Central Government amends Nidhi Rules, 2014 to safeguard the interest of general public

What is the News?

The government of India has released the Nidhi (amendment) Rules, 2022. This amendment brings changes to the Nidhi Rules,2014 to safeguard the interest of the general public.

What are Nidhi Companies?

Nidhi companies are a type of non-bank lenders that raise funds exclusively from their members and give loans to them to improve their governance and protect the public interest.

They are regulated by the Reserve Bank of India(RBI) for deposit-taking and by the Department of Company Affairs(DCA) for operational matters and deployment of funds.

To become a Nidhi company, the entity has to first register as a public limited company which has more disclosure requirements than a private limited company. 

Only individual members are allowed in Nidhi companies, and it cannot give loans to companies.

What was the need for Nidhi (amendment) Rules, 2022?

Under the Companies Act, 1956, Nidhi meant a company that the Central Government declared as Nidhi or Mutual Benefit Society by notification in the official gazette. 

After that, the Companies Act, 2013 was brought. It initially provided that there was no need for a company to get a declaration from the Central Government to function as a Nidhi Company. Such companies were required to only incorporate as a Nidhi and meet certain requirements.

However, the Government brought back the requirement of government certification to operate as a Nidhi company in 2019 by amending the Companies Act of 2013.

But still, the Government found that Nidhi companies have not been complying with the norms. Hence, the Nidhi (amendment) Rules, 2022 was brought.

What are the key provisions of the Nidhi (amendment) Rules, 2022?

Firstly, a public company set up as a Nidhi with a share capital of Rs 10 Lakh needs to first get itself declared as a Nidhi by the Union government. This can be done by submitting an application showing a minimum membership of 200 and net owned funds of ₹2 million within 120 days of its incorporation.

Secondly, promoters and directors of the Nidhi company have to meet the criteria of fit and proper person as laid down in the rules.

Thirdly, the rules introduced the concept of deemed approval. This means that if no decision is taken on the application for certification as Nidhi companies within 45 days of filing the application, approval would be deemed as granted.

Source: This post is based on the article “Central Government amends Nidhi Rules, 2014 to safeguard the interest of general public” published in PIB on 20th April 2022.