Nidhi company compliances - Corpbiz Advisors

1. Nidhi Company Nidhi Company Compliances December 10, 2019 Authored by: Corpbiz

2. N NIDHI IDHI C COMPANY OMPANY C COMPLIANCE OMPLIANCE, ,(2014) (2014) “Nidhias the Hindi word denotes “sampatti” is a type of public company which may be incorporated with an exclusive object of cultivating the habit of thrift and savings amongst its members, deposits from, and lending to, its members only, for their mutual benefit.. The basic function of a Nidhi is to promote the savings and utilization of funds by its members and to safeguard the financial conditions of its members. Introduction A Nidhi Company is a kind of financial company. Nidhi Companies are formed to borrow and lend money to its members. It is dependent on the principle of mutual benefit and instils the habit of saving among its members. These companies are more operative in the southern part of India. Nidhi Companies do not need to register for a license from Reserve Bank of India (RBI). However, they have to be registered as a public company and their names should end with ‘Nidhi Limited’.A Nidhi Company works through its members. Any person who is a member of a Nidhi can make deposits and borrow or take loans when need be. Nidhi Company | 12/10/2019 A Nidhi must be – ▪A company, ▪Incorporated as a Nidhi, 1

3. ▪With the object of cultivating the habit of thrift and saving amongst its members, ▪Receiving deposit from and lending to its members only, ▪For their mutual benefit, ▪Complies with such rules. Objective Nidhi is Public Limited Company formulated with the primary object to carry on the business of accepting deposits and lending money to member-borrowers only against jewels, mortgage of immovable property and fixed deposit receipts. Nidhi’s are not permitted to engage themselves in the business of Chit Fund, hire purchase, insurance or in any other business including investments in shares or debentures. Thus, Nidhi’s do their business only with Members. Such Members are only individuals. Bodies Corporate or Trusts are never to be admitted as Members. The Nidhi’s cater to the needs of middle class and lower middle class persons, who are all the members of the Nidhi generally operate in a small local area and the members, are very often known to each other. Requirements for Nidhi Company ▪A Nidhi company to be incorporated under this Act shall be a Public Company; ▪It shall have a minimum paid up equity share capital of Rs.5,00,000/-; ▪No preference shares shall be issued. ▪If preference shares had already been issued by a Nidhi Company before commencement of this Act, such preference shares are to be redeemed in accordance with the terms of issue of such shares; Nidhi Company | 12/10/2019 ▪The object of the company shall be cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to its members only for their mutual benefits; ▪It shall have the words ‘Nidhi Limited’ as part of its name; 2

4. Compliances with rule 5 Rule 5 (1), provides that every Nidhi Company shall, within a period of one year from the date of commencement of these rules, ensure that it has complied with the requirements of a Nidhi Company. The amendment changed the rule 5(1) which reads after amendment, as every Nidhi Company shall within a period of one year from the date of its incorporation; ensure that it has complied the entire requirement for a Nidhi Company. Explanation; In simple words, we can say that Nidhi Company has to comply with all the requirements for Nidhi Company within the period of 1 year from its date of incorporation. Requirements Like; ▪not less than two hundred members ▪Net Owned Funds of ten lakh rupees or more; ▪Unencumbered term deposits of not less than ten per cent of the outstanding deposits as specified in rule 14; and ▪Ratio of Net Owned Funds to deposits of not more than 1:20. Rule 5(2), provides that if Nidhi is not complying with the requirements, it shall within thirty days from the close of the financial year, apply to the Regional Director in Form NDH- 2, along with fee specified in companies (Registration office and Fee )Rules, 2014 for extension of time and the Regional Director may consider the application and pass the order within thirty days of receipt of the application. The amendment inserted a proviso to rule 5(3), which provide that the Regional Director may extend the period to one year from the date of receipt of application. Nidhi Company | 12/10/2019 Explanation In Simple Words Rule 5(2) cast a duty on Nidhi that within ninety days from the close of the first financial year after its incorporation and where applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form NDH – 1 with the Registrar duly certified 3

