Government Tightens Nidhi Companies’ Compliance Norms

The Ministry of Corporate Affairs vides its notification dated 19th April 2022, has published the Nidhi (Amendment) Rules, 2022 to further amend the Nidhi Rules, 2014. To protect the interests of the public and prevent possible illegal fundraising activities, the Government Tightens Nidhi Companies’ Compliance Norms. New Rules provide that Public Companies desirous to function as Nidhi must obtain a prior declaration from the Central Government before accepting deposits. Nidhi (Amendment) Rules, 2022 shall come into force on the date of its publication in the Official Gazette i.e., 19th April 2022. For more details on Nidhi Amendment Rules 2019, click here

Synopsis of Nidhi (Amendment) Rules, 2022

According to the Nidhi (Amendment) Rules, 2022, a public company desirous to be declared as a Nidhi shall apply, in Form NDH-4, within a period of 120 days of its incorporation for declaration as Nidhi on fulfilling certain conditions.
Amended rules prohibit the non-compliant Nidhi companies to raise any deposit from its members or provide any loans to them.
The Net Owned Funds requirement is raised to Rs. 20 lakh earlier the requirement was Rs 10 lakhs.

Nidhi company

A Nidhi company is a non-banking financial company. The core business of Nidhi companies is borrowing and lending money between their members. Know more about the Nidhi Company Registration

Insertion of Rule 3(1)(aa) – Definitions of a branch of Nidhi

Nidhi (Amendment) Rules, 2022 has inserted new Rule 3(1)(aa) which states that “Branch? means a place other than the registered office of Nidhi” Prior to this amendment, there was confusion amongst the stakeholders that whether the registered office of the Company shall be considered as a branch of Nidhi or not as there are few restrictions and conditions regarding the opening of branches by Nidhi under Rule 10. However, this amendment has made a clear distinction between the registered office of the Company and Branches.

Amendment in Rule 3A – Restrictions on Raising deposits

Rule 3A was inserted in the Nidhi Rules vide Nidhi (Amendment) Rules 2019 which came into force with effect on 15th August 2019. Nidhi (Amendment) Rules 2019 mandates Nidhi Companies to file form NDH-4 to declare itself as a Nidhi Company. It was also provided that in case a company does not comply with the requirements of this rule, it shall not be allowed to file Form SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of Allotment). Further extending the restrictions, the MCA has now inserted the 4^th and 5^th provisos in this regard. According to the fourth proviso, the following companies shall not be allowed to raise any deposit from its members or provide any loan to its members.

A company that has not complied with the requirements of this rule,
A company that fails to comply with such requirement on or after the commencement of the Nidhi (Amendment) Rules, 2022,
In case the application submitted by the company in Form NDH-4 is or has been rejected by the Central Government

According to the fifth proviso, if any company raises deposits in contravention of the fourth proviso, the same shall be deemed to have been raised in pursuance of Chapter V (Acceptance of Deposits by Companies) of the Act and shall be subject to all the requirements under that Chapter, or under any other provisions of the Act or the rules made thereunder.

Insertion of new rule 3B - Declaration as a Nidhi Company

As per the Nidhi (Amendment) Rules, 2022 a new rule 3-B has been inserted as follows: On and after commencement of Nidhi (Amendment) Rules, 2022, a public company desirous to be declared as a Nidhi shall apply, in Form NDH-4, within a period of 120 days of its incorporation for declaration as Nidhi, if it fulfills the following conditions:

It has not less than 200 members; and
It has Net owned Funds of twenty lakh rupees or more.

The company shall also attach, along with Form NDH-4, the declaration with regard to the fulfillment of fit and proper person criteria, by all the promoters and directors of the company. The Central Government, shall examine the application filed in Form NDH-4 and convey its decision within a period of 45 days to the company. A Nidhi company to be incorporated under rule 4, shall be a public company and shall have a minimum paid-up equity share capital of ten lakh rupees. Provided that every Nidhi existing as on the date of commencement of the Nidhi Amendment Rules,2022, shall comply with this requirement within a period of eighteen months from the date of such commencement.

Amendments in rule 6 - Restrictions on Nidhi Companies

Further, under rule 6 (d), No Nidhi shall, acquire or purchase securities of any other company or control the composition of the Board of Directors of any other company in any manner whatsoever or enter into any arrangement for the change of its management. Under rule 6(k)(1) No Nidhi shall raise loans from banks or financial institutions or any other source for the purpose of advancing loans to members of Nidhi.

Amendment in Rule 9 - Net owned funds

As per the amended rule 9, Every Nidhi shall maintain Net Owned Funds (excluding the proceeds of any preference share capital) of not less than 20 lakh rupees or such a higher amount. Note: Every Nidhi existing as on the date of commencement of the Nidhi (Amendment) Rules,2022 shall comply with this requirement within a period of eighteen months from the date of such commencement. Click here to get the official Notification of MCA pertaining to the Nidhi (Amendment) Rules, 2022