Government modifies the rules that governs the NIDHI companies
What is the news:
- The Ministry of Corporate Affairs (MCA) has amended rules governing Nidhi companies, whereby its prior declaration will be mandatory for certain entities before they start accepting deposits.
- Now, public companies desiring to function as Nidhis must obtain prior declaration from the central government before accepting deposits, the Ministry said in a release on Wednesday.
- “To safeguard the interest of the general public, it has become imperative that before becoming its member, one must ensure declaration of a company as a Nidhi by the central government
Minister of corporate affairs :
Rao Inderjit Singh (Minister of State), P. P. Chaudhary (Minister of State)
What are the NIDHI companies :
- A Nidhi company, especially popular in southern states like Tamil Nadu, is a non-banking financial company.
- The core business of Nidhi companies is borrowing and lending money between their members.
- “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 by companies in NDH-4 form, approval will be deemed as granted.
- This will apply for such companies which shall be incorporated after Nidhi (Amendment) Rules, 2022,” the release said.
- The ministry said during 2014-2019, more than 10,000 companies got incorporated. However, only about 2,300 companies 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),” it said.
Activities Prohibited in a Nidhi Company
- Nidhi Company can’t deal with chit funds, hire-purchase finance, leasing finance, insurance or securities business. It is strictly prohibited from accepting deposits from or lending funds to, any other person except members.
- Also, it can’t advertise itself to ask for any deposits.
Share Capital and Owners’ Funds
- A minimum of 5 lakh rupees, is required as the equity share capital to start a Nidhi Company. Nidhi Company can’t issue preference shares.
New rules :
- Any public company incorporated as Nidhi with a share capital of Rs 10 lakh will have submit NDH-4 form and apply with the central government to be notified as a Nidhi company within 120 days of its incorporation. Also, the company needs to have atleast 200 members and should have a net owned fund(NOF) of Rs 20 lakh.
- the promoters and directors of the company will have to satisfy the fit and proper criteria. Under the current rules, a Nidhi company to obtain a consent from the central government to operate within 14 months from their incorporation.
- However, MCA has observed that several companies are not complying with the required NDH-4 form submission rule. According to the ministry, in the period between 2014-19 more than 10,000 new companies were incorporated however only 2,300 of them submitted the NDH-4 form.
- 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,” said the MCA release. “To safeguard the interest of general public, it has become imperative that before becoming its member, one must ensure declaration of a company as a Nidhi by the Central Government,”
- To ensure timely disposal, MCA has proposed that if a company doesn’t receive any intimation from the Central government within 45 days of submitting the NDH-4 form, the approval would be deemed to be granted. However, this provision wont apply to already incorporated companies but only to those Nidhi companies that are floated after these new Nidhi rules come into effect.