5. by a company secretary in practice or a chartered accountant in practice or a cost accountant in practice. Rule 5 (4), the amendment provides that if the failure to comply with the rule 5(1) extends beyond the second Financial Year till it complies with the provision contained Rule 5(1) and gets itself declared under section 406(1) of the act, besides being liable for penal consequences as provided in the act. Explanation Rule 5(4) mandate that Nidhi shall not accept any further deposits from the commencement of the second financial year till it complies with the provisions contained in sub-rule (1), besides being liable for penal consequences as provided in the Act. Compliances Regarding New Branches ▪Pre – Incorporation Compliances ▪Post Incorporation Compliances Pre-incorporation compliances of Nidhi Companies Pre-incorporation, as the name suggests, is the compliance which is mandatory for every Nidhi Company to follow after the registration. There are certain requirements that applicants must fulfill for obtaining Nidhi Company Registration. The requirements are as follows: ▪There should be a minimum of 3 Directors and 7 Shareholders for registering your firm as a Nidhi Company, and Nidhi Company | 12/10/2019 ▪You must have a minimum paid up share capital of Rs. 5 lakhs. Post-incorporation compliances of Nidhi Companies Post-compliances of Nidhi Company further divides into two categories: 1.Generic compliances, and 4

6. 2.Annual compliances. Generic compliances Generally, these compliances are the one that every Nidhi Company needs to follow after the incorporation has been registered as Nidhi Company. Under this compliance, you have to ensure the following within a year of Nidhi Company registration: ▪A minimum number of members or shareholders should increase to 200 within 1 year of incorporation; ▪The net owned fund of the company should be Rs. 10 lakhs or more. (The Net Owned Fund is the sum of paid-up equity share capital and free reserved as reduced by the stored and intangible assets appearing in the last audited balance sheet); ▪The unencumbered deposits should be equal to or more than 10% of the outstanding deposits as specified in Rule 14 of Nidhi Rules, 2014. ▪The ratio of net owned funds to the deposit must not be more than 1:20. Unencumbered term Deposits Unencumbered Term; Under Rule 14 of the Nidhi Rules, 2014, every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a scheduled commercial bank (other than a co-operative bank or a regional rural bank), or post office deposits in its own name an amount which shall not be less than ten per cent of the deposits outstanding at the close of business on the last working day Nidhi Company | 12/10/2019 of the second preceding month. Furthermore, in cases of unforeseen commitments, temporary withdrawal may be permitted with the prior approval of the Regional Director for the purpose of repayment to depositors, subject to such conditions and time limit which may be specified by the Regional Director to ensure restoration of the prescribed limit of ten per cent 5

7. Requirements W.R.T Deposits And Loans As mentioned above, the objective of a Nidhi company is to take deposits and provide loans to its members. The Ministry of Corporate Affairs (“MCA”) being the regulator of Nidhi companies has regulated the norms for taking deposits and providing loans which are as follows: Deposits The Nidhi Company shall be allowed to accept deposits with the following timelines: 1.Fixed deposits- 6 to 60 months 2.Recurring deposits- 12-60 months Recurring deposits relating to mortgage loans- Maximum period shall • correspond to the repayment period of loans granted. Interest rate on deposits 1.Savings Account- Maximum 2% above the rate allowed by nationalized banks 2.Fixed and Recurring deposits- At par with the RBI rate Loans A Nidhi company can provide loan to its members as per the following ceiling limits: 1.Where total amount of deposits from its members is less than Rs. 2 Cr- can grant Loan of Rs. 2 lakhs 2.Where total amount of deposits from its members is more than Rs. 2 Cr but less than Rs. 20 Cr- can grant Loan of Rs. 7.50 lakhs 3.Where total amount of deposits from its members is more than 20 Cr but less than Rs. 50 Cr- can grant Loan of Rs. 12 lakhs 4.Where total amount of deposits from its members is more than Rs. 50 Cr- can Nidhi Company | 12/10/2019 grant Loan of Rs. 15 lakhs Interest rates of loans The interest charged on any loan given by a Nidhi company shall not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method. 6

