apply to the government in form NDH-4 for declaration within 14 months of incorporation. The requirement was applicable for entities incorporated after the commencement of the Nidhi (Amendment) Rules from August 15, 2019. The time period was 9 months in case such companies were incorporated as Nidhis after 2014 but prior to August 15, 2019.