• CRSPL

  • 24 Mar 2023

  • 22
  • 6 mins

"NIDHI COMPANY"  Set-Up And Compliances

A "Nidhi company" is a business that has been granted recognition under the 2013 Companies Act and the 2014 Nidhi Rules. Their principal functions, which fall under the non-banking Indian finance sector, are money borrowing and lending among their members. It is a business that has been set up specifically to instill the value of saving money in the minds of its members. They are generally known by a variety of names, including Mutual Benefit Funds, Benefit Funds, Permanent Funds, and Mutual Benefit Companies.

It is a program that is governed by the government and is intended to serve the interests of small and medium-sized businesses. The foundational elements of a Nidhi business are governed by the Ministry of Corporate Affairs. Section 406 of the Companies Act, 2013  governs the structure of the Nidhi Company in India. National Initiative for Creating and Utilizing Innovations is the full name of the organization. In this article, we are going to discuss the Nidhi Company and its necessary Compliances but before proceeding let’s first know about what actually is a NIDHI COMPANY. 

What is Nidhi Company?

Section 406 of the 213 Companies Act governs or regulates The Nidhi Company. According to section 406 (1), it is defined as follows:

“A company that has been incorporated as a Nidhi with the goal of developing the habit of conserving money and being thrifty among its members is referred to as a Nidhi. These businesses exclusively accept deposits from and lend to their members for their mutual gain.”

The person who wishes to start a business with the least amount of capital investment should choose this type of company.

Necessary Compliances of Nidhi Company

The three kinds of Nidhi Company compliance requirements are as follows:

  1. Pre-incorporation compliance
  2. Post- incorporation compliance
  3. Event-based compliance

Now let’s discuss these three compliances in detail. 

1. Nidhi Company’s Pre-incorporation Compliances

In order to obtain Nidhi Company Registration, certain requirements must be fulfilled by every Nidhi Company. The following is a list of requirements that must be met:

  • A Nidhi Company must have a minimum of seven members of whom three must serve as the company's directors.
  • The business must be a public company and contain the suffix "Nidhi Limited" in its name.
  • A Trust, a Body Corporate and a Minor are not permitted to be a member of Nidhi.
  • The paid-up share capital must be a minimum of Rs. 5 lakhs.
  • If the Nidhi Company has gone three financial years without a profit after taxes, it is unable to open branches.
  • The loan's interest rate cannot be more than 7.5 percent more than the highest rate of interest being provided on deposits.
  • Preference shares that the firm has already issued before the Act's start date must be redeemed. The company is not permitted to issue preference shares.
  • The company's main goal must be to help its members develop a saving habit.

2. Nidhi Company’s Post- incorporation Compliances

Post-incorporation compliances are divided into two categories which are as follows:

  • General Compliance Within a year of incorporation, the Nidhi Company must comply with the requirements listed below:
  • Within a year of its incorporation, there should be at least 200 members.
  • The minimum amount of Net Owned Funds is Rs. 20 lakhs (Updated under Nidhi (Amendment) Rules, 2022).
  • The ratio between net owned money and deposits must not be greater than 1:20. That means Net owned funds: Deposits = 1:20.
  • In accordance with Rule 14 of the 2014 Nidhi Rules, unencumbered term deposits must represent at least 10% of the total amount of outstanding deposits.
  • The mandatory Registers and books of accounts for the Nidhi Company must be maintained. 
  • It is necessary for the Nidhi Company to call statutory meetings.
  • The total amount of paid-up capital and free reserves is divided by cumulative and intangible assets as shown on the most recent balance sheet to determine net owned funds.

 

Annual Compliance of NIDHI COMPANY

To keep the government informed of the company's operations and functional divisions, annual compliance is observed. 

The following annual compliances are required for Nidhi companies in India:

 

Form Name and Number

Compliance

Due Date of Filing the Form

Form NDH-1

Return of Statutory Compliance

For the entire financial year, Form NDH-1 contains all the information on members, deposits, loans, reserves, etc. e-Form GNL-2 is used to submit the documents to the Registrar.

Within 90 days of the end of the financial year.

Form NDH-2

Application for Extension of Time.

You need to fill out this form in the case: 

 
  • Within a year of incorporation, the company fails to grow by at least 200 members.
  • Neglecting to keep the Net Owned Fund to Deposit Ratio at 1:20

Within 30 days of the end of the financial year, NDH-2 must be submitted to the regional director along with the required fees.

Form NDH 3

Half-yearly return

Form NDH 3 must be submitted to the ROC (Registrar of Company).

Within 30 days of the end of the half-year. It needs to be properly certified by a working expert.

Form ADT-1

Appointment of an Auditor for the company.

This is filed within 15 days after the annual general meeting date.

Form NDH -4 

For submitting a request for a declaration as a Nidhi Business and a status update.

For a new Nidhi Company- 120 days following the passing of a year from the date of incorporation.

 

For an existing Nidhi Company- Within one year of its incorporation date OR within six months of the day the Nidhi Rules 2019 go into effect, Any date that comes later will be considered.

Form AOC-4

To file financial documents and other supporting documents of the company to the Registrar of Companies.

This has to be filed within 30 days of the annual general meeting of the company.

ITR-6

Income Tax Return

By September 30.

Form MGT-7

Annual Return

This has to be filed within 60 days of the annual general meeting of the company.

 

3. Event-Based Compliances

Event-based compliance is the third and last type of Nidhi Company compliance. This sort of compliance is necessary to file once during the registration process of the company. Additionally, whenever the Nidhi Company's non-periodic structure changes, these compliances must be met. The following is a list of the scenarios in which Nidhi Company must file compliance: 

  • Any change or modification in the name of the company.
  • Any change to the registered address of the business.
  • The appointment or hiring of key managerial personnel.
  • Any director or auditor's appointment, registration or dismissal.
  • Any change to the company's objectives.
  • Exchange of shares.
  • Any modification to the company's capital structure.

Nidhi Company’s Penalties for Non-Compliance

Every Nidhi company is required to file compliances on time. Nidhi companies in India are subject to penalties for non-compliance. 

  • If the company does not comply, a fine of up to Rs. 5,000 can be imposed on both the institution and the responsible officials.
  • In case of a continuing violation, an additional fee of Rs 500 per day will be charged by the company.

Therefore, it is important to hire experts to assist with compliance processes.

New rules under the Nidhi Company (Amendment) Rules 2022 for Nidhi Company compliance

  • There must be at least ten lacs in paid-up capital.
  • Applicants must submit an application form in NDH-4 within 120 days of establishment.
  • The Central Government must accept an application within 45 days.
  • A net-owned fund would be kept with twenty lacs.
  • After incorporation, a Nidhi company must apply the changes made to the Nidhi rules 2022.

Conclusion

Nidhi Companies in India were founded to encourage its shareholders to save money for unanticipated costs. By carefully planning their savings, individuals may be able to achieve financial independence and be ready for unforeseen costs. In order to avoid penalties and maintain efficient operations, a Nidhi company must comply with annual filing requirements and other compliances.