8. Compliances with Filing Form NHD- 1 Return of Statutory Compliances As per the Nidhi Companies Rules, Nidhi Companies shall have at least 200 members within one year of incorporation. Nidhi Company shall file NDH 1 within 90 days from closure of financial year. Compliances with Filing Form NHD- 2 For Extension Within 30 days from the close of the first financial year, apply to the Regional Director along with fee specified in Companies (Registration Offices and Fees) Rules, 2014 for extension of time and the Regional Director may consider the application and pass orders within thirty days of receipt of the application. Regional director may extend the time unto 1 One year. E-Form RD-1 Applications made to Regional Director. Compliances with Filing Form NHD- 3 For Half Yearly Within 30 days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice or cost accountant in practice. E-Form GNL-2 Form for submission of documents with the Registrar. Compliances with Filing Form NHD- 4 NDH – 4 is the recently introduced compliance form under Nidhi (amendment) rules, Nidhi Company | 12/10/2019 2019. The form has been introduced by the government to make sure that every Nidhi Company must declare itself that it has been complying with all the prescribed rules and regulations to the government. 7

9. Due date for Filing NHD-4 For Every New Nidhi Company; withinsixty days after the expiry of one expiry of one year from the date of its incorporation For Every Existing Company; within a period of every year from its date of incorporation or within the period of six months from the date of commencement of Nidhi rules 2019, whichever is later. Compliance regarding opening new branch Rule 10 of companies (Nidhi Companies)Rule,2014 deals with the opening of new branches by Nidhi Company. Provisions A Nidhi Company can open 3 branches after three profitable years of Company. Good track record required An existing Nidhi company can open a new branch only if it has earned net profits after tax continuously during the preceding three financial years. Maximum branches allowed Nidhi Company may open up to three branches within the district. To open a branch outside the district prior approval from regional director is required. Branches can be open only if; ▪It has earned profits in previous three years continuously. Nidhi Company | 12/10/2019 ▪It can open branches in its district only. ▪It can open maximum three branches. ▪It cannot open any branch outside the district without prior approval. ▪It cannot open any branch outside the State. 8

10. Branches Outside State Nidhi Company shall not open any collection center, office or deposit center outside the state of company’s registered office. Closure of any Branch Nidhi Company shall not close any of its branches until it complies with the necessary conditions: a.Advertisement in Newspaper: Nidhi Company will have to publish a advertisement in the newspaper in a place where it carries on business atleast 30 days prior to such closure. b.Publish on Board: fixes a copy of such advertisement or a notice informing such closure of the branch on the notice board of Nidhi for a period of at least thirty days from the date on which advertisement was published. c.Intimation to ROC: Nidhi Company must give intimation to the registrar within thirty days of closure. General Restrictions or Prohibitions. No Nidhi shall: (a) Carry on the business of chit fund, hire purchase/leasing finance, insurance or acquisition of securities issued by anybody corporate; (b) Issue preference shares, debentures or any other debt instrument by any name or in any form; (c) Open any current account with its members; (d) Acquire another company by purchase of securities or control the composition of the Board of Directors, etc. (e) Carry on any business other than the business of borrowing or lending ; (f) Accept deposits from or lend to any person, other than its members; (g) Pledge any of the assets lodged by its members as security; (h) Take deposits from or lend money to anybody corporate; (i) Enter into any partnership arrangement in its borrowing or lending activities; (j) Issue or cause to be issued any advertisement in any form for soliciting deposit, (k) Pay any brokerage or incentive for mobilizing deposits from members. Nidhi Company | 12/10/2019 Phone No.- 9121230280 , Email - info@corpbiz.io, website - https://corpbiz.io/ 9