Nidhi (Amendment) Rules, 2022
Nidhi (Amendment) Rules, 2022
The Ministry of Corporate Affairs, vide notification dated 19th April 2022, amended the Nidhi Rules, 2014. Notably, the Nidhi (Amendment) Rules, 2022 make prior declaration from the Central Government mandatory, before accepting the deposits for public companies who are desirous to function as Nidhi’s.
Important amendments carried out via the Nidhi (Amendment) Rules, 2022 are explained briefly in the present article.
Restrictions on raising deposits or provision of loan and contravention thereof [insertion of fourth, fifth and sixth proviso to rule 3A] –
As per the fourth proviso, the company shall not be allowed to raise deposits from its members/ provide any loan to its members if –
- The company fails to comply with the requirement of rule 3A; or
- The company fails to comply with requirements of the Nidhi (Amendment) Rules, 2022; or
- Application in Form NDH-4 submitted by the company is rejected by the Central Government.
As per the fifth proviso, in case the company has raised any deposit it shall be deemed that the same is raised in pursuance of Chapter V of the Act.
The sixth proviso states that provisions of rule 3A will not apply to the companies who are incorporated as Nidhi on or after the commencement of the Nidhi (Amendment) Rules, 2022.
Filing of a declaration as a Nidhi by the public company [insertion of rule 3B] –
According to newly inserted rule 3B, the public company desirous to be declared as a Nidhi needs to carry out the following steps –
- Apply in Form NDH-4 within a period of 120 days of its incorporation;
- Satisfy the following conditions –
- The company should have a minimum of 200 members; and
- The Company should have Net Owned Funds of INR 20 Lakhs or more.
- Attach declaration along with Form NDH-4 regarding fulfillment of ‘Fit and proper Person’ criteria (explained below) by all the directors and promoters of the company.
‘Fit and proper Person’ criteria –
The following shall be taken into account for determining the ‘Fit and proper Person’ criteria in respect of the directors and the promoters –
- Reputation, integrity, ethical behavior, character, fairness and honesty of the person; and
- The person should not be fall under any of the following disqualifications –
- Any criminal complaint/ information, under section 154 of the Code of Criminal Procedure, is filed and pending against such person by the person authorized by the Central Government; or
- A charge sheet is filed and pending against such person by any enforcement agency in any matter relating to economic offences; or
- An order of restraint/ prohibition/ debarment is passed against such person by any regulatory authority/ enforcement agency in any matter relating to company law or securities law or financial markets; or
- An order of conviction is passed against such a person by a court for an offence relating to moral turpitude; or
- The person is declared insolvent and not yet discharged; or
- The court of competent jurisdiction has found the person to be of unsound mind and such finding is still in force; or
- The person is categorized as a willful defaulter; or
- The person is declared as a fugitive economic offender; or
- The person is the director in five or more companies or the person is the promoter of three or more companies that are incorporated or declared as Nidhi.
Processing of application filed in Form NDH-4 –
Once the public company files the application in Form NDH-4, the same will be processed as under –
- The Central Government will go through and examine the application;
- The Central Government will convey the decision, about accepting or rejecting the application, within a period of 45 days to the company. Notably, if the decision is not conveyed within 45 days, it will be deemed that the application is approved;
- On approving the application, the company needs to file the approving decision of the Central Government along with Form 20A with the Registrar;
- The Central Government, on being satisfied, will notify in the official Gazette declaring the company as a Nidhi or Mutual Benefit Society.
It is important to note that provisions of rule 3B will not be applicable to the public company which are incorporated before the commencement of the Nidhi (Amendment) Rules, 2022.
Closing of the branch by Nidhi [substitution of rule 10(6)] –
The provisions of sub-rule (6) to rule 10 dealing with the closing of the branch are entirely substituted. The new provisions are stated as under –
- Conditions to be satisfied before the closing of the branch by Nidhi –
- The Board, in its meeting, should have approved the proposal of closure of the branch. Further, the board should also have approved the action plan with regard to paying off the existing deposits and recovery of the existing loan; and
- The company has applied in Form NDH-2 and has obtained prior approval from the Regional Director at least 60 days before the closure of the branch.
- Actions to be undertaken by Nidhi after obtaining approval from the Regional Director –
- Inform the public about the closure by way of publishing an advertisement in format NDH-5 in a newspaper in vernacular language at least 30 days before the closure of the branch;
- Affix either copy of the closure advertisement or notice informing closure of the branch on the notice board of the branch and Nidhi. This is to be done for a period of at least 30 days from the date of publication of the advertisement;
- Give intimation along with fees to the Registrar in Form NDH-2 within a period of 30 days of such closure.
Miscellaneous amendments –
- Definition of the term ‘Branch’ [insertion of clause (aa) to rule 3(1)] –
Accordingly, the term ‘Branch’ means any place other than the registered office of Nidhi.
- Increase in the amount of minimum paid up equity share capital [amendment in rule 4(1)(a)] –
The requirement, for the Nidhi, of minimum paid up equity share capital is increased from INR 5 Lakhs to INR 10 Lakhs.
Notably, in the case of already existing Nidhi, the above requirement is to be complied within a period of 18 months.
- Increase in the amount of Net Owned Fund [amendment in rule 9] –
The requirement, for the Nidhi, to maintain Net Owned Fund is increased from INR 10 Lakhs to INR 20 Lakhs.
Notably, in the case of already existing Nidhi, the above requirement is to be complied within a period of 18 months.
- Declaration of dividend [entire rule 18 substituted] –
As per new rule 18, a Nidhi can declare a dividend maximum of up to 25% in a Financial Year. Notably, some of the conditions for declaring the dividend is omitted.
