New Delhi: In a major decision to protect the general public and small-time depositors from being defrauded by unscrupulous Nidhi Companies, the Centre government has amended the rules, making it mandatory for Nidhi companies to get a declaration from the Ministry of Corporate Affairs before accepting the deposits from the general public. The amendment, which was announced on Wednesday, will be deemed to have come into effect from August 2019 as the government has amended the Nidhi Rules 2014 with a retrospective effect.
Rules provide that Public Companies desirous to function as Nidhi companies must obtain a prior declaration from the Central government before accepting deposits Under the Companies Act, 1956, a Nidhi or Mutual Benefit Society meant a company that the Central government declared as Nidhi or Mutual Benefit Society by notification in the official gazette. However, under the Companies Act, 2013, initially there was no need for a company to get a declaration from the Central government to function as a Nidhi Company.
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According to officials, such companies were required to only incorporate as a Nidhi Company and meet requirements under sub-rule (1) of rule 5 of Nidhi Rules. These rules require a minimum membership of 200, Net Owned Fund (NOF) of Rs 10 lakh, NOF to deposit ratio of 1:20 and keeping 10% unencumbered deposits in scheduled commercial banks or post offices within one year of commencement of Nidhi Rules, 2014.
Given the potential of cheating and fraud with depositors by offering the membership of dubious Nidhi companies, the government constituted a committee that recommended an amendment in Section 406 of the Companies Act of 2013, making it compulsory for Nidhi companies to get a declaration from the Central government before they can accept deposits.
After the amendments, companies incorporated as Nidhi Companies are required to apply to the Central government in a specific form, the Form NDH-4, for declaration within 14 months of incorporation, after the Nidhi (Amendment) Rules came into being in retrospectively from August 15, 2019. Under the amended rules, these companies are required to take a declaration from the Centre if they were incorporated as a Nidhi Company between 2014 and August 15, 2019.
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Officials said under the Companies Act of 1956, only about 390 companies were declared as Nidhi Companies. According to official data, more than 10,000 companies were incorporated from 2014 to 2019, but less than one-fourth of them (2,300 companies) have applied in Form NDH-4 for getting the Central government’s certificate. It has been noticed from the examination of Form NDH-4 that companies have not been complying with the applicable provisions of the Act and the Nidhi Rules, 2014 (as amended). “To safeguard the interests of the general public, it has become imperative that before becoming its member, one must ensure declaration of a company as a Nidhi by the Central government,” said the Ministry of Corporate Affairs.
New rules for Nidhi companies
The ministry said several rules have been amended, which apply to the companies to be incorporated after Nidhi (amendment) Rule, 2022. The new rule says a public company incorporated as a Nidhi Company with a share capital of Rs 10 lakhs need to first get itself declared as a Nidhi by the Central government. The company must have a minimum membership of 200 and NOF of Rs 20 lakhs within 120 days of its incorporation.
The promoters and directors of the company have to meet the criteria of fit and proper person as laid down in the rules. For timely disposal, it has also been provided in amended rules that in case no decision is conveyed by the Central government within 45 days of the receipt of applications filed by companies in Form NDH-4, approval would be deemed as granted. This would apply to such companies, which shall be incorporated after Nidhi (Amendment) Rules, 2022.
