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News: The Ministry of Corporate Affairs (MCA) has issued an advisory cautioning the public about Nidhi Companies and their functioning.
About Nidhi Companies
- Nidhi Companies are Non-Banking Financial Companies created to promote saving and thrift among their members.
- They are exempted from the core provisions of the RBI Act.
- They are classified as “Mutual Benefit Financial Company” by RBI.
- Regulated by: They are regulated by the Ministry of Corporate Affairs (MCA) under the Companies Act, 2013 and Nidhi Rules, 2014.
- Members: A Nidhi Company must have a minimum of 7 members, of whom at least 3 must be appointed as directors
- Provisions related to Nidhi Company:
- Every company desirous to function as “Nidhi” is required to file application in Form “NDH-4 “for getting itself declared/ updated as “Nidhi”.
- The requirement for Central Government declaration of Nidhi Companies was reintroduced from 15 August 2019 through amendments to Section 406 of the Companies Act, 2013 and the Nidhi Rules, 2014.
- It can accept deposits and give loans only to their members.
- A Nidhi Company cannot –
- Open current accounts in the names of its members.
- Deal in chit funds, hire-purchase, leasing, insurance or securities business.
- Issue preference shares, debentures or other debt instruments.
- The deposits accepted by these Companies are not insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). Therefore, if a company fails or fraud occurs, recovery of the deposited money may be difficult or incomplete.
- Every company desirous to function as “Nidhi” is required to file application in Form “NDH-4 “for getting itself declared/ updated as “Nidhi”.
