Compliance Requirements under Nidhi Companies

Nidhi Company is a type of Non-Banking Financial Company (NBFC) that has the principal object of borrowing and lending money between its members. This Mutual Benefit Company needs to file little annual compliance and it is famously known as Nidhi Company Compliances. The legal compliances associated with Nidhi Company are prescribed in Nidhi Rules 2014 and the Companies Act 2013. The present article briefs the Compliance Requirements under Nidhi Companies Ensure seamless Nidhi compliance with IndiaFilings MCA services! [shortcode_81]

Definition of Nidhi Company as per Companies Act, 2013

As per the provisions of Section 406(1) of the Companies Act, 2013, the Nidhi Company is 'A company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only for their mutual benefit.” Nidhi Company is the perfect type of company for those who want to start a business with minimum capital investment.

Nidhi Company Registration in India

Nidhi Company is registered under the provisions prescribed in the Companies Act, 2013^.The only objective of forming a Nidhi Company is to cultivate the habit of thrift and savings amongst its members. The minimum capital requirement to start a Nidhi Company is Rs.10 lakh (Increased via Nidhi (Amendment) Rules, 2022. Since Nidhi Company is registered as a Public Limited Company and must have “Nidhi Limited” as the last words of its name. For more details on Nidhi Company Registration in India, click here

Compliances of a Nidhi Company

Compliance Requirements under Nidhi Companies are divided into three parts:

First is pre-incorporation Compliances,
The second is Post –Incorporation compliance
The third is Event-based Compliances.

Pre-Incorporation compliances of Nidhi Company

Every Nidhi Company has to follow some mandatory compliance to obtain Nidhi Company Registration. The necessary compliances to be followed are mentioned below:

A minimum of seven members is needed to start a Nidhi Company, out of which three members must be the Directors of the Company.
~~The company must have the suffix “Nidhi Limited” in its name and the company must be a Public Company.~~
Minor, Body Corporate and a Trust cannot be admitted as members of Nidhi.
The minimum paid-up share capital must be Rs. 5 lakh.
Nidhi Company cannot open branches if it has not earned any profit after tax for consecutive three financial years.
The rate of interest on the loan shall not exceed 7.5% above the highest rate of interest offered on deposits.
The company cannot issue preference shares, in the case where such shares have been issued by the company before the commencement of the Act, the same shall be redeemed.
The primary objective of the company must be to inculcate the habit of savings in its members.

Latest MCA Update (16th July 2024): As per this MCA notification, the Nidhi Rules, 2014 now state that a company cannot use "Nidhi Limited" in its name unless the Central Government officially declares it a Nidhi or Mutual Benefit Society in the Official Gazette under section 406 of the Act. In the Nidhi Rules, 2014, in rule 4 (5), the following proviso will be inserted “Provided that a company shall not use the words “Nidhi Limited” in its name unless it is declared as such under sub-section (1) of section 406 of the Act.”. The existing provision is "Every Company incorporated as a “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name."

Post –Incorporation Compliances of Nidhi Company

Post Incorporation of Nidhi Company compliance is divided into two:

General Compliance
Annual Compliance

General Compliance

Within one year of incorporation, a Nidhi company must satisfy the following conditions:

The number of members should increase to at least 200 within one year of its incorporation.
The Net owned funds must be Rs. 20 lakhs (Modified via Nidhi (Amendment) Rules, 2022
The net owned funds and the deposits shall be in a ratio not exceeding 1: 20 that is Net Owned Funds: Deposits = 1:20.
Unencumbered term deposits should be not less than 10 % of the outstanding deposits as specified in Rule 14 of Nidhi Rules 2014.
The Nidhi Company needs to Maintain Books of Accounts, the statutory Registers.
The Nidhi Company needs to Convene Statutory Meetings.

Note: Net owned funds are the aggregate of paid-up capital and free reserves reduced by the accumulated and intangible assets as appearing in the last balance sheet

Annual Compliance of a Nidhi Company

Annual compliance is followed to keep the Government updated on the activities and functional divisions of the company. Nidhi Companies must follow the annual compliances mentioned below:

Form No	Compliance	Due Date
Form NDH-1 Return of Statutory Compliance	Form NDH-1 contains all the details regarding members, deposits, loans, reserves, etc. for the full financial year e-Form GNL-2 is used for submission of the documents with the Registrar.	Within 90 days from the close of the financial year along with fees.
Form NDH-2 Application for Extension of Time.	This form is filled in case : The company fails to add at least 200 members within one year of incorporation. Failure to maintain the Net owned Fund to deposit ratio of 1:20	NDH-2 must be filed with the Regional Director within 30 days from the closure of the financial year along with the prescribed fees.
Form NDH 3Half-yearly return	Form NDH 3to be filed with the ROC (Registrar of Companies).	Within 30 days from the conclusion of half a year. It must be duly certified by a practicing professional.
Form NDH -4	For filing an application for a declaration as Nidhi Company and updating of status	For New Nidhi Company - Within 120 days after the expiry of 1 year from the date of its incorporation For existing Nidhi Company - Within 1 year from its date of incorporation OR within 6 months from the date of commencement of Nidhi Rules 2019, whichever is later
Form AOC-4	For filing financial documents and other supporting documents to the Registrar of Companies.	Within 30 days of the annual general meeting.
ITR-6	Income Tax Return	By 30^th September
Form MGT-7	Annual Return	Within 60 days of the Annual General Meeting.

Penalties for Non-Compliance

Timely filing of compliances is mandatory for every Nidhi company. Non- Compliance attracts penalties for the Nidhi Companies.

If the company does not meet the compliance, the organization and the concerned officers will be fined an amount up to Rs. 5,000.
In the case of continuation of infringement, the company will be charged a further fine of Rs.500 per day.

Hence it is important to hire professionals to help in the compliance procedures.

Event-Based Compliances of a Nidhi Company

Generally, event-based compliances are required to file only once during the company registration process. Furthermore, these compliances must be followed when there is any change also in the Nidhi company’s structure which is non-periodical. Below is the list of event-based compliances:

Any change in the company’s name.
Change in Registered office address.
Appointment or Resignation or Removal of Director.
Appointment or Resignation or Removal of Auditor.
Any amendment in the company’s objective.
Transfer of shares.
Increase in the authorized capital of the company.
Appointment of the Key Managerial Personnel.
Any other changes that are event-based.

New Compliance Rules for Nidhi Companies

MCA tightens compliance rules for Nidhi companies vide the Nidhi (Amendment) Rules, 2022

Any public company incorporated as Nidhi with a share capital of Rs 10 lakh will have to submit an NDH-4 form and apply with the central government to be notified as a Nidhi company within 120 days of its incorporation.
The company needs to have at least 200 members and should have a net-owned fund (NOF) of Rs 20 lakh.
Nidhi Company to obtain consent from the central government to operate within 14 months from their incorporation.
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.